Good afternoon, and welcome to Enphase Energy's Q3 2023 financial results conference call. All participants will be in a listen-only mode, and should you need any 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 your telephone keypad. To remove yourself from the queue, please press Star, then two. In addition, we ask that you please limit yourself to one question and one follow-up on today's call. If you have additional questions, you may rejoin the queue. Please also note that this event is being recorded today. I would now like to turn the conference over to Zach Freedman. Please go ahead, sir. Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's Q3 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 Q3 ended September 30, 2023. During this conference call, Enphase management will make forward-looking statements, including but not limited to statements related to our expected future financial performance, market trends, the capabilities of our technology and products, and the benefits to homeowners and installers, our operations, including manufacturing, customer service, and supply and demand, anticipated growth in existing and new markets, the timing of new product introductions, and regulatory and tax matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations. Also, please note that financial measures used on this call are expressed on a non-GAAP basis, unless otherwise noted, and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K, which can also be found in the Investor Relations section of our website. Now I'd like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri? Good afternoon, and thanks for joining us today to discuss our Q3 2023 financial results. We reported quarterly revenue of $551.1 million, shipped approximately 3.9 million microinverters and 86 megawatt-hours of batteries, and generated free cash flow of $122 million. Approximately 86% of our Q3 microinverter shipments were IQ8. We exited the Q3 at 48% gross margin, 18% operating expense, and 30% operating income, all as a percentage of revenue on a non-GAAP basis and including the IRA benefit. Mandy will go into our financials later in the call. Let's now discuss how we are servicing customers. Our worldwide NPS was 77% in Q3, compared to 74% in Q2. Our NPS in North America was 78%, compared to 77% in Q2. Our average call wait time was 1.3 minutes, compared to 1.1 minutes in Q2. We made significant progress on root cause fixes of some customer issues and expanded our field service teams globally. Let's talk about operations. In general, the overall supply environment for microinverters and batteries is quite stable right now. Let's cover microinverters, specifically U.S. manufacturing. We began manufacturing at Salcomp's facility in Arlington, Texas, during the Q3. We shipped approximately 531,000 microinverters to customers in Q3 from our three contract manufacturers in the U.S.: Flex in South Carolina, Foxconn in Wisconsin, and Salcomp in Texas. We expect to ship approximately 1 million microinverters to customers from our U.S. manufacturing facilities in Q4. Let's talk about batteries. For IQ batteries, we have two cell pack suppliers, both of which are in China. We have a manufacturing capacity of 300 MWh per quarter, positioning us well to ramp up in 2024. We are looking at bringing manufacturing of IQ batteries into the U.S. by the middle of 2024. Let's now cover the regions. Our U.S. and international revenue mix for Q3 was 64% and 36%, respectively. In the U.S., our revenue decreased 16% sequentially and 22% year-on-year. The overall sell-through of our microinverters was down 12% in Q3 compared to Q2. On the other hand, the sell-through of our IQ batteries in the U.S. was up by 34% in Q3 compared to Q2. In Europe, our revenue decreased 34% sequentially and increased 26% year-on-year at healthy gross margin. The sell-through of our microinverters in Europe was also down 35% in Q3 compared to Q2. The sell-through of our IQ batteries in Europe was down by 14% in Q3 compared to Q2. We are now shipping IQ microinverters and batteries into many countries in Europe. We recently entered U.K., Sweden, Denmark and Greece markets with both IQ8 microinverters and IQ batteries. Combined, these new markets represent more than 1.5 gigawatts of residential solar opportunity, with countries like the U.K. having a healthy battery attach rate of 30%. I'll provide some brief commentary on Australia. Our revenue in Australia more than doubled year-on-year. We are quite pleased with the launch of our Enphase Energy System. It is state-of-the-art, powered by IQ8 microinverters, plus our third-generation battery. Let me comment on rest of the world. In Brazil, we launched our IQ8P microinverters, 480 watts AC, the highest power microinverters that we have. We also launched the Solargraf software platform and have good feedback from installers there. In addition, we started shipping both the 384 watts IQ8HC and the 480 watts IQ8P microinverters into India to support high-powered solar panels. Let's now talk about Q4 guidance. We are guiding revenue for Q4 in the range of $300 million-$350 million. This reflects approximately $150 million of channel inventory correction in the U.S. and Europe. In other words, we are undershipping to the end market demand for our products by approximately $150 million. We anticipate undershipment will continue in Q1 and expect our channel inventory to normalize in Q2. Of course, we are conservative and are assuming the demand picture is unchanged from the current level. So what has changed since 90 days ago, when we told you that the inventory levels would normalize by the end of Q3? We have seen a substantial demand reduction in Europe. We've also seen the U.S. market continue to fall, driven by California. When the demand falls, we think more decisive inventory correction becomes necessary. We are being conservative in our assumptions of no demand recovery until Q2 in this framework, so that explains the guidance. Despite the large reduction in Q4 guidance, we are maintaining our non-GAAP gross margin above 40% in our guidance without the IRA benefit. We aren't making any broad-based pricing changes at this time on microinverters, and we have already made the necessary changes on batteries before. Our pricing and operations team are doing an excellent job of managing pricing and reducing costs. Let's discuss some market trends. I'll give you a little more than usual color on markets. Let's split the U.S. market by non-California states and California. For non-California states, the sell-through of our microinverters was 4% lesser in Q3 compared to Q2. We see this business starting to stabilize given the weekly sell-through trends. In California, the sell-through of our microinverters was 25% lesser in Q3 compared to Q2 due to the NEM 3.0 transition. It will take a few more quarters for our installers to fully transition to NEM 3.0 and normalize sales to NEM 2.0 levels. Utility rates are continuing to move higher in California, with one California utility recently requesting a 22% rate hike. Assuming that even half of that rate hike is approved by the CPUC, the payback period for an NEM 3.0 solar plus a battery system will become close to an NEM 2.0 solar-only system, so that's good. Let me say a few words about U.S. market share before I give more color on Europe. We see stable share today for our microinverters based on both internal as well as third-party data. Competition is not new for us. We have always relied on our differentiated technology with our distributed AC architecture, product quality, and customer service to win share, and we expect this to continue. We have many tools at our disposal, such as the installer services that, you know, we have bought. We made several acquisitions over time in the last couple of years, such as the software tool for design and proposal, the permitting tools, lead management, et cetera. We have a lot of tools at our disposal to help our installers, and our partnerships go a lot deeper in the downturn. Let's talk about Europe demand a little bit. We are facing two challenges in Europe, and the situation has dramatically changed from the last quarter, from 90 days ago. We saw a much weaker demand recovery from summer. We also see a lot of distributors facing oversupply of solar equipment, particularly panels, leading to much more aggressive destocking. Despite this temporary weakness, we think that the pull back in Europe will be temporary as the-... Fundamentals remain strong, and we are relatively under-penetrated in the U.S. We are entering lots of new geographies with our IQ8 microinverters and batteries, so we remain very bullish about Europe. Let me spend a few minutes discussing our three largest markets in Europe: the Netherlands, France, and Germany, in detail. In the Netherlands, our largest European market, our Q3 sell-through was down 40% compared to Q2. This was our first sequentially down quarter in the last two years. Installers tell us that the customers' fear of an export penalty and confusion around ending of the net metering has caused the market pullback. I was in the Netherlands two weeks ago. I visited with our leading installers. I came away confident that this pullback will be short-lived. We think that the plans for net metering will be clarified after the country's elections in November. The payback period is continuing to be attractive in the Netherlands. In addition, total system solutions, which includes batteries, solar, and EV chargers, are going to become the norm as dynamic tariffs become more prevalent in the Netherlands. We are well-positioned to take advantage of these changes. In France, our Q3 sell-through was down 34% compared to Q2, driven by seasonality. We see potential for this market to rebound very quickly. We are already seeing that as utility rates recently moved higher and are expected to increase even more in early 2024. In Germany, our Q3 sell-through was down 32% compared to Q2. We saw strong sequential growth in installer count and activations, and we are continuing to gain traction there. Let's talk about our new products, IQ Batteries. Our sell-through for batteries has been steadily increasing over the last couple of quarters. We are at an inflection point for our battery business. With our IQ Battery 5P, we can deliver the best power specs and the best commissioning times of any Enphase battery to date, at an industry-leading 15-year warranty and at the right price point. The battery adoption rates are on the rise globally. We are well positioned to grow battery sales throughout 2024, and we are working on entering even more countries in Europe and Asia in the next few months with our IQ Battery 5P. In addition, we expect to introduce our fourth generation battery in the middle of 2024. That will have a much-reduced form factor and a reduced cost structure. As previously discussed, we have entered many new markets with the IQ8 family of microinverters. We plan to enter many more new markets in Europe and Asia in the next several months. Let's talk about our latest microinverter for the residential segment in emerging markets. I did mention this before. This is the IQ8P microinverter, our highest power microinverter till date, 480 watts of AC power. That can support solar panels up to 650 watts DC for Brazil, India, South Africa, Mexico, Spain, and other emerging markets. We have started shipping the product into Brazil, South Africa, and India in Q3, and are on track to start shipping in Mexico and Spain in Q4. The other variant of the IQ8 microinverter, IQ8P microinverter, with a new three-phase cabling system, is well-suited for small commercial solar installations ranging from 20-200 kW. We are doing beta installations as we speak there, and we expect to release the product this quarter into the U.S. market. We are very bullish about the small commercial solar business, where we believe we can add value to our business owners and installers with our quality and good customer experience. Let's cover EV charging. We shipped over 3,500 chargers in Q3, compared to over 6,600 chargers in Q2. We launched our IQ Smart EV chargers in the U.S. just a few days ago, both U.S. and in Canada, actually. The IQ EV charger is Wi-Fi enabled. It includes smart control and smart monitoring capabilities. It seamlessly integrates into our solar and battery systems to help homeowners maximize savings. For example, by directly charging from solar energy only. That's called green charging. We are also working on developing IQ EV chargers for many countries in Europe, and we expect to introduce them in the middle of 2024. Let's now discuss our installer platform briefly. Solargraf, our cloud-based design proposal software platform, now provides NEM 3.0 functionality for solar and battery systems in California. We are now offering 3D and shading features and continue to make progress on our new features and functions. The software platform is now available to installers in U.S., Germany, Austria, and Brazil. We expect to make this software release as part of our standard offering to any country that we enter. Let me conclude. We are managing through a slowdown in our overall demand. In the U.S., it is due to high interest rates and NEM 3.0. In Europe, it is due to broad macroeconomic conditions. Despite this, we are very bullish about our business long term. We see several positive drivers that will accelerate adoption, such as the 30% ITC tax credit in the U.S. Rising utility rates globally, increased grid instability also globally, climate change, and of course, increasing EV adoption worldwide. We have no doubt that these will drive meaningful solar plus battery growth. Our strategy is very clear: We manage for the long term. We are doubling down on our relationships with our customers during these times. We are driving down installation times and investing in our customer service teams. We are also strongly investing in innovation. We are working on IQ 9 and IQ 10, our next two generations of microinverters, as well as the next two generations of batteries. We are also rapidly expanding worldwide with systems comprising of IQ8 microinverters, IQ batteries, IQ EV chargers, and home energy management software. We are introducing products for the small, commercial, and emerging residential solar markets, and we are making continuous enhancements to our installer platform, in addition to driving towards world-class costs on our products. We remain very positive about our future growth and profitability, and will continue to make best-in-class home energy systems with a laser focus on innovation, quality, and customer experience. With that, I will turn the call over to Mandy for her review of our financial results. Mandy? Thanks, Badri, and good afternoon, everyone. I will provide more details related to our Q3 of 2023 financial results, as well as our business outlook for the Q4 of 2023. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q3 was $551.1 million. We shipped approximately 1,585.6 megawatts DC of microinverters and 86.2 megawatt-hours of IQ batteries in the quarter. Non-GAAP gross margin for Q3 was 48.4%, compared to 46.2% in Q2. The increase was driven by increased net IRA benefit. GAAP gross margin was 47.5% for Q3. GAAP and non-GAAP gross margin for Q3 included $14.5 million of net IRA benefit for our microinverters made in the US and shipped to customers in the quarter. Non-GAAP operating expenses were $99 million for Q3, compared to $98.2 million for Q2. We are diligently managing operating expenses and will continue to do so in the coming quarters. GAAP operating expenses were $144 million for Q3, compared to $153 million for Q2. GAAP operating expenses for Q3 included $41.1 million of stock-based compensation expenses and $3.9 million of amortization for acquired intangible assets. On a non-GAAP basis, income from operations for Q3 was $167.6 million, compared to $230.5 million for Q2. On a GAAP basis, income from operations was $118 million for Q3, compared to $117.3 million for Q2. On a non-GAAP basis, net income for Q3 was $141.8 million, compared to $205.6 million for Q2. This resulted in non-GAAP diluted earnings per share of $1.02 for Q3, compared to $1.47 for Q2. GAAP net income for Q3 was $114 million, compared to GAAP net income of $157.2 million for Q2. This resulted in GAAP diluted earnings per share of $0.80 for Q3, compared to $1.09 for Q2. We exited Q3 with a total cash, cash equivalents, and marketable securities balance of $1.78 billion, compared to $1.8 billion at the end of Q2. As part of our $1 billion share repurchase program authorized by our board of directors in July 2023, we repurchased approximately 847,000 shares of Enphase common stock in Q3, at an average share price of $129.92 for $110 million. In addition, we spent approximately $8.5 million by withholding shares to cover withholding taxes for employee stock vesting in Q3. That reduced the diluted shares by approximately 59,800 shares. We expect to continue this anti-dilution plan. In Q3, we generated $145.9 million in cash flow from operations and $122 million in free cash flow. Despite the macroeconomic challenges, we continue to generate healthy free cash flow as a result of our strong financial discipline. Capital expenditure was $23.8 million for Q3, compared to $44 million for Q2. Capital expenditure requirements decreased as we largely completed building out our U.S. manufacturing lines. Now, let's discuss our outlook for the Q4 of 2023. We expected our revenue for Q4 to be within a range of $300 million to 350 million, which includes shipments of 80 to 100 megawatt-hours of IQ batteries. We expect GAAP gross margin to be within a range of 46% to 49% with net IRA benefit, and 38% to 41% before net IRA benefit. We expect non-GAAP gross margin to be within a range of 48% to 41% with net IRA benefit, and 40% to 43% before net IRA benefit. Non-GAAP gross margin excludes stock-based compensation expenses and acquisition-related amortization. We expect the net IRA benefit to be between $26 million and $28 million on estimated shipments of 1 million units of U.S.-manufactured microinverters. We expect our GAAP operating expenses to be within a range of $142 million to 146 million, including approximately $57 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 $85 million to 89 million. We are reducing our non-GAAP operating expenses by 12% in Q4 as compared to Q3, but we will not compromise our investing in customer service, innovation, and sales. 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 22%, ±1% with IRA benefit. We expect the production credit, net of any incremental cost for domestic manufacturing, to be in the range of $26 to 28 per microinverter sold to customers in Q4. We expect to ship 1 million microinverters to customers this quarter. We now have all three of our U.S. manufacturing facilities operational. With that, I will open the line for questions. We will now begin the Q&A session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Again, we ask that you please limit yourself to one question and one follow-up on today's call. If you have additional questions, you may rejoin the queue. At this time, we will take our first question, which will come from Brian Lee with Goldman Sachs. Please go ahead. Hey, guys. Good afternoon. Thanks for taking the questions. You know, I know the environment's pretty uncertain, so appreciate the additional sort of outquarter visibility in some of the market-by-market color, Badri. So can I just ask, as you think about the framework, you know, you said you'd undership in Q1, the way that you're undershipping Q3 and Q4. Can you give us, one, a sense of how much you expect to undership in Q1? And then, you know, you made the comment that this is all contingent upon sort of demand trends staying about where they're at. Well, can you give us a sense of what your internal expectations for demand trends are? It sounds like you don't expect them to get worse, but sort of, can you quantify that a bit? And then I have a follow-up. Yeah. I think there are a few percentage. First, to answer your question is, is the undershipment going to be close to $150 million in Q1? We expect it to be a little bit less than $150 million, but not too much less. That's our expectation. Then second is I will talk about the, you know, markets, and then it'll become clear to you. First of all, we see the non-California state stabilizing. We see that, so therefore, we aren't that much worried there. Of course, things could go a lot south during the winter, but, you know, we are already at pretty low levels, so we don't think so. California is definitely a wild card, but, you know, even if that goes down 10% more, I think we'll be fine because we expect Europe to recover a little more. Europe right now, for all the reasons I said, we basically, you know, are undershipping quite a bit in order to normalize inventory, and that will be the fastest to normalize. So we expect Europe revenue to come back a little bit up in Q1. Therefore, what we expect, at least, you know, what we expect internally is that our revenues, sell-in revenues, we think, will be close to what we are looking at in Q4. Of course, I don't have a crystal ball. I'm not giving you Q1 guidance, but this is our expectation right now. And, Q2 onwards, you know, we think the channel inventory is going to approach normalized levels. And therefore, that normalized level, assuming the demand picture is unchanged, that normal level is what we said, roughly around $450 million-$500 million is the normal, normal level. That assumes no change in demand from the current, current situation. So, we expect our revenue to approach that number in the Q2. But of course, that doesn't tell you too much because I'm assuming that the demand is the same at the current depressed level. One thing which I forgot to say is, in France, which is another very big market for us, we already see the sell-through rates, for example, in the first three weeks of this quarter, are already back up high, which is good. Basically, the utility, there was a utility rate hike in August. There is one more expected in February. So we think France will recover fast. Netherlands, we have some education to do. Like what I told you, you know, there is some political uncertainty there. We think that'll get cleared after Q4. So I think Q1 will be definitely better. And that's a great market, where that market is now, you know, in addition to solar, I think with the dynamic tariff starting to become prevalent in Netherlands, there is opportunity for battery storage in 7 million homes. You know, today, just so that everybody understands, Netherlands, there is 7-8 million homes. Solar is there in 2.2 million homes today. Now with this opportunity, where net metering is going to evolve into something similar to California, not exactly the same, but very similar, what's going to happen is it opens up opportunity for solar plus storage in all 7 million homes. So I think long term is gonna be great for us, but, you know, I told you what's gonna happen in the short term. Yeah, that's great context. Appreciate it. Just a second one here, and I'll pass it on. On the margins, you know, gross margins, non-GAAP, it seems like, you know, you're guiding to low 40s% ex-IRA benefit. How much is that? You know, it's down 200 basis points from what you've been tracking at recently. How much of that is due to pricing? How much due to mix? Maybe, can you give us a sense of the margin puts and takes into year-end? And then do you see anything that would put incremental pressure on the margins into next year? Thank you. Yeah. It's pretty simple, and Brian, you will understand it quickly. You can see our storage business is actually going a little bit up. Our microinverter business is the one that is going a lot down now because of our undershipment. And therefore, you know, if you see, it's a product mix, you know, issue. And microinverters have a little bit more gross margin than storage. And therefore, with this product mix, that's why we have, we have the guidance of non-GAAP gross margin, 40%-43% for the company without IRA. With IRA, non-GAAP gross margin of 48%-51%. So, in terms of pricing, I mean, we are not planning to make any broad-based pricing changes. Of course, the pricing, you know, there is a lot of competition, but, you know, we have seen competition for the last few years since I've been here. We have a very disciplined business process. It's a pricing business process. It's called SPA. Phil Shen likes to talk about it. It's a special pricing adjustment. We have been doing that forever, and it is not new. That's one. And also in these times, you know, of course, underloading, we have to work with our, you know, contract manufacturers to take care of underloading. But in these times, especially when you have multiple suppliers for a particular component, multi-sourcing for a component, this is the opportunity where we can drop costs a lot. Our target, I mean, any good company in these times, we should be able to drop our cost by 10% for a year. We'll be targeting that. We have to talk both equations, pricing and costs. We are quite confident in our gross margins. This is what we do. It is not new. This is what we established when I joined the company, is we have a pricing team that prices based on value. We have a world-class cost team that works on costs, and it's business as usual for us in these environments. All right, thank you. I'll pass it on. Our next question will come from James West with Evercore ISI. Hey, good afternoon, Badri. Hi. Badri, as we're going through this period of destocking and some weakness in certain markets, understanding that you've always faced competition and you have a very value-based pricing strategy, are you seeing any behavior that's, you know, by your competitors that is somewhat irrational? Or is the market overall behaving rationally, understanding that this, we'll get out of this in a few quarters? Well, I'll be lying if I tell you I'm not seeing something irrational. Of course, you know, installers are very stressed, right? They do want to take advantage of the lowest cost available at a given point in time. So therefore, you know, sometimes without understanding, they may want to switch to somebody who's offering low cost. But usually, you know, most of our installers are, you know, they have a lot of experience. They are very well trained now, and they understand the importance of distributed architecture. They understand the importance of single point, no single point of failure. They understand quality. they understand customer service, and therefore, you know, you might save a few, few dollars upfront, but if you have a quality problem, a service call by the installer is a truck roll. You spend a lot of money in one truck roll. And if you just do one more, I mean, that's it. You have no more room there, despite the low cost. So it's a penny-wise, pound-foolish strategy to do that, and they've all realized it. And, you know, if you actually put things in context, let us say the pricing is $3 or $3.50. For what? You look at the inverter bill of materials, probably of the order of 10%. Right. Should you play around there? Should you take a lot of risks there? And it's their call at the end of the day, and many of them are wise to say, "We are not going to make that call." So, I mean, we have a lot of robust discussions. This is the time where we are talking to customers more than ever. We have a lot of other tools at our disposal. For example, Solagraf. We do design and proposal. We can generate leads for installers at very economical rates. We can help them on permitting services, for example, sometimes even free of charge. We have a lot of tools at our disposal to reduce their soft costs, and that's critical because we have to look at everything. You know, we cannot look at component level. We have to look at the full system level in these times. Once you start looking at that and have these discussions, usually it comes back to, you know, we get more market share, not less. More installers want to move to us, not less. You can see some evidence of that in the third-party reports. Okay. Okay, got it. That's very helpful, Badri. Thank you. And just one quick follow-up for me. You mentioned producing IQ batteries in the U.S. by middle of 2024. Did you give a capacity number along with that? No, we have not given. We will provide more details as we come close to that date. Okay, got it. Thanks. Yeah, thank you. Our next question will come from Eric Stine with Craig-Hallum. Please go ahead. Hi, everyone. So just talking about California, I can appreciate talking or thinking about that as a wild card, given what's going on in the market. But if I think about the expectation that that market stays flat, but then the hangover from NEM, you know, which you said has a few quarters here left to work out. I don't wanna put words in your mouth, but, I mean, is it fair to say that there is some cautious optimism about California as we get into the back half of next year? Absolutely, yes. As we get into the back half, absolutely. Meaning, one is the utility rates are continuing to go up. The second is, let us assume the utility rates go up even by half the amount they are advertised. The payback, like what I said, is going to become. I mean, for a solar-plus storage system, is gonna become the same as, almost the same as a solar-only NEM 2.0 system. And, you know, the economics are there actually today. The battery can not only provide resilience, it can help the grid during times of stress in August and September, when the grid needs it the most. So it's a combination of, you know, you get resilience for yourself, you make money by providing grid services, which is incorporated into the utility rates right now, and we are well-positioned to doing that. Why? Because we got great microinverters, number one. We got batteries now that can discharge at very high power, double the power of our earlier batteries. Why is that important? Because during certain hours, you have the utility paying you a lot for exporting power to the grid. And what we can do, because of a high discharge rate, during those times, we can maximize the power. So we can do that. So we have solar plus storage, and of course, we have complete energy management software, and we couple that with our Solagraf design and proposal tool. We have everything, you know, all the optimization at the fingertips of the homeowner. And many times he needs to do nothing. He just needs to turn on our optimization engine. It'll do the right thing for him. We're absolutely very bullish about California towards the second half of 2024. Got it. And maybe just sticking with California for my follow-up, you know, with NEM, you know, is that whole that transition takes place being the biggest factor? I mean, what are some of the other factors that could cause California to be a wild card? What are the things that are maybe top of mind for you that could cause that market to take another leg down? Yeah, this is Raghu. As Badri mentioned, all of the potential tailwinds that are there, remember, in an environment where the demand per home is continuing to go up, people are continuing to electrify, people are buying more and more- EVs, heat pumps, et cetera, and couple that with utility rates where they are, and going further up, this is the right solution. Solar plus battery is the right solution. The energy management software is absolutely the right solution in order to drive your ROI and as well as reduce your payback. And to that end, what we have done as well is a lot of education into the marketplace, in terms of explaining to people, you know, what the benefits of, you know, of solar plus battery system with energy management and et cetera, and going out there and educating the market, as well as providing them with a lot of tools. So in this environment where demand is going up, you have the education, you have the tools, the financials are there, the payback's very good. That's the reason why we are extremely bullish about California coming back strongly. So, you know, to answer the question in another way, the headwinds are, you know, headwinds that we see are if installers, you know, aren't educated by us properly. If we don't do a good job of educating the installers, things can stall out a little bit. So it is important for us and other companies, too, in this space, to make sure the installers, you know, whatever we provide installers, the tools are very easy to use so that they can sit at the kitchen table and look at the homeowner in the eye and say, "Your payback is six years, and here is why your payback is six years," and explain it to them very confidently. It's not just Enphase, it is Enphase, plus our competition, plus all of the energy companies. All of us have to do our job in training the, you know, installers. I think that is, of course, a—that's a piece that is not very easy to do, and you cannot have enough of it. That's the biggest headwind that I see. Okay, thank you. Our next question will come from Colin Rusch with Oppenheimer. Please go ahead. Thanks so much, guys. Can you talk a little bit about how much modulation you can do with the OpEx? You know, as you look at investing in these incremental programs and bringing these products to market, is there some incremental cutting that you can do, or there's gonna be a regular spend increase on the R&D side? No. I mean, we are cutting OpEx by 12% from Q3 to Q4. How are we doing that? You know, we are on a hiring freeze, except for critical positions, for example, in sales and customer service, and to a little bit, you know, on the innovation side there. So basically, that has got a big effect on, you know, bringing down costs. The other one, the other ones are, there are a few professional expenses, like, for example, this is the time where we look at a lot of fat, you know, cutting out a lot of fat in the company. For example, when the companies are doing well, we do hire a lot of contractors. And, you know, we are looking at all of those, and we have taken all the necessary actions to cut that level as well. And of course, you know, as we, as we continue to grow, I cannot, yeah, I cannot deny that there is some fat that we found we can easily cut in other areas. We're able to cut about 12%. We are always looking for further room to cut because we'd like to get back to our baseline of OpEx pretty quickly, which is 15% of sales. So, you know, we'll give the guidance accordingly. And of course, this is a dislocation in revenue, and that is temporary, but we are very cognizant of that, and we are always going to be trying to operate close to our model, which is 15% of sales. Excellent. And then on the component side, you know, given the change in volumes that you guys are working through on the microinverter side, you know, obviously, you're guiding to reasonably stable gross margins here, but I'm assuming that there's gonna be, you know, some breakpoints on the components that you may run into with a negative impact. Can you just talk a little bit about how your suppliers are scaling down with you here over the next quarter or two or three, and what that might do to your COGS line? Yeah. I mean, it is a tough situation for our contract manufacturers, no question. But we have great partners here. We have Flex, an amazing partner, who helped us when we were, you know, especially 2017, 2018, when we had some tough times, they were there right with us. Salcomp, also a great partner. So we work well together. We do have this is the time where both of us can recognize, saying: Okay, is this a short-term problem? Is this a long-term problem? Can we do things structurally? We recognize that both of us need to be profitable, not just one versus the other. And we do take some necessary actions, and all of those are confidential in terms of our relationships. I mean, we cannot disclose the actions we are taking, but our P&L always incorporates all of these. And so, the message is, over the next few quarters, we will continue to work with them. We will give you the P&L transparently in the guidance for gross margin. But we are very confident that, you know, we are finding the right solutions working together. Okay. Thanks so much, guys. Thank you. Our next question will come from Philip Shen with Roth Capital. Please go ahead. Hey, guys. Thanks for taking my question. Badri, you brought up SPAs, so I figured I'd jump in with a question on that. You know, as you know, our checks have come up with lower micro pricing under a bunch of SPA agreements on the order of 10%. Does that resonate with you at all, or is that off base? I know you often will get something in return for some kind of price when you negotiate the SPAs, maybe an exclusivity or higher volume. Can you just talk through that a little bit? And then, Mandy, can you talk through how SPA accounting might work on your income, your financial statements? For example, do you net the SPA, like the refunds, against your sales? Do you have net sales, or do you accrue a liability on your balance sheet? Thanks. So, SPA, first of all, for the others in the call, SPA stands for Special Pricing Adjustment. It is a business process that has been forever at Enphase, and it is always happening. It's business as usual. A large fraction of our business usually happens at what we call as ADLP, which is the Distributor List Price. And, you know, if business happens at ADLP, there is no SPA. But for a small fraction of our customers, depending upon how their volumes may go up within the quarter, next quarter, depending on their forecast, we do SPAs. SPAs are, you have a volume price curve, and when the volume goes up, the price comes down. And that's how it is. And that process is very active. It's always been active. It's the one I instituted six years ago when I came, and the accounting for that is unchanged. Whatever. It is exactly what we have done in the last six years. So, you know, you talk about a $10 reduction. All of those are anecdotal. They don't matter. One customer doesn't matter. It's not a trend. It is a large fraction of our customers buy at the list price. So, you know, I'd like you to, you know, if there is a broad-based pricing adjustment, we will tell you. And we are telling you right now that there is no broad-based pricing adjustment from us. Yes, we'll continue to do SPAs. That's the way of life for us. And sometimes it is a way for us to lock market share for the next, you know, X amount of quarters, and we'll do that. It's business as usual, nothing new. Great. Thanks. So, Phil, to answer your accounting question, yes, we accrue for SPA rebates as our liability, right? When we recognize revenue, the associated future potential rebates for the current quarter shipping, we accrue as a reduction in revenue, and it's a liability on our balance sheet. Same accounting process, no change. Great. Thanks, guys. Okay. Mm-hmm. Shifting gears, appreciate that color. Thank you. I know you don't have any official guidance for 2024, but was wondering if you could talk through how you expect margin to trend by quarter in 2024. You gave some perspective on Q1. There's undershipment there, close to Q4 due to product mix. Should we expect Q1 margin to be similar to Q4 because that product mix is maybe more heavily skewed to batteries again? And then due to product mix returning back in this base case to micros, more micros, potentially in Q2, after the undershipment in Q4 and 1, would you expect margins to return back to the pre-undershipment levels in Q2 of 2024 and back half next year? Thanks. Yeah. I mean, that's logical. It is logical. If at, you know, Q1, what you said is right, we expect similar levels. Of course, I'm not giving guidance, but I'm just giving trends. And then Q2, we expect it to, you know, because the mix is gonna change. The microinverter mix is going to be a little bit higher than the prior quarter, so we expect that logically. That's correct. Great. Okay. Thanks, guys. I'll pass it on. Our next question will come from Mark Strouse with JP Morgan. Please go ahead. Yes, thanks for taking our questions. I believe I asked this on the Q2 call as well, but just kind of given the precipitous decline in valuations across the space, I thought it's worth revisiting. You know, so you're obviously sitting on a pile of cash. You continue to generate cash. Just curious, your latest thoughts on M&A, if that's something that you're planning on leaning into until the macro improves here. Yeah. We do take a look at a number of companies all the time, every week. I have an M&A meeting. There are a lot of companies that come. We, we are very careful, especially in these times, to not buy something in a hurry. We're also careful of, you know, making sure that that company is aligned, of course, in terms of strategic fit and cultural fit. The former is extremely important, the latter is practically even more important. So the areas that we, we usually look for are, you know, more in the energy management software. You know, sometimes in, you know, home automation, for example, small commercial solar, any innovation in batteries, we look for these. Usually, we like, we like smaller companies, bolt-on acquisitions. That's what we have done till now. But I mean, we are looking at all kinds of companies. Please stay tuned. If we are gonna move on something, it won't be without you knowing. Okay, thanks, Badri. And then just a real quick follow-up. I apologize if I missed this, but was there an update on the small commercial product, the timing or any color there? Yes. Yes, there was. We are right now doing beta installations as we speak. The product is working great. We expect to introduce this product in this quarter, current quarter, and we expect to make some reasonable revenue out of this product in Q4. Okay. Thanks, Badri. Yes. Our next question will come from Steve Fleishman with Wolfe Research. Please go ahead. Yeah. Hi, thank you. The $150 million of undership that you're talking about, could you break that out between the U.S. and Europe? I would say approximately equal between the two. Okay. Thank you. And then in Europe, the impact of, y ou mentioned two things: the weaker demand, and then also the issues with the distributors, destocking. Like, could you just give some flavor of what, you know, when you look at the weakness you started to see, what are they about equal drivers? Is one, you know, kind of dominating the other? Yeah. Yeah. Actually, to tell you the truth, every country is a little bit different. You know, clubbing them together under macroeconomics will, will not do justice. But there are a few factors, let me tell you, overall things that can be generalized. It's basically, if you rewind it to last year, all distributors, installers, consumers, were a lot more aggressive due to the Ukraine crisis. The Ukraine crisis, the shortage of natural gas, caused many countries to be very aggressive to pull in their plans for renewables, and we saw a huge spike in virtually every country in Europe. Solar plus storage, everybody started stocking up a lot, and we also profited from that. Our revenue also peaked. But then that enthusiasm is, you know, a little bit tempered right now. And because of that, what's happening is the distributors suddenly realizing that they got more on their hands. And also, you know, earlier, maybe a year and a half back, the product availability wasn't that high because of that increase in demand. But now, all of the suppliers have geared up, especially panels. Product availability of panels is very high. So a lot of over-inventory, particularly on the panels, has happened. That is putting a pressure on the distributors because they've purchased inventory at high prices before, and now the prices have collapsed on panels. So there is some financial weakness there. But again, they are, so therefore, they- Yeah. They are conservative now, and they want to hold as less inventory as possible. That's a, kind of a macroeconomic. Now, let's come to Netherlands, our biggest market. Netherlands has got very interesting dynamic that when I went there two weeks ago, because I went there due-- Yeah, when I, when I heard that our demand was dropping, I got concerned, I went there. When I looked at it, you know, Netherlands situation is actually not so bad. If you see, their payback is about six years. They had a, you know, they had a scare recently, a couple of maybe two or three months ago, where an energy company called Vandebron basically said that to the consumer, saying, "We are going to charge you a penalty to export solar back into the grid." You know, Vandebron is a, is a very small fraction. There are about 30 to 35 energy companies, I think, in Netherlands. It's a deregulated market. Vandebron is one of them. They serve about 3% of customers. They basically said that, "Oh, we are gonna charge you an export penalty." All they were trying to do is to put some pressure on the government saying, "You need to help us with net metering." Because, you know, the simple fact of the matter is, Netherlands has got wind, it's got solar. There is 2.2 million homes with solar out of 7 million homes, these, if they start to, export solar energy in a random manner, the energy companies are finding they cannot handle that easily. So they are putting pressure on the government to say: Okay, net metering needs to evolve into something where the customers have, you know, self-consumption, which is solar plus storage. It's actually extremely good for us there, but the way they are doing it is, of course, a little bit disruptive. So there is, you know, the government is going to respond once it is in place to now there is a, you know, election happening. Net metering clarity is going to come probably, probably after that. And, you know, but the way it's going to evolve is this market. You know, net metering will still last until 2025, so we are covered for the next two years with good payback. And then the payback will be, will be maintained after that, with the combination of solar, plus storage, plus dynamic tariff, which is getting popular there. So that's the big picture in Netherlands. Many of the European countries are evolving in a similar way. Many of them have gotten dynamic tariffs. You know, Germany is a little bit, little bit ahead. They don't have dynamic tariffs, but they introduced feed-in tariffs early, which very similar to net metering. Export is not paid as much as import. In fact, it's only a fraction. That is why Germany, you find 80% attach rate on batteries. So, long answer to your question, but that's the color on Europe. I guess, just to wrap the topic up, overall, just let's say we continue to move away from the kind of Ukraine energy crisis conditions, but we do have these markets each put in these changes. Just does your kind of expectation of Europe in kind of improving, can it be driven just by these market-by-market changes, or do you need, do you need to see some kind of move up in energy prices again? Well, I didn't talk about energy prices. Energy prices are also increasing. In places like France, the energy prices are also going up. So I mean, energy prices are going to help us. The utility rates are increasing, and so that is definitely going to be a tailwind. But, you know, make no mistake, despite all of this, in a place like Netherlands, 2 gigawatts of solar, in a place like France, the payback is extremely good still. five to six years, where can you get that? Even just for solar, it's going to evolve into solar plus storage, with a payback of maybe seven to eight years, but still very good for a 25-year product. So, you know, there is a small, small dislocation right now due to inventory issues, due to these, but that's why we expect the ramp up, you know, to normalize I won't say normalization, revenue recovery. A quick revenue recovery, at least to some level in Europe. Great. Thank you. Our next question will come from Jeffrey Osborne with Cowen. Please go ahead. Yeah, thank you. Badri, I was just curious on your expectation for a 2Q recovery. What is your working assumption on normalized inventory in the channel? I, I think in the past, you had talked about 8 to 10 weeks, and assuming that is still the case, I, I guess, is, is there an argument that, you know, now that manufacturing is localized in continent by both yourself as well as competitors, that, you know, why wouldn't that number be five or six weeks, and maybe pressure would continue into Q2? Yeah, I mean, what you're saying is possible, but we don't think so. I'll give you a quick, quick primer on the weeks on hand so you, you follow it. I think generally, I'd like, yeah, you know, to say that so that everybody follows it. For example, if you have, let's say you start off with 100 units at the beginning of a quarter in the channel, and let us say you drain inventory at 10 weeks, I mean, 10 units a week, and you also, you also ship into the channel at 10 units a week. Okay? You ship into the channel at 10 units a week, you drain from the channel at 10 units a week. Therefore, at the end of the quarter, you find yourself at the same 100, because 100 plus 130, which is 13 weeks, minus 130, you have 100 units at the end of the quarter. You ask yourself, what is the weeks on hand? You say, that is 100 divided by 10. That's 10 weeks. So remember that number, 10 weeks. Now, I say: Oh, my demand is suddenly dropped by, let us say, 40%. That means I have four units a week that is accumulating. So that means, and assume I ship the same number of units into the channel, because I am slow in recognizing that the situation has changed. So let us say I still ship the same 130 as before, but now my drain is only 78 instead of 130. So I therefore end up with four units excess per week, which is 52 units more than the last case. So now I have, at the end of the quarter, 152. 152, but my end customer demand is only six units a week. So I tell you that my weeks on hand now is 152 over six, which is 25 weeks. So I suddenly go, my weeks on hand increases by 150% due to a 40% drop in demand. If I am, I continue to be oblivious of, you know, continue to be oblivious and ship the same material into the channel. So it can blow up disproportionately, right? And of course, the further the demand drops, the further your weeks on hand will go up. And the converse is true, too. If the demand improves a little bit, the weeks on hand is going to come down fast. So we think that the distributors, I mean, will look at, will look at logical things here, because even a 10 to 12 week inventory will be the similar dollar number that they have held in the past. And, yeah, in fact, a lesser dollar number that they have held in the past. So, we think logic will prevail, and of course, end market demand could change all of that pretty, pretty quickly. So weeks on hand is not something that you that is obvious. It can really change drastically by small changes in demand, which, you know, I gave you the example there. I appreciate that. My follow-up is, and correct me if I'm wrong, but I think you're allowed to, under the IRA, export U.S. manufactured goods to, international jurisdictions. Is that something, A, you're already doing, or B, you intend to do in 2024? Not doing today, but of course, we'll consider. Got it. Thank you. Our next question will come from Julien Dumoulin-Smith with Bank of America. Please go ahead. Hey, good afternoon, team. Thank you guys very much for the time. Appreciate it. Hey, I just wanted to pivot to a slightly different direction here, right? So you have a few of these exclusive deals, across a number of different customers, but some, some larger ones, if you will. I'm curious, how do you think about, you know, how quote-unquote, "locked in" those are going into the next year? And how are you thinking about working together realistically as partners, and optimizing your value proposition while, while dealing and addressing with their respective needs, which are clearly and, and likely dynamic, especially given the backdrop in California. If you can speak to that, those dynamics. I know I'm not trying to get into the contract specifics here, but really working with them, if you will, and how you think about how locked in that portion of volumes are. Yeah, I mean, I presume you're talking about one large customer here. That's the only one we have, which is official. We love our partners, right? We work very closely with them. We value their relationship a lot, and we are there. I mean, we are at their service all the time, whether it's quality, whether it's customer experience, you know, we value their relationship a lot. So, yeah, of course, we will be looking to renew all of those. Right. Yeah, fair enough. It's, it's difficult to build upon too much. And then, and just coming back to, you know, all these different contract manufacturing relationships, I, I know they may not, might not be identical here, but how do you think about underutilization costs here? I mean, what are the commitments like? How flexible are the terms as you look at both flexing down and up the volumes through the course of the year here under these new arrangements? Right. I did talk about it, answering a prior question, and I will say the same thing here. We have great contract manufacturing partners. Flex has been, you know, great, yeah, great for us. They, they particularly helped us when we were in trouble in 2017. We are grateful there. Our relationship has been very healthy, even during, during these times. And we are working, we are working together. You know, sometimes we look at a problem and say: Is this a short-term problem or a long-term problem? If it is going to cause them pain, we are willing to restructure. And all of those, all of those accounting are in our P&L. We report it as part of our non-GAAP and GAAP gross margin. So you should read the P&L and, you know, know that everything is there. We view this particular situation as, you know, temporary, but we are very cognizant of the fact that underloading is a pain for our contract manufacturer. We think the right approach is to make sure both of us are profitable and share the pain, and we will be doing that. Got it. All right. Well, best of luck, guys. We'll speak to you soon. Thank you. Our next question will come from Andrew Percoco with Morgan Stanley. Please go ahead. Thanks so much for squeezing me in. I just wanted to come back to a prior question. You know, it's clear that the demand backdrop, it's going to be a tough demand backdrop, potentially for the next few quarters. Can you maybe just discuss the health of the average installer that is a recurring user of your equipment and their ability to manage through this period and, you know, transition to the TPO model? I think there's been some challenges around working capital and tax equity. Just curious, you know, what you're seeing and what you're hearing from some of those maybe repeat buyers on the smaller scale side of the installer community. Thank you. Yeah, I mean, we only hear the color from other industry news. But, you know, we do see some transition to the leasing model. We do see that, clearly. For us, how does it affect us, is we have some great partners. We have Sunnova, great partners. John Berger is a close friend of mine. SunPower, you know, Sunrun, and other leasing partners. We do business with all of them. They're all great partners. So for us, it is, you know, if loan moves to lease, our business, I would say, you know, there could be some product mix issues, but business is nominally not affected. We have heard, you know, anecdotes from a few industry sources that, you know, installers in California, there are many long tail installers who aren't in business any longer, but we don't have any direct data there. So I can only tell you what I know. Of course, I mean, it is a stressful time for them, and we are trying to help them with whatever we can, whether it leads or whether, you know, we can provide them some other services like our Solagraf, et cetera. Whether we can help them with NEM 3.0, their business, we are doing that, and, you know, that, that's the color that we have in general. Great. Thank you. We do business through distribution. We do business. You know, majority of the business we do is through distribution. And the distribution, you know, one of the ways we would see it is in our payment, right? If we were to do direct business with all the installers, which we don't. We do business with distribution partners, so therefore, we are one level, a little bit, you know, away from, you know, direct relationship with the long tail installers. But, you know- Yeah, that makes sense. Thank you. The other questions, my other questions have been answered, so I'll just leave it there. Yeah, could you repeat the question? Oh, okay. Our next question will come from Tristan Richardson with Scotiabank. Please go ahead. Hey, good evening, guys. Thank you so much, Mandy and Zach. Appreciate all the commentary on 2024. And really just thinking about the commentary you made around stabilization next year. Should we think that, could there be a swing factor with some of the new markets you've entered, whether that's U.K., Greece, Denmark, even India? Could that be a meaningful factor that could affect sort of the timing of that stabilization or present a growth wedge above kind of that 2Q timeframe you're talking about? Absolutely. We have a lot of vectors of growth, and that's a great place for us to start. But we are, you know, in the color I gave you, we didn't assume all of that. But we have absolutely so many countries that we are not, we were not present even a couple of quarters ago. Like, we have introduced in, you know, batteries and microinverters, actually, batteries, for example, in Austria, in Spain, you know, U.K., as you correctly pointed out, Sweden, Denmark, Greece. We have plans to introduce to about 15 countries in the Q4, microinverters alone. They are all new countries. So that's, that's one vector. New, new geographies, very important, you know, for us. But on the flip side, there, it does take some time to establish infrastructure there. You do need, you do need to build up your installer base. You do need to train them very well, because our bread and butter is our installers. So therefore, we need to train them excellently, and we need to win them one by one, and that is a process in itself. It can be as early as three to six months, but it can be over a longer time frame as well. We got several new markets in Asia that are also interesting for us, like, for example, Taiwan, Korea. Indonesia, we are there today, but we are rapidly moving into IQ8. There are a few other smaller countries in Eastern Europe that we are going after. Small commercial, that's a very big one. You know, small commercial in the US is about a gigawatt. We are going to have that product this quarter. The small commercial opportunity in Europe is much bigger. It's about 10+ gigawatts, and we are figuring out that one systematically because we can service that market less than 100 kilowatts with the products we have. So there, of course, you know, pricing is. It's something that we're looking there on how to be competitive in that segment. But we do have a lot of levers there on small commercial. So that is one more. The other one is EV charging. You know, EV charger. We just introduced our connected EV charger. That is a big deal. Now, with everybody wanting to electrify, meaning their home, which is buying, buying electric vehicles, electrify their vehicles, for example, our product will work with solar, plus batteries, and it will help the homeowner optimize his bill. He can do green charging now. He doesn't need to spend money charging the vehicle from the grid. All he needs to do is to add about one-time investment. Of course, he's got to do that. six to eight panels or 6 to 10 panels. He needs to add it if he buys an EV. That is a huge opportunity. We are now following up and introducing these EV chargers in Europe, which is what I talked about. Early next year, we will have IQ EV chargers in Europe. The other one is home energy management software, right? We're now, beginning with Germany, we now have the ability to also connect to third-party EV chargers and heat pumps. So now we can optimize the entire system, our solar, our storage, hopefully, our EV chargers soon, but in the meantime, third-party EV chargers, third-party EV, I mean, third-party heat pumps. And giving the homeowner one app, all-in-one app, optimizing his energy from his fingertips. So that's energy management software. Plus, we have some hardware there, which we will eventually integrate into our gateway. So we'll roll that out to all the countries, including the U.S. So we got a lot of vectors there, which is, you know, introduce solar plus batteries into many, many new countries worldwide. You know, introduce products for the small commercial markets worldwide. Introduce IQ Smart EV chargers, both in the U.S., which we have done, and worldwide. Energy management software, plus whatever hardware is required to manage heat pumps and third-party EVs worldwide. So we have a lot of vectors. Of course, I did not include that in the color, which I gave, which is, you know, conservative, you know, from our perspective. That's great, Badri. Appreciate all the extra comments tonight. Thank you. Our next question will come from Moses Sutton with BNP Paribas. Please go ahead. Hi, Badri. Thank you for squeezing me in. I just wanted to tag on to Andrew's comment about the fat tail installer. Are you seeing stress outside of the California market? Are you seeing any installers talking to distributors, asking for price concessions, maybe distributors asking for concessions on terms and receivables? Just curious if you could give again, a little more color on the health of the tier four. Yeah, you know, I'm just clarifying the question. You want to know the health of the business outside California, is that correct? Specifically for the fat tail, for the really small installers. Specifically for the long tail. I mean, yeah, the color that I can give you is, the non-California business as a whole is, you know, stabilizing right now. That's what we see. We see, you know, Q3 was 4% down from Q2, and the first three weeks of, Q4, which is the last three weeks of this quarter, are also not too bad. In fact, it's a little bit up. So we think the non-California business is, is pretty decent, but of course, it is still down from the high levels that we had by nearly 35%, meaning from Q4 of last year, Q4 2022, it is still down by nearly 30% to 35%. And your question is, how is the health of the long tail? It's a similar answer for us. We work with our business. If you see 80+, 80+% probably, maybe 75% is the long tail there. So, you know, we see all of them down, whether there are installers going out of business, we don't get that information, but, I think we, you know, we don't have the data. We do see the same trend, which is loans moving to leases. You know, all our partners are pretty, pretty great. Yeah, you know, Sunnova, SunPower, Sunrun. So yeah, for us, it is moving from one hand to another hand, like what I said. That's, that's the, you know, color I can give you. Y eah, that's very helpful. And then just any sense on Texas and Florida in particular? I know outside California is averaging a little better, but maybe specifically those markets. Yeah, I mean, they were disproportionately down because of, because the utility rates aren't as high compared to the, compared to the increase in the interest rates. So they were worst affected, but we see many of them in Texas and California, I mean, yeah, Texas and Florida, particularly moving to the lease model. We do see that, like what you said, and we do see that business starting to recover. Thank you. Our next question will come from Joseph Osha with Guggenheim Partners. Please go ahead. Hey, thanks for fitting me in, Badri. I appreciate it. Two questions. First, following on from the previous one, yeah, look, we all see Sunrun, Sunnova, you know, SunPower accessing, you know, ABS or whatever markets for, for third-party ownership. I'm curious, do you know if your long tail has found any other solutions for third-party ownership? Or, you know, when you talk about that avenue, is it basically those three companies that you're seeing? And I do have one other question. Majority is those, those companies, and there are a few smaller leasing companies that are coming up, too. Okay. But in 90%, is those three companies. That's right. Okay, great. And then this is really more of a philosophical question. I know all of us on Wall Street just love to hear you talk about, you know, defending your gross margin. But you know, given how the market is evolving, have you done some analysis, and are you sure that your business couldn't perhaps generate higher bottom line earnings if you simply grew it more quickly and allowed, say, a 35% gross margin? I'm just curious as to your philosophy as to why the gross margin has to stay where it is. Well, it is the eternal question: Can I grow faster if I drop prices, right? I mean, for us, it is pricing. It's based on value. The moment we stop generating value, it is over. So that's why I never look at those in conjunction. Pricing, I don't base it on cost. The moment you base it on cost, it's a problem. Then you forget about the value drivers, and therefore, you know, what that means is we need to add value in both microinverters and batteries and software. And that's hard to do, but that's what we do for a living. You know, innovation is you know, someone said it right in Silicon Valley, "Innovate or die." I mean, we are that company. That's our philosophy. So we believe high quality is high volume and high price or the right price, or value. Well, okay, thank you. I appreciate that. Our next question will come from Vikram Bagri with Citigroup. Please go ahead. Good evening, everyone. Very helpful color on demand and supply dynamics in countries in Europe. What you mentioned, you expect EU to recover a bit in your calculation of $300 million of inventory reductions over the next two quarters. Is that rebound, is that a function of Enphase entering a number of new countries in EU this year, as you mentioned, and gaining market share in existing markets such as Germany? Or the outlook for inventory reductions assumes that the base demand rebounds in Q1, and on top of that, you gain market share in new as well as sort of like existing markets. And then if you can talk about the U.S. market also, it seems like you are looking to defend market share. You haven't seen any declines in market share so far, but if there were some, you will, you will look to defend that. Yeah, I mean, we already told you that we aren't assuming the demand picture changing from the current levels in our assumptions. And basically, you know, I'm not here to give guidance for Q1, but I'm just giving you a general color for Q1. So all our assumptions are based on demand picture not changing in the next, you know, demand picture not changing from what it is today. So that's what we said in our assumptions. Then your question is on U.S. U.S. for us is, we work with a lot of customers. We this is the time where our partnerships, like what I said, are a lot deeper. Every one of our executives is always on the road visiting customers. Every opportunity to gain market share, we are all over it. You know, like what I said, we have a number of tools. Yes, of course, it's the, you know, defending against competition. All competition is very important for us. We take everybody seriously. We work on our problems. We fix our problems, our customer service. You see, many people simply stick to us for our quality and customer experience. Our net promoter score is 78 in the U.S.. We are open 24/7, our call center. We have field service technicians who will show up in your home tomorrow if you have a problem today, right? So we have, you know, if you put the total picture together, it's, you know, innovation, quality, and customer experience. Now, we have one more factor. We have, we can give people the Made in America product. Now, we do have that, and many of our installers love it because they, for example, we just had a, you know, in Flex, we, in South Carolina, you know, we have President Biden came and inaugurated that, that plant, and we have a lot of installers there, including not just installer partners, distribution partners. So this is very important for them. You know, Made in America product, right there in South Carolina, right there in Arlington, right there in Wisconsin. It is there. So we think that will help, too. And, you know, we are gonna, in a similar vein, we are going to bring in our batteries as well in the U.S., and we will take advantage of the domestic content there. And so that will provide extra help to some of our leasing partners. So, yeah, we are always, you know, always working on market share. We always take competition seriously, not just right now. This is how we do business. Thanks, Badri. And as a follow-up, I wanted to quickly follow up on the capital allocation question earlier in the call. I was wondering if your priorities have changed given where the stock price is today. I see you repurchased about $110 million in shares versus $122 million of free cash flow this quarter. Should we expect a similar trend going forward, share buybacks closely following free cash flow generation in quarters? Yeah. Well, I mean, we have a lot of cash, like what you pointed out, $1.8 billion. We have shown that we are willing to buy back stock in a disciplined fashion. We have bought back stock in the last couple of quarters. I think we've bought back $310 million in total. $110 million in Q3, and $200 million in the prior, prior quarter. I think this is an opportunistic time for us, where we can take advantage of the stock price, so we will be opportunistic about it. Thank you very much. Thank you. Our next question will come from Praneeth Satish with Wells Fargo. Please go ahead. Thanks, thanks for squeezing me in here. Long call. I guess I wanted to ask about Tesla's new Powerwall 3 offering and maybe what are kind of the puts and takes there, comparing that against your IQ8 and 5P battery. And I guess, do you anticipate any market share changes when this product is launched next year? Yeah. Hi, this is Raghu. As you know, Badri mentioned earlier on, look, competition's not new to us. Any company out there that's doing string inverters, you know, we've been competing against those since the inception of the company, and we have a very, very strong value proposition against our technology. Technology that, you know, we've been fighting against since 2008. If you think about it, if you break it down, you know, we just produce more energy. We do maximum power point tracking on a per module basis, right? Because we have an inver- we do power conversion right at the module itself. We are much more reliable. We don't have a single point of failure. That's a true value of the distributed architecture. So you know, even if one of our micros or the module were to fail or get impinged on energy, the rest of the system continues to operate. You know, string inverters, on the other hand, are a very significant single point of failure. If that string inverter were to fail, your entire system is dead. Again, if you look at also design, installation, and maintenance, you know, we don't have string designs anymore. Like, you know, those string designs are a thing of the past. Those things went away in 2012. And with us, you don't have to do any stringing, no string design, no limitations there. You can put as much new modules as you'd like. Installations, all plug-and-play. And maintenance, we provide you with per module information, right? With the traditional string inverters, you know, you're completely blind to how your modules are performing. It's. So I think that's going backwards. And finally, and arguably one of the most important elements of it, is safety. Right? You don't want any high voltage DC anywhere in the system. And so with Enphase, we are all low voltage DC, we are traditional AC. And the combination of high voltage DC and high energy chemistry is probably not very, not very optimal. And on the reliability front, you know, we mentioned, one is system-level reliability, which is not having a single point of failure. But look, our unit itself is extremely reliable. You know, we offer 25-year warranty compared to other other types of technologies that offer, you know, 10, 12-year warranties. And on the battery, if you break the battery down as well, you know, modularity is extremely important. You don't need to have very large batteries, and you have the, you know, whereas if we are building block, it's 5 kWh. You can right size the system to exactly what the homeowner needs. But we mentioned the higher power of our third-generation battery, our IQ Battery 5P. The high C rate of the battery is; it really is an economic benefit to the homeowner because it can, you can, you know, you can export significant amounts of power during those times of the day, or those times of the hour, where you get compensated by the utility for exporting energy. And finally, on safety, we use lithium iron phosphate, LFP chemistry, right? LFP chemistry is arguably much safer than any other chemistry that's out there. Put all that together, look at it in the totality of the system, right? You know, all the software that we provide, the design tools that we provide, those are the competitive moats against any other technology that is out there. Now, couple that with our customer service, right? You know, we are. We are open 24/7. Our customer service department is open 24/7. We, you know, the installer can call us at any time. The homeowner can call us. We have a beautiful app where they see, you know, their solar, their batteries. Now, even there with a connected EV charger, they're seeing how their EV is doing. If you have a VPP program, right from the app itself, you can sign up for the VPP program. So we really bring a comprehensive solution that is completely differentiated, distributed architecture on inverters, the battery, arguably one of the safest batteries, connected EV chargers, and a complete system solution for the homeowner, and, and of course, a great customer experience. So, yeah, take any, you know. So we, we have a very competitive solution, and, and like I said, competition is not new for us at all, so. That's very helpful. I guess just quickly switching gears to California. I just wanted to... You know, you mentioned that you're educating installers about NEM 3.0. The payback is six years, maybe down to five years with some of these rate increases. You know, you got the Solagraf software, where you're kind of automating a lot of the calculations for installers. But despite all this, and it all sounds good on paper, but despite all this, the permits are just, you know, they're moving down week on week, right? In the wrong direction. I'm just trying to understand if there's anything else you can do to simplify the process and help convert some of the leads to signed contracts, or is it just rates, or is it just waiting for time, waiting for just macro to improve a bit? It's not waiting, right? It's our. We have to go out there, and the rest of our industry needs to get out there and continue educating our installer partners, helping our installer partners educate the homeowner. That's what it's gonna take, and I think all the tools are there, everything is ready. But most importantly, the economics are there, right? It's simply getting in front of the homeowner, getting and convincing them that showing them the numbers, showing them using a tool like Solagraf, and showing them what a solar install on their house would look like, you know, the size of the battery that they would require. And then showing them the payback period, that it's anywhere from, you know, five to seven years and getting better as utility rate continues to improve. So I think we are all doing the right things. We are getting out there, and at least Enphase, we are getting out there, and I, and I'm sure our competition is also getting out there and educating both installers and customers. And so we expect, yeah, we expect it's simply a matter of time. I think you'll see, you'll see the California market turn around as well. Thank you. This concludes our Q&A session. I would now like to turn the conference back over to Badri Kothandaraman for any closing remarks. Hi. Yeah, thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. The conference is now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.