Good afternoon, and welcome to the Enphase Energy Fourth Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. We ask that you please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question queue. Please note, this event is being recorded. I would now like to turn the conference over to Zack Freedman. Please go ahead. Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's fourth quarter 2023 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Belur, our Chief Product Officer. After the market closed today, Enphase issued a press release announcing the results for its fourth quarter ended December 31, 2023. During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to our expected future financial performance, market trends, the capabilities of our technology and products, and the benefits to homeowners and installers, our operations, including manufacturing, customer service, and supply and demand, anticipated growth in existing and new markets, the timing of new product introductions, and regulatory and tax matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. Also, please note that financial measures used on this call are expressed on a non-GAAP basis, unless otherwise noted, and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K, which can also be found in the Investor Relations section of our website. Now I'd like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri? Good afternoon, and thanks for joining us today to discuss our fourth quarter 2023 financial results. We reported quarterly revenue of $302.6 million, shipped approximately 1.6 million microinverters and 80.7 MWh of battery, and generated free cash flow of $15.4 million. On our last earnings call, we said we would reduce channel inventory by approximately $150 million. We achieved a reduction of $147 million in Q4. For the fourth quarter, we delivered 50% gross margin, 29% operating expenses, and 22% operating income, all as a percentage of revenue on a non-GAAP basis and including the IRA benefit. Mandy will go into our financials later in the call. Let's now discuss how we are servicing customers. Our worldwide NPS was 77% in Q4, the same as Q3. Our average call wait time was 1 minute, compared to 1.3 minutes in Q3. We have made good progress on solving customer issues by focusing on both automation as well as expanding our field service teams globally. Let's talk about operations. The overall supply environment for microinverters and batteries is quite stable. Let's come to microinverters. We shipped approximately 913,000 microinverters to customers in Q4 from our contract manufacturing facilities in the U.S. We announced in December that we are ceasing operations at our contract manufacturing locations in Romania and Wisconsin. We will manufacture microinverters in the U.S. with our 2 existing partners in South Carolina and Texas. The equipment currently located in Romania and Wisconsin will be redeployed for use at other facilities. Once the restructuring actions are complete in the first half of the year, we expect to have a global capacity of approximately 7.25 million microinverters per quarter, of which 5 million will be in the U.S. We expect to ship approximately 500,000 microinverters to customers from our U.S. manufacturing facilities in Q1. We expect that our shipments from U.S. facilities will be lower in the first half of the year as we reduce both factory as well as channel inventory. We anticipate a higher level of shipments in the second half of the year. For IQ Batteries, we have two cell pack suppliers, both in China, which have sufficient manufacturing capacity to support our ramp in 2024. In addition, we will have the capability to manufacture IQ Batteries in the U.S. in the third quarter of 2024. Let's now cover the regions. Our U.S. and international revenue mix for Q4 was 75% and 25%, respectively. For more visibility into our business, we are providing you regional breakdowns and sell-through dollar metrics by region until the channel is healthy. In the U.S., our revenue decreased 35% sequentially, as we undershipped to the end customer demand. The overall sell-through of our microinverters and batteries in the U.S. was down 9% in Q4 compared to Q3. Let's discuss market trends we are seeing in the U.S., split by non-California states and California. For non-California states, our overall sell-through was only down 1% in Q4 compared to Q3. The sell-through of our microinverters was flat, and the sell-through of our batteries was down 8% in Q4. In California, our overall sell-through was down by 7% in Q4 compared to Q3. The sell-through of our microinverters was down 27% in Q4, primarily due to the NEM 3.0 transition. However, the sell-through of our batteries increased by 58% in Q4, due to the high attach rate of NEM 3.0 systems as expected. As we discussed on our last earnings call, it will take a few quarters for our installers to fully transition to NEM 3.0 and normalize sales. I'll provide more statistics on NEM 3 later in the call. In Europe, our revenue decreased 70% sequentially, as we undershipped to the end customer demand. The overall sell-through of our microinverters and batteries in Europe was down 20% in Q4 compared to Q3. The sell-through of our microinverters was down 23%, and sell-through of batteries was down 2% in Q4 compared to Q3. I'll provide some color on our key markets in Europe, Netherlands, France, and Germany. In Netherlands, our overall sell-through in Q4 was down 37% compared to Q3. Customers are fearing an export penalty for solar, and there is confusion about the ending of net metering. We kicked off this new year with the solar next event in Netherlands, where we hosted 800+ installers across the country, promoting a comprehensive solution with solar plus batteries and energy management software, that will unlock the full potential of the Dutch energy market. We believe solar plus batteries are going to become the norm, as dynamic tariffs and grid services become more prevalent. We are already seeing a steady ramp in batteries in the region and expect the trend to accelerate in 2024. In France, our overall sell-through in Q4 was only down 1% compared to Q3. We see a lot of potential for this market to grow and evolve into a solar plus battery market, as utility rates have moved higher and are expected to increase even more in 2024. In Germany, our overall sell-through in Q4 was down 32% compared to Q3. However, we saw sequential growth in activation for both solar and batteries as we continue to gain traction in the region. We are introducing our products into more countries in Europe. In the last few months, we have entered UK, Sweden, Denmark, Greece, Switzerland, Austria, Italy, and Belgium markets with our IQ8 microinverters and IQ Batteries. In Australia, we are seeing growth for our Enphase Energy systems powered by IQ8 microinverters and IQ Battery 5P, our latest third-generation battery, which we introduced in June of 2023. In Brazil, our sell-through is stabilizing nicely as we focus on building the installer base. In India, we are starting to ship our IQ8 HC and IQ8P microinverters to support high-power panels. In Mexico, we just recently started shipping IQ8P microinverters for residential applications. As a reminder, IQ8P is our highest-powered microinverter at 480 watts AC, for both residential and commercial applications. Let me say a few words about our U.S. market share. We see stable share for our microinverters and batteries based on both internal as well as third-party data. We have a large and diverse customer base. Our value proposition is to provide installers the easiest installation process with high quality and best-in-class service. We also have tools like Solargraf, design, proposal, and permitting software, and lead generation through Solar Lead Factory at our disposal to help our installers. As a result, our partnerships go even deeper during the downturn. Let's cover some NEM 3.0 statistics in California. Third-party data shows that the battery attach rate for NEM 3.0 systems is over 80%. Based on our system activations in January, last month, approximately half of our solar installations in California were NEM 3.0. Of our NEM 3.0 solar installations, about half of them use Enphase batteries. Our revenue per NEM 3.0 system is approximately 1.5 times our average NEM 2.0 system. The transition to NEM 3.0 has been a little slower than what we anticipated. Installers are still installing NEM 2.0 systems, and this has caused a delay for some of them to sell NEM 3.0 systems. The ones who started are finding the sales process a little more difficult, given the complexity of the tariff structure, the added cost of batteries upfront, and high interest rates. One particular challenge we hear is their lack of confidence in the payback of the systems they are selling. This is where Solargraf software, our design and proposal software with NEM 3.0 support, is critical because of its advanced modeling capabilities. In addition, installers are still coming up the learning curve on installing batteries. We are addressing this by making a lot of products improvement for ease of installation, commissioning, serviceability, and continue to offer in-person trainings and webinars on Solargraf software. Let's now come to our Q1 guidance. We are guiding revenue in the range of $260 million-$300 million. We expect the sell-through of our products to be seasonally down in Q1. We plan to undership to the end market demand for our products by approximately $130 million in Q1. We are forecasting to undership in Q2 as well, although at a much reduced level, and expect the channel to be normalized by the end of Q2. Let's talk about new products, starting with IQ Batteries. Our sell-through for batteries has been increasing steadily over the last few quarters. Our third-generation battery delivers the best power specs and commissioning times of any Enphase battery to date, at a 15-year industry-leading warranty. The battery adoption rates are on the rise globally, and we are well positioned to grow our battery sales in 2024. Also, we expect our margins on batteries to get better throughout 2024. There are three factors in play here: cell pack costs, which are coming down. Microinverter costs, which are coming down for us due to U.S. manufacturing. And other costs, product costs coming down due to improved architecture on our fourth-generation batteries, causing a lower bill of material. We are working on entering more countries in Europe and Asia with our third-generation battery. We expect to introduce our new three-phase battery with backup for Germany during the year. We plan to pilot our fourth-generation battery later in the year. This battery will have a great cost structure and elegant form factor due to the integrated battery management and power conversion architectures. As previously discussed, we have entered many new markets with IQ8 family of microinverters and are now in 21 countries. We plan to enter many more new countries in Europe and Asia throughout 2024 with our microinverters. We plan to increase our served available market by introducing social housing and balcony solar solutions to European countries during the year. Let's also talk about our latest microinverter for the residential segment. I already mentioned the IQ8P, which delivers 480 watts of AC power, supporting panels up to 650 watts DC. We are currently shipping that product into Brazil, India, South Africa, Mexico, and Vietnam. We are on track to ship into France and Spain, followed by emerging markets in 2024. The other variant of the IQ8P microinverter with the new three-phase cabling system is well-suited for small commercial solar installations, ranging from 20-200 kW. We launched this product in North America in December and are seeing strong early adoption. We are very excited about this product and look forward to manufacturing all the flavors of IQ8P microinverters at our U.S. facilities shortly, further reducing our cost structure. Let's discuss EV charging. We shipped over 3,700 chargers in Q4, compared to over 3,500 chargers in Q3. We launched our IQ Smart EV Chargers in U.S. and Canada in Q4. The Wi-Fi-enabled charger is now integrated to the Enphase Energy System. This enables use cases such as self-consumption and green charging, and allows homeowners complete visibility into the operation of their system through the app. We are developing IQ Smart EV chargers for many countries in Europe as well and expect to introduce them during the year. The team is also working on bidirectional EV charger, which will unlock use cases such as V2G and V2H as part of the Enphase Energy System. The charger will have GaN-based bidirectional inverters, which will interface with EVs, which have high voltages, high DC voltages. I've so far discussed our hardware products. Let's cover our energy management software. The importance of this software to deliver a superior customer experience cannot be overstated. The Enphase Energy System is becoming more sophisticated with the addition of solar, batteries, EV chargers, heat pumps, et cetera. In addition, the utility tariffs, which were once fixed rates, are now becoming increasingly complex, with time of use rates, NEM 3.0, demand charges, dynamic tariffs. Our software is evolving to manage this complexity by leveraging artificial intelligence and machine learning for forecasting and optimization. We see this as an area of differentiation for us and are developing core IP towards that objective. We expect to release this software beginning in Q2, adding several features throughout the year. Let's now discuss our installer platform. We released new features in Solargraf during Q4. We introduced electrical design and single-line diagram features, while continuing to offer NEM 3.0 functionality for solar and battery systems in California. The software platform is now available to installers in the U.S., Brazil, Germany, and Austria, and we expect to release it to more countries in the coming quarters. Let me conclude. We have been managing through a period of slowdown in demand. We think Q1 could be the bottom quarter. Europe is already showing early signs of recovery, and we expect the non-California states to bounce back quickly. California is the exception, as NEM 3.0 is having some hiccups in the near term. However, we remain very bullish about NEM 3.0 in the long term. The payback is very attractive for solar plus storage, the utility rates are going up steeply on an annual basis, and the sales teams are learning fast. We see that the demand is going to eventually bounce back up in California as well. I'll wrap up outlining our approach during these times. We are laser-focused on ease of doing business, on both high quality and great customer service. We are doubling down on operational excellence, correcting the channel and factory inventory, concentrating on sell-through and installer count, reducing our expenses and product costs, and maintaining healthy gross margins. We are getting many new products out and diversifying our portfolio rapidly. We are expanding worldwide with full systems comprising of IQ8 microinverters, IQ Batteries, EV chargers, and energy management software. We are introducing products for the small commercial solar markets worldwide and making continuous enhancements to our installer platform. In addition, we are innovating on GaN-based IQ9 and IQ10 microinverters, along with bidirectional EV chargers, our fourth and fifth generation IQ batteries, and AI-based energy management software to position us well for the long term. With that, I will turn the call over to Mandy for her review of our financial results. Mandy? Thanks, Badri, and good afternoon, everyone. I will provide more details related to our fourth quarter of 2023 financial results, as well as our business outlook for the first quarter of 2024. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q4 was $302.6 million. We shipped approximately 660.1 megawatts DC of microinverters and 80.7 megawatt-hours of IQ batteries in the quarter. Non-GAAP gross margin for Q4 was 50.3%, compared to 48.4% in Q3. The increase was driven by increased net IRA benefits. GAAP gross margin was 48.5% for Q4. Non-GAAP gross margin without IRA benefit for Q4 was 41.8%, compared to 45.8% in Q3, a decrease of 400 basis points due to microinverter and storage mix, while our average selling prices remained stable. GAAP and non-GAAP gross margin for Q4 included $25.8 million of net IRA benefit for our microinverters made in the U.S. and shipped to customers in the quarter. Non-GAAP operating expenses were $86.6 million for Q4, compared to $99 million for Q3. We implemented a restructuring plan in December 2023 to reduce our operating costs and align our workforce and cost structure with current market conditions. As part of the plan, we are reducing our global workforce by approximately 10% and expect to reduce our non-GAAP operating expenses to be in the range of $75 million-$80 million a quarter in 2024, when these restructuring actions are substantially complete within the first half of this year. GAAP operating expenses were $156.9 million for Q4, compared to $144 million for Q3. GAAP operating expenses were, for Q4, included $51.6 million of stock-based compensation expenses, $14.8 million of restructuring and asset impairment charges, and $3.9 million of amortization for acquired intangible assets. On a non-GAAP basis, income from operations for Q4 was $65.6 million, compared to $167.6 million for Q3. On a GAAP basis, income from operations was a loss of $10.2 million for Q4, compared to income from operations of $118 million for Q3. On a non-GAAP basis, net income for Q4 was $73.5 million, compared to $141.8 million for Q3. This resulted in non-GAAP diluted earnings per share of $0.54 for Q4, compared to $1.02 for Q3. GAAP net income for Q4 was $20.9 million, compared to GAAP net income of $114 million for Q3. This resulted in GAAP diluted earnings per share of $0.15 for Q4, compared to $0.80 for Q3. We exited Q4 with a total cash, cash equivalents, and marketable securities balance of $1.7 billion, compared to $1.78 billion at the end of Q3. As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023, we repurchased approximately 1,183,000 shares of Enphase common stock in Q4, at an average share price of $84.51, for approximately $100 million. In addition, we spent approximately $27.5 million by withholding shares to cover withholding taxes for employee stock vesting and options in Q4. That reduced the diluted shares by approximately 260,700 shares. We expect to continue this anti-dilution plan. In Q4, we generated $35.5 million in cash flow from operations and $15.4 million in free cash flow, which included approximately $46 million of income tax payments, an increase of $38 million compared to Q3. Despite the macroeconomic challenges, we continued to generate free cash flow. Capital expenditure was $20.1 million for Q4, compared to $23.8 million for Q3. Capital expenditure requirements decreased due to a reduction in our U.S. manufacturing spending. Now, let's discuss our outlook for the first quarter of 2024. We expect our revenue for Q1 to be within a range of $260 million-$300 million, which includes shipments of 70-90 megawatt hours of IQ batteries. We expect GAAP gross margin to be within a range of 42%-45%. We expect non-GAAP gross margin to be within a range of 44%-47% with net IRA benefit and 40%-43% before net IRA benefit. Non-GAAP gross margin includes stock-based compensation expense and acquisition-related amortization. We expect the net IRA benefit to be between $12 million and $14 million on estimated shipments of 500,000 units of U.S.-made microinverters in Q1. We expect lower microinverter shipments to customers from U.S. manufacturing in the first half of 2024, as we continue to reduce inventory in the factory and the channel. We expect to increase the U.S.-made microinverter shipments to two-thirds of our overall microinverter shipments in the second half of 2024. We expect our GAAP operating expenses to be within a range of $144 million-$148 million, including approximately $64 million estimated for stock-based compensation expense, acquisition-related expenses, amortization, and restructuring, and asset impairment charges. We expect our non-GAAP operating expenses to be within a range of $80 million-$84 million. We are reducing our non-GAAP operating expenses by 5% in Q1 as compared to Q4, but we will not compromise on investing in customer service, product innovation, and sales. Moving to tax. Since we have utilized most of our net operating loss and research tax credit carryforward, we are now a U.S. cash taxpayer. We expect GAAP and non-GAAP annualized effective tax rate, excluding discrete items for 2024, to be at 20%, ±1% with IRA benefit. In closing, we managed well with our financial discipline through a difficult global environment in 2023. While our total revenue decreased year-over-year by 1.7%, our non-GAAP gross margin expanded to 45.3%, excluding the IRA benefit, as compared to 42.6% in 2022. Our non-GAAP gross margin further increased to 47.1% with the net-net IRA benefit by manufacturing our microinverters in the U.S. In addition, we generated approximately $586 million of free cash flow in 2023 and exited the year with $1.7 billion in cash, cash equivalents, and marketable securities, up over $80 million year-over-year, while repurchasing 3.3 million shares of our common stock for approximately $410 million. With that, I will open the line for questions. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble the roster. Our first question will come from Brian Lee of Goldman Sachs. Please go ahead. Hey, everyone. Good afternoon. Thanks for taking the questions. You know, Mandy, thank you. Appreciate all the additional color and granularity that you're providing in this uncertain environment. I know you sound like, you know, you're pretty confident that Q1 could be the bottom here. You're undershipping by less in Q1 than Q4, and then, you know, significantly lower magnitude in Q2, based on the early read. So just wanna ask, like, given seasonality, the early read on revenue for 2Q, your view that 1Q is kind of the bottom here, like, directionally, can you give us a sense of, you know, are we back into the low- to mid-$300 million revenue range, or, or is it even something higher than that? Just any directional view you can provide as to kinda what the magnitude of that pickup will be off the 1Q bottom. And then I had a follow-up. Right. So just, just to, you know, tell the big, big picture. Basically, I told you that, you know, we have two problems. One is a channel being full problem, channel inventory problem, and the other is the native demand, demand problem. And so, with the demand reduction of about, let's say, 30%-35%, from our overall highs, what we expect is an end customer demand roughly in the range of $450 million-$500 million. That's what I told you the last time. And we were close. Our Q3 end customer demand, Q3 2023, end customer demand was approximately $500 million. Our Q4 2023 end customer demand was approximately $450 million. As you know, we, our numbers are much lower compared to those numbers. So we said we plan to ship $150 million, undership $150 million compared to the end customer demand. So our end customer demand was $450 million in Q4. We undershipped approximately $147 million. We reported number of $303 million, which is $450 million minus $147 million. We expect the sell-through demand is going to be seasonally down approximately by 10% in Q1, and that's typical. And we expect an undershipment of $130 million. So with these two undershipments, we would have taken $277 million out of the channel. And we expect, you know, going forward, Q2, we expect it to be, you know, if nothing happens, it is seasonally better. For us, since we have taken out a lot of inventory in the channel, we then start to approach a native demand of $450 million, depending on, you know, how much residue undershipment that we have in Q2. So while I cannot tell you the exact numbers, you should generally expect our sell-in numbers to improve as we go into Q2. You should expect the sell-through numbers to be seasonally better as you approach Q2. Now, other things that are in our favor, we are seeing Europe. I mean, Europe dropped to quite a low level. We are seeing Europe starting to pick back up. You know, we are seeing France is, is back to the level it was before. We are seeing Netherlands, although Netherlands is not back to the original level, it's far from the original levels, but we see incremental progress on a weekly basis. In addition, we have introduced in the last six months, several new products in Italy, UK, Sweden, Denmark, and a bunch of other countries. We start to see all of those also kicking in. As far as non-California states are concerned, we already said Q4 was stable for non-California compared, you know, compared to Q3. So we think they, non-California states, will also bounce back in Q2. So, while I'm not telling you any numbers, I gave you the directional indication that we expect sell-in numbers to go north. And, and my assumptions are that sell-through behaves according to the typical seasonality pattern that we have seen. California is, of course, a wild card, but we think that, you know, even taking that into account, we expect to do. We expect sell-in numbers or our revenue numbers to go, to go higher sequentially in Q2. Appreciate that. No, that's all super helpful. The second question I had, and I'll pass it on, is, you know, on the battery storage segment, you know, if I look, the mix is a bit more heavy on battery in 1Q versus 4Q, but, you know, your overall ex IRA margin's still holding steady based on the guidance. So it almost seems like you're already seeing better margins on the batteries here in near term. I know you alluded to expansion during the year. Can you kind of give us a sense of, you know, quantification? Another numbers question, I guess, as to kind of where you're at today and what the cadence could look like, 'cause, you know, battery seems like it's gonna move the needle a lot more. Just trying to get a sense for what the, that margin expansion opportunity could be as we move through the next, several quarters. Thank you. Right. The one thing that, I did not say in the script, which I will say now, is the sell-through of our batteries in Q4 was the highest it has ever been. It was at 140 megawatt hours. 140 sell-through in Q4. Our sell-in was only 80. You might ask, "Why is your sell-in lagging behind?" We'd like to get the channel as low as we possibly can. So therefore, we are getting more conservative. We only guided 70-90, but because we want the channel to get cleaned up. So, what is driving that sell-through? If you ask, the answer should be obvious to you based on what I said. California, I told you, sell-through increased by 58%, just on California, due to the NEM 3.0, 3.0 attach. California numbers, Q3 to Q4. Also, you know, we are seeing good momentum in Europe. We have introduced batteries now to multiple regions. We introduced, in June, we introduced to Australia. In September, we introduced to the U.K. Then we introduced it to a bunch of other countries, too, along with it. I'm not breaking all of those out. In December, we launched into Italy, and we'll start shipping there very soon. So our battery demand, you know, I'm happy to say, is very robust. And what we plan to do is to basically, you know, of course, we plan to improve our gross margins. And gross margins, there are three things in gross margins that are obvious. The first two are applicable for our third-generation batteries, and the last one is applicable for the fourth-generation batteries. The cell pack costs are coming down rapidly. Our suppliers are offering us very competitive pricing on cell packs, which is definitely moving the needle. That's one. Number two, for us, specifically, we are transforming our supply chain so that we can make our microinverters for the batteries in the U.S., while we can have the assembly of the batteries in China. That gives us the best-in-class supply chain. And that, we get a IRA benefit of 11 cents a watt, you know, multiplied by 6—640 watts multiplied by six. So for a 5 kWh battery, that's approximately $75 per kWh benefit that we get just for making the microinverters in the U.S., and we plan to do that. The third one is an architectural benefit. When we go from the third-generation battery to the fourth-generation battery, we are, you know, in the third-generation battery, we have six microinverters. We have a battery management board. We have a couple of other boards, a communication board and an interface board, so we have nine boards. So those nine boards will go down to three boards because we are integrating battery management, and we are making the power conversion with a lot more power. So we are going to have a total of three boards, so nine is becoming three. Our power electronics, therefore, the cost bill of materials are dropping down significantly. And, basically, form factor-wise, we drop in the power electronics, the two inverters by the side, on two sides of the cell pack. Therefore, the form factor suddenly becomes very elegant. So not only the form factor becomes elegant on the fourth generation, the cost also is low, is lower, along with taking advantage of the cell pack cost, plus the PC, plus the microinverter assembly, I mean, microinverter manufacturing in the U.S. So we are very encouraged that, you know, gross margins on batteries will continuously go north for us, and I think that will reflect positively on overall gross margins. The next question comes from Colin Rusch of Oppenheimer. Please go ahead. Thanks so much, guys. Can you talk a little bit about the OpEx and the compensation plan going forward here? Obviously, with the lower, non-GAAP numbers that you've talked about and, and the, the higher charge here, is that something we should be thinking about on a go-forward basis, or is there, you know, something else going on here that, that we should, should be attending to? Yeah, I let me give some color, and then Mandy can add more there. In December, we basically announced the restructuring, where we which affected about 10% of our workforce there. And at that time, we were running at an OpEx run rate, approximately in the $95 million-$100 million per quarter. Our desire is to drop that non-GAAP OpEx from that level to a $75 million-$80 million number in the second half of 2024. So we did a few changes. We did a lot of, you know, we eliminated a bunch of other spending before we came to people, but then we were forced to take the action on the people front as well. So all of that is largely behind us, and we have taken. You know, Mandy will talk about the charges that we are taking on GAAP, et cetera. But all of those are largely behind us, and we issued a 8-K in December of 2023. In addition, what we did at that time was, we announced that we are shutting down Romania as well as Wisconsin. It didn't make sense for us to have 10 million microinverters per quarter, and I mean in capacity. And therefore, we worked with our contract manufacturers, and we had to be fair to them. And therefore, we essentially reduced our capacity from 10 to approximately seven. And so that's what we did, and we announced that change as well. So, Mandy, why don't you elaborate on the. Sure. Yes. So, our non-GAAP OpEx reduced from $99 million in Q3, right, to $86 million in Q4, right? And that was before the restructuring effect that will come into effect in Q1 and Q2, right? But throughout 2023, we have been reducing discretionary spend, right, and also hiring freeze, right. And even attrition, we don't backfill. We only backfill critical ones, right? And that's why we got our OpEx to reduce from $99 million to $86 million, right? But in December, we implemented a restructuring plan, right, we further reduced our worldwide headcount, full-time employee and contractors, right, by 10%. So with that, once those restructuring actions are completed by Q2, we would be at $75 million-$80 million run rate a quarter. Okay, that's, that's super helpful. And then just from a pricing perspective, you know, you talked about, you know, kind of select discounts for, for folks in the past. Can you give us a sense of, of how that's trending here, even if the list prices are, are stable, what sort of discounts you're having to offer up to folks? And, and if there's any sort of dynamics around evolution of the product, driving some incremental price benefit for the company. No, there is. I said the same last quarter, I say the same now, and this has been ever since I took over this, you know, we have always had this special pricing adjustment business process, and we do manage that very tightly across the company. And so there has been notably not much change in general in the pricing, you know, environment, and that should be kind of obvious to see based on our gross margins as well. The next question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead. Hey, good afternoon. Thanks, team, and nice inflection. So just in terms of the 500,000 shipments here in one Q here, can you talk a little bit about how you plan to scale up to the 5 billion capacity you have? Obviously, you issued the 8-K here, kind of bringing down overall manufacturing, but can you talk about how you anticipate that ramping here, if you will? Then maybe in tandem with that implicit, how do you see underlying demand trending vis-a-vis kind of returning to that 500 million and then back up to, say, 700 or what have you? Right. So, you know, just to set context, we shipped approximately 900,000 units from our U.S. factories in Q4. So why are we going back to 500,000 in Q1? That's the first question to answer. That, to answer that one, it's basically we are focused our, you know, our inventory, in terms of dollars. Gross value of our inventory is about $200, $200 million, $210 million, roughly. We think that inventory is high. That corresponds to 110 days of inventory, I think. And we think that the number of days of inventory is high, so we are going on a war path to reduce that to best-in-class level. I consider a best-in-class level at 30 days. So, we, that's our North Star. We are going back to 30 days. That means we are going to be ensuring that we don't do any unnecessary manufacturing. So that's, you know, based on that, our first priority is to get that ship set right. And so that's why we said, okay, in the first half of the year, we would essentially do whatever it takes to clear the factory inventory and clear the channel. So you should expect lower shipments in the first half. In the second half, which is where if the demand approaches to, let's say, for example, what you talked about, the $500 million level, that corresponds to approximately 3 million microinverters – 3, three point, you know, three point something million microinverters. You should expect two-thirds of those microinverters to be made in the U.S. For example, if we get back to that $700 million run rate, whenever it is, maybe in 2025, you know, we are talking about 4.5-5 million microinverters, and you should again expect the same thing. Two-thirds of that will be in the United States. So it is a strong function of demand. We have to balance both, the factories inside and outside, and our balancing is two-thirds, one-third right now. Right. And maybe just a corresponding follow-up there briefly, just the $130 million undership, when you think about that being split, again, between U.S. and Europe, you talked about two-thirds, one-third. How do you think about where that undership and the dynamic of that inventory being, you know, today and maybe perspective? Yeah, for Q4, that was, I would say, roughly, roughly it was, I would say 50/50 for Q4 between the U.S. and Europe. I think for Q1, it'll be more tilted towards, you know, 60/40, U.S., Europe. The next question comes from Philip Shen of Roth MKM. Please go ahead. Hi, everyone. Thanks for taking my questions. You highlighted that you think the destocking ends in Q2 now, but prior, you had talked about destocking ending at the end of Q1, and then before that, also by the end of 2023. What's the probability and confidence in your call now that the destocking truly ends by the end of Q2? I don't know if the answer is different for the U.S. market versus Europe. And then how does the impact of some of these meaningful shutdowns and bankruptcies impact you guys and your confidence in your ability to say it's Q2? You know, you've been talking about this $450 million-$500 million normalized run rate, but then, you know, ADT Solar's shut down, SunTuity, Infinity, Vision. So how does that. Those dynamics, 'cause, you know, that number, 450, 500, back in Q4 of last year, when you had the Q3 call, you know, these companies weren't talking about going away or shutting down. So how does that - how has that impacted you guys? Do you, do you assume that others will just pick up the volume? And then we're also watching closely what happens with the SunPower situation. So if that goes negative, you know, what, what are your thoughts on how that can impact Q2? Thanks. Yeah, as far as the channel is concerned, in the October call, I was quite clear. I said, we do expect to undership in both Q4 as well as Q1, and that's, that's right. And we did not, you know, at that time, you are correct, I, I did say we could normalize in Q2. Now, we executed on what we said for Q4. The 150, what I said, we did 147. We expect to do 130. We expect to do a much reduced level of undershipment in Q2. We don't expect to do 130 in Q2. We expect to do a much, much reduced level. So we think the problem will go away for us in Q2, but I, I was conservative. I did tell you by the end of Q2, and we are sticking with that. The next one, bankruptcies. How do bankruptcies affect? Bankruptcies are definitely causing some friction in the short term, but I think what will happen, the industry is resilient. What happens is the end customer demand doesn't change. So therefore, it is a matter of time, and it is unfortunate that these happen. However, these can be readily picked up. It might take a quarter. As long as the end customer demand stays the same, we think other installers will pick it up. We have a diverse group of installers. We have—we work with almost 1,500 installers in the U.S., and so, you know, there is a lot of redundancy there. And so while you are correct, it will cause some short-term friction, but I think that'll soon disappear. Got it. Thanks. And then as you think about the difference between the U.S. and European markets, do you think, can you talk about the destocking situation there? When do you think that is done on a blended basis across the countries? And, you know, which region do you feel like it's better for a faster recovery, U.S. or Europe? Thanks, Madhuri. I think at least our data, our forecasting calculations today show that Europe will be, will recover a little bit earlier. By the end of Q1, I think we should see Europe doing a little better than the U.S., but I think, you know, both of them should be normalized in Q2. The next question will come from Mark Strouse of JP Morgan. Please go ahead. Yes, good afternoon. Thanks for taking our questions. Kind of a follow-up to Phil's question there. Just wondering if you can dig a bit more into the Netherlands. You mentioned it. I think you said it's still weak, but it's getting a little bit better every week. When you're talking to your customers in the field, what are their expectations as far as timing of certainty with the policy over there? And I have a follow-up. Thanks. Yeah. So basically, Netherlands, I have to tell you a story in Netherlands. Essentially, what happened is about 3-4, actually, 6 months ago is what I would say. 6 months ago, the end consumer demand started to go down, and it was kicked off by one of the energy companies charging an export penalty for solar. The company's name is Vandebron. So that caused a lot of fear in customers. The customers are facing, you know, they are, they're suddenly worried about an export penalty for solar. And also, in Netherlands, there is, you know, the situation about net metering hasn't been very clear. When is it going to end? Is it going to continue? And that is, you know, meetings on net metering are actually underway as we speak right now, with the new government. So we'll all of us will hear about that soon. So what we did, we kicked off the new year, January second week, we had a solar next event in Netherlands, where we hosted 800 installers. They all came from across the country. We also hosted a bunch of energy providers, and we also, you know, hosted even the transmission line operators. And we then basically had all of them talk, and we all agreed that Netherlands needs a comprehensive solution that consists of solar, plus batteries, with energy management software, and that will help unlock the full potential of the market. Netherlands has got roughly about 8 million homes. Today, 2.4 million homes have solar, and the worry is those solar-producing homes will cause excessive export, and that will be unmanaged. But with intelligent energy management, with the addition of batteries, and this can turn into a very, you know, quickly, it can turn into very positive because every home will have solar plus a 10 kWh battery, with energy management software, and the payback is still fine, between six and eight years. So we painted, we painted that picture, and we had general alignment with all of the stakeholders. Now, we are following through on all of those with webinars, with actual execution, with our Solargraf tool, for example, so that homeowners can basically understand the value proposition a lot better. In addition, the situation on net metering is starting to get... You know, will start to get clear in the next few weeks. So what I'd say in Netherlands is that, you know, once again, I think, we saw the bottom. The bottom, I think, I think that was the bottom, and then now with what we talked about, solar plus batteries, we are also seeing more attach rate of batteries in Netherlands now. So we predict a pickup in both solar and batteries. Of course, we don't have a crystal ball, we could be wrong. We do think net metering decision will come, and you know, that will, that will be a big deal. We do have general alignment with the energy providers that as long as there's dynamic tariff, there would be no export penalty, and but we do need batteries to manage dynamic tariff. So, I gave you a long answer, but in short, I think the, you know, once again, the bottom, I think, is behind us. Now, you should see a steady uptick there. Okay. That's very helpful, Badri. Thank you. And then just a real quick follow-up. I know you don't break out exactly, country by country or... Given the puts and takes between France and Netherlands and Germany, all of these new countries that you're entering into, any generic guidelines that you can provide the street as far as kind of your major countries, let's just say, Netherlands, France, Germany, what they might represent of your business today? We don't usually break that out, but in the order of significance, at least for 2023 overall revenue, it has been Netherlands, followed by France, followed by Germany. That's how it has been. You obviously heard the situation on Netherlands. I think, I think like what I said, it, it is- it'll soon bounce back. As far as France is concerned, we see steady demand in France. Utility rates are increasing in France, so therefore, I mean, already increased last year, expected to increase again this year, so we think that's a general positive. France is actually growing, and, you know, France is flat right now with all of this, and we expect it to grow given the normal seasonality. Germany is tricky. Germany, for us, has been hit by a lot of the inventory problems, destocking there, we do have some strong partners. We do have a lot of other distributors buying in various regions in Europe and shipping product into Germany. But one trend we are seeing is that our activations, which is every week, we monitor how many systems got connected to the cloud and whether they have solar plus storage, et cetera. So we are doing quite well there. Our activations are increasing quarter-over-quarter. So our theory there is installers are a little more conservative. They are holding on to very less inventory, but they are doing... They are basically installing more Enphase, and so we'll see how that play out, you know, how that plays out. The next two markets that we care about a lot are... You know, Italy and U.K. You know, Italy is basically, it's got about, roughly 1 gigawatt of solar and, you know, with about 70-80% attached of batteries, grid-tied batteries, single-phase market. And we just introduced our IQ8 microinverter there, and we launched our batteries as well in December. We expect to start shipping batteries into Italy imminently, this quarter. In U.K., one more big market, 800 megawatts of solar, attached rate of 80% for storage. And once again, there, it's, you know, we just entered the market in September, and we expect to continuously grow there. So those are the five big markets for us in Europe. And then the little ones are, of course, Spain, Austria, Switzerland. We are working on rapidly improving both microinverters and batteries there, Greece, Poland. And we'll enter into all of the other countries in Europe. These countries, we already have batteries. And, Sweden and Denmark, I forgot them. Sweden and Denmark, the battery attached in Sweden and Denmark is particularly nice in the, in the last few weeks and months. So we are, we're optimistic that, you know, Sweden and Denmark represents a nice opportunity as well. You want to add anything, Raghu? Yeah, I think the trend, if you look at, as Badri mentioned, the addition, all of these markets transitioning from... Some have already transitioned from solar to solar plus battery, means the energy management software becomes a very critical element of it to deliver whatever the use case the homeowner desires. But dynamic tariffs, as Badri mentioned in Netherlands, really can prove can be a, you know, require sophisticated software to manage a day-ahead tariff, an hourly day-ahead tariff, but it can bring tremendous amount of value to the homeowner. For example, in a dynamic tariff environment, you could have negative pricing. And when you have negative pricing, you get paid to charge your battery and charge your EV and turn on your heat pump. In addition, in a lot of these markets, you're seeing grid services programs also come into effect, that pay you, you know, a lot of money. For example, again, in the Netherlands market, because of all the solar that's there, you know, it's a 19-GW grid, and there's 19 GW of solar, and then there's another 8-9 GW of wind. There are imbalance issues, but there's an imbalance market that you can participate in and get paid for the, you know, either charging your battery or discharging your battery. Similarly, in some of the other markets, there is frequency regulation markets that you can participate in and provide, you know, good value to the homeowner because their battery is now basically generating money for you. Same thing, capacity markets in UK are also good markets to participate in as grid services. So you're seeing this move from solar plus batteries, plus energy management, plus grid services is a very compelling movement for value creation for the homeowner. And this trend, we are going to see happening more and more and happening worldwide. The next question comes from Praneeth Satish of Wells Fargo. Please go ahead. Thanks. Good evening. So the metric you gave for battery sell-through, 140 megawatt hours, it's quite high. I guess as we look to the second half of this year, when you've got NEM 3 kind of fully in full swing and the Netherlands bounces back, do you expect battery shipments to increase sequentially each quarter? And do you think it's possible we get to 200 megawatt hours of battery shipments by the end of this year? Ah, I don't have a crystal ball, but generally, yes. Okay, fair enough. And then I guess second question here on the C&I market, just wondering if you could give us an update on the IQ8P introduction, how that's progressing, and whether we would see meaningful revenue this year, or whether that's a 2025 event? You'll see meaningful revenue this year. However, let me step back and tell you about our product, and then, you know, Raghu can talk a little more. So we introduced the product in the fourth quarter, in December, and this is a 480-watt, three-phase, 208-volt market, primarily addressing the U.S. We estimate the market size approximately 1 gigawatt. And basically, this helps us to service 20-200 kilowatts of installations. And we are talking about examples, could be schools, could be hospitals, could be gas stations, could be motels, basically small businesses. So that's the 20-200 kilowatts we are talking about. Our product, called IQ8P, that generates 480 watts of AC. It can service up to 650-watt DC panels. It has got rapid shutdown. We have per-panel monitoring and, of course, highest quality levels, 25 years of warranty. And till now, our long-tail installers have been asking us for this product because they expect the same quality as the residential product. So therefore, they've been asking us. Now, we are able to service, service it. In addition, we also have the Solargraf software, which is the design and proposal software for those commercial installations. So we did ship, we did ship a nontrivial amount of units already in Q4 2023. However, you should understand, this is a business where, you know, it's got a little bit longer, longer time, and it's a project-based business, so therefore, you have multiple parties here in play, which is, which is the building owner, and then he assigns it to a program manager, who basically employs an installer. So, the sale is a little bit longer compared to the residential sale, so it'll take us more time to establish a pipeline. But what I know is, you know, our product will be good. Our product is very high quality, like what I said, so we expect to get our fair share of the market. And, you know, we also expect our shipments into the channel to be continuously up quarter on quarter through the year. The next question comes from Eric Stine of Craig-Hallum. Please go ahead. Hi, everyone. So pretty clear from your commentary in second half, you know, you're expecting to get somewhat back to normal with the sell-in or the under shipments, you know, starting to go away. I'm just curious, as you think longer term, I mean, do you see a scenario where you can get back to, I think you mentioned $700 million, those types of levels, potentially in 2025? I mean, is this a market, even if the inventory in the channel is cleared, do you think that growth is possible in a higher interest rate environment? You know, how do you think about things? And I know you don't guide, but how do you think about things as you get into 2025 versus the second half? I mean, that's the whole point where we are starting to diversify our product portfolio rapidly. We are planning to introduce, you know, we already introduced IQ8 microinverters in 21 countries last year. All of us haven't seen those results yet because of, because of the inventory. But once the channel is lean, we should start to see results from all of those countries. So that's one. We plan to introduce even more number of countries in 2024, which there are still a lot of markets in Europe, Nordics, that are untapped. We are going to introduce microinverters there. In addition, there are also countries in Asia that we are going to introduce, so you'll see that. Next, batteries. You come to batteries. Batteries, I already talked about, the sell-through continuously increasing. I already talked about our product introduction into places like Australia, UK, Italy. These places, we are not that big, and we are going to be introducing batteries into other places as well. India is a big untapped market, for example. So many more places in Asia, as well as, you know, even I would say Latin America, for example. We got lot of countries there which need both solar and storage, so we are focused on multiple countries for both solar plus storage. In addition, we talked about, for Europe, we talked about social housing and balcony solar. These two, social housing, for example, is apartment complexes as well as row houses in Netherlands. You have to picture each house having a small system, about 3 kilowatts, 6 panels, 6-panel system, and our microinverters shine when it comes to small systems. Balcony solar is another example. Countries like Germany, Italy, Austria, allow you to export energy into the grid, and 800, basically, 800 watts of export into the grid. And we plan to basically leverage those markets as well. And each of those is a 250-megawatt market, so that will help us address 500 megawatts. In addition, the other thing we talked about is, you know, EV chargers. We are planning to introduce EV chargers in a lot of countries in Europe, and as you know, Europe is at the forefront of electric vehicles. So EV chargers, for example, UK, Netherlands, Germany, and France, we will have products in the third quarter there, that are shipping. A dditionally, bidirectional EV chargers. Bidirectional EV chargers, yes, you can argue that the price on an EV charger is under $1,000, but when you have a bidirectional EV charger, all of a sudden, your value is a lot higher. We are already working on a GaN-based bidirectional charger, which will interface to the car's battery, around 800-volt DC, and that will convert DC to AC there. And it'll plug in, it'll plug right into our Ensemble energy management system that consists of solar and a home battery. So I talked about microinverters, I talked about batteries, usual markets going into many countries, talked about social housing, Balcony Solar, talked about EV chargers, which is into Europe, as well as bidirectional chargers overall. And then the last one is software. We are going to have energy management software. This is AI-based software, which will do production, consumption, forecasting, and make the right decisions, particularly when it comes to serving markets with the dynamic tariff and imbalance, and that is going to be worth quite a bit for customers. So we do expect to have our fair share there. So, of course, we are always looking at how to increase our revenue per home, and that's our, you know, that's our focus. But we have a lot more revenues in front of us that we need to execute on. Okay, thanks for all the detail. The next question comes from Christine Cho of Barclays. Please go ahead. Good evening. Thank you for taking my question. I just wanted to get some more color on the Netherlands and these dynamic rates, and was curious, with the way they're structuring these rates, is there any sort of risk that homeowners might elect to just take a battery and no solar system to play the arbitrage in rates? And could you give us an idea of how much better the payback is for solar-plus-storage versus just storage under the dynamic rate structure? And then just with how things are progressing there, is there any real reason why anyone would buy a solar system without a battery at this point? Yeah, so you have to look at the intent. The Dutch market is really very, very focused on converting to renewables. So we see the solar-plus-battery to be the predominant market. Of course, there may be some corner cases where we may see people purely doing it for arbitrage purposes, but we primarily see the market to be that battery gets associated with solar. It could be battery plus solar, sorry, solar plus battery, plus EV charger, plus heat pump, and all of that managed by, as Badri mentioned, an artificial intelligence and machine learning-based energy management software. So, so we don't see in the future that there'll be any system that would be solar only. It would be, Storage. So storage only or solar only as well. We expect that there'll always be an. It'll always be an energy system, and that's the transition that the Netherlands market would also undergo very quickly. And by managing dynamic tariffs, which you need very sophisticated software to do, because it's a day-ahead market, and the rate is going to change on an hourly basis, you need very good forecasting of both production as well as consumption. You need to be able to manage all of that. You need to be able to steer when am I going to charge my battery? When am I going to discharge my battery? When am I going to charge my EV soon? When am I going to be able to discharge my EV? Manage your heat pump, buy and sell energy from the grid. All of that is done by that sophisticated software that we have and layer on top of that, grid services through participation in an imbalanced market. This is the direction in which the entire Dutch market will move towards, but always, solar will be a key element of it because that's the intent. Right. And to add a little bit more, is solar-plus-battery self-consumption, the payback, you know, let's say in a world without net metering, that payback will be around, you know, eight to nine years. And then you add on the savings due to dynamic tariffs, where the batteries can help, you know, batteries as well as solar can help manage the situation. That will reduce the payback by a year or so. Then your imbalance also has the capability, imbalance management also has the capability to reduce that payback further down by a year or two. So you get to a very nice payback, which is six years, six to seven years with solar plus batteries and software, gives you good payback. And the good thing is, if you have net metering, those numbers will get even better. Okay. And then, you know, part of the issue of the slowdown in the California recovery is because, you know, California installers don't know how to install the batteries. And California homes are bigger, and I suppose there are more rules here around the batteries and placement, which also adds complexity. The Netherlands homes are much smaller, and from what I understand, the rules there are so lax around the permitting for solar, so I can't imagine that they're going to be that different for storage. Should we think that the actual installation for batteries is easier there and less of an obstacle, as it has been in California? And given I don't think they really have outages, should we think that the batteries and installations will be primarily for load shifting? Correct. And It's exactly that, meaning. Okay there isn't too many outages in Netherlands at all. So right now, if you look at many countries in Europe, they will all talk about only grid-tied batteries. These batteries do not need backup. Of course, we offer backup as well. It is what the customer wants, but you know, customers have been asking for grid-tied batteries. Grid-tied batteries are simpler in a sense, you don't need to worry about backup panel and all that. It is like installing solar. Grid-tied batteries are not in the path of power, like solar. If you want to do backup, you have to insert a switch in between the utility and your home, and so all of that is not required. It is simply an economical play here, and essentially it stores energy, and you can discharge it for use later. So, yeah, I mean, and also, the homes are small, as you rightly pointed out. The battery sizes may be between five and 10 kWh. The sweet spot could be something like a 5 kWh battery for all the installations, and the attach rates in Netherlands could be very high, 80%-90% at 5 kWh, which is not a big dent in the pocket, but enough to, enough to basically have the energy companies feel happy that, okay, the customers have a way to manage and not export solar all the time in an unmanaged fashion. The next question comes from Jordan Levy of Truist. Please go ahead. Afternoon, all, and thanks for all the detail. Maybe just to start quickly on the U.S. battery manufacturing side, and you may have touched on this, but just to get a sense of how we should think about the trending for margins on the battery side versus micros, once you start to bring on that U.S. manufacturing capacity later this year. Yeah. Today, our, I mean, today, our supply chain is predominantly in China, and we assemble our batteries there. Going forward, our supply chain will have two paths. One, we'll still have one with the best-in-class cost structure. We'll have basically the assembly of the battery in China with microinverters made in the United States. So that will help us because the microinverters are made here. The other is the entire battery is assembled in the U.S., including the microinverters, obviously. And the latter one, we plan to have it in the third quarter of 2024. And of course, you know, some customers, especially the TPO customers, will have the benefit of getting an additional 10% in ITC as long as we meet the domestic content requirements, which we plan to meet. So, and we expect, you know, we expect to have a slight premium there to compensate for the cost of assembly in the U.S. So I think either way, both paths will have similar gross margins in my mind, but they will all continuously improve as our cell packs get lower cost and our microinverters are manufactured in the U.S. Appreciate that, and just a quick follow-up. You know, along those same lines, you've been a big pioneer in increasing U.S. manufacturing capacity. This is a question that'll come up probably a lot over the next 12 months, but, or less, but ahead of the election in November, I just wanted to get your thoughts as it relates to any existential threats to the IRA or any of the components of the IRA as we approach the election. Yeah, obviously, we don't have a crystal ball to predict who is going to win the elections, but to some extent, we don't think it will matter. Because at the end of the day, you know, this is about creating jobs and, you know, and investments, and both of which, we have done, given, our factories, both here in, the two factories here in the U.S., both in South Carolina as well as in, as well as in Texas. The next question comes from Kashy Harrison of Piper Sandler. Please go ahead. Good afternoon, and thank you for taking the questions. So, the first one, just a quick follow-up on a comment, Badri, you made earlier. I think you said half of your activations in January were for NEM2, the balance NEM3. Can you just give us a sense of what the NEM2 mix of sell-through was in 4Q? And then, when do you expect that NEM2 backlog to run out completely? Yeah, I mean, I leaned in a little bit and gave you the numbers in January. Those correspond. Those, you know, when I say system activation, this one is even further. It is not. It is, you know, sell-through happens when distributors sell to installers. Activations means those installers finish installation, and it goes up on roofs. So what I gave you was, we, we see homes coming up on our in-life software platform, and we are able to clearly say how many of them are NEM 2, how many of them are NEM 3. So in January, 50% of them were NEM 3, 50% of them, therefore, were NEM 2. If you ask me, what is that ratio in the prior quarter, I don't know, but my guess is, it was approximately 70/30, 70 NEM 2.0 and 30 NEM 3.0 in the prior quarter, Q4. In Q1, I expect it to be more like 50/50. Got it. Helpful. And then just a quick follow-up question. In your discussions with your distributors, has there been any indication whatsoever that they may want to hold less inventory on hand moving forward versus the 8-10 weeks they used to previously? And really the root of the question just stems from the fact that, you know, a lot before you were shipping a bunch of stuff to the U.S. from India, so you have longer lead times, you know, given you were going across the ocean. That changes once Texas and South Carolina ramp and become two-thirds of your shipments. And so I'm wondering if, simplistically, shorter lead times mean less inventory from a distributor perspective. That's correct. It does mean, and at the end of the day, look, I mean, we need end customer demand at the end of the day. Distributors are definitely a critical part of the equation, but we need the end customer demand. So anything that shortens the cycle time is actually good for us. Anything that compresses the overall cycle time, which US manufacturing will do, is good for us because then there is, you know, inventory doesn't have a lot of miles on it. And so, we think that's what you pointed out, will be a net positive for us once we come out of this. The next question will come from Andrew Percoco of Morgan Stanley. Please go ahead. Great, thanks so much for taking the question. Maybe just to, if you can maybe elaborate or give us an update on your SunPower contract, that exclusivity there. I think it was set to end at the end of March here. So if you could just provide an update in terms of how those negotiations are going and maybe what's baked into your guidance in terms of run rate revenue for 2024 as it relates to that contract. Yeah, I mean, we have enjoyed a contract with SunPower for the last five years, almost. It is going to come to a close in Q1. And of course, we are in discussion with them, and I'll just leave it at that. I don't want to comment on any revenue. We don't comment on revenue associated with one customer like that. All of those discussions are confidential, but if there is something, you know, that gets finalized, you will know. Okay, fair enough. And then maybe just one housekeeping item, Badri. I think in your prepared remarks, you mentioned 50% of your customers under NEM 3 are using your battery. But I think you also said the industry data is showing battery attach rates of close to 80%. So can you maybe just comment on what's driving that delta and maybe how you can get a higher attach rate for your battery, specifically on those NEM 3 customers? Right. So basically, that's right. The, the, in general, the attach rate of an NEM 3 solar system is 80, 80%, according to the industry data. So attachment to our solar system, you know, in the past, for NEM 2, for example, for NEM 2, was about 10%, and that has increased now to 50% with, because it just makes sense to add a battery. That's why we said our sell-through numbers became higher by, you know, improved by 58% compared to the prior quarter. Now, your question is, why is Enphase market share not 100%? Why aren't all Enphase solar installations having Enphase batteries? Because customers have a choice. Ours is an AC coupled system, therefore, we have batteries that can, that can tie into that AC coupled system. However, the situation is still a net positive for us because the 10% battery attach is now a 50% battery attach. We are, you know, we are constantly working on having this data and, you know, getting not the 50%. I think, you know, we are doing a lot of work in improving the product. If you look at, both in terms of, ease of installation, commissioning, serviceability, et cetera, and with R3 it gets better, R4 gets, even better, including, you know, it's a very simple, product to install. As Badri mentioned, the form factor is such that, it's a, just makes it much easier, easier to install. So we win the rest of the business as we go, as we continue to make not only hardware product improvements, but also all of the software improvements that we are making. Both of those mean that we will win more of our business. The next question comes from Joseph Osha of Guggenheim Partners. Please go ahead. Hi. Thanks, everyone. Two quick questions. First, talking about storage, we used to talk a lot about commissioning challenges and the time that was involved there. It seems like that's gotten better. I'm just wondering, if we look at developers, and we think about cost, installation difficulties, you know, explaining things to the consumer, you know, what do you think the biggest challenges are right now in terms of, you know, selling storage, especially in California? Yeah, I mean, you know, batteries are hard to sell. You know, first of all, they add cost to your system. And in a high interest rate environment, people, you know, think twice about adding them. Then second is batteries are messy. It is like, for example, if you have to do full backup, you do have to, you know, plan for it properly, and you cannot shortchange your design. It should be a very high-quality product. It should, because when power goes, the battery is the, the battery company is the utility company. So, batteries are tough to do properly. Also, when there is a problem with the battery, servicing is tough. You have to get it off the wall. You have to ship it to the installer. Installer has to contact the supplier. Supplier has to ship a replacement. Installer has to come back. So for installers, it's very difficult, and they have a truck roll, many truck rolls on batteries, more than inverters, more than solar. So what we have tried to do in our third-generation battery, and that is why our battery sales are picking up, is we have tried to take that into account. First of all, the commissioning experience is a lot simpler, so under an hour, you can commission it. Second, if you want to, you can use the battery in a grid-tied environment, even simpler, but it can be used for backup, too. The third one, which is a very important one, is 90% of the time, the batteries can be serviced in situ. In situ means on the wall, while the battery is still on the wall, which means, you know, the common problems that we see, very rarely you see a problem with the cell pack. Problems commonly that we see are with battery management and power electronics. For us, all of them are serviceable bolts, which means a $40 bolt gets out, and a new $40 bolt comes in. Our field service people, Enphase field service people, are there, and we have 100 of them, and basically, they are there, and they take that off the installers, especially in a critical time like this. You don't want the installer to do the service. You want the company responsible, which is Enphase here. Any issues, we take care of it, so that installer can sell. Serviceability is becoming a big differentiator. With our third-generation battery, which is the one that we are shipping today in volume, all of those are best in class. Commissioning, the quality of the batteries, the serviceability of the batteries, the modularity. We have 5 kWh. It's an LFP battery, lithium iron phosphate, with UL 9540A. It's just a better battery on all fronts. Okay. In addition, we also have- I'm sorry. Go. I'm sorry. We also have our design proposal tool, Solargraf, that up front allows the installer to do a very, very good design for the, whatever the homeowner's, you know, expectations are in terms of payback period and upfront cost, et cetera. You can really fine-tune the design of the solar plus, solar plus battery system. It generates a proposal. It takes it a step further. We do single-line diagrams, permit plan, site generation, everything out of this tool. So it's an end-to-end solution that we are providing the homeowner, everything from design to installation, the ease of installation, serviceability and, and really good customer service, and that's what it's going to take for the, for the, for broad, wide-scale adoption of batteries, and you're seeing that happening. I think it's being reflected in the numbers that we shared. Okay, and then just as a follow-on to that, I guess my question is stipulating that, you know, you all have fixed the product issues, which clearly you have. Does there need to be some kind of augmented effort to educate dealers and maybe bring them back into the fold if they've gotten their fingers burned, you know, trying to sell batteries in the past? Or is just saying, "You know, hey, we've got a good product, you know, now trust us," is that enough? So yes, you know, absolutely, it's not enough. We have to do a lot more. We have to do the events such as what we did in Netherlands. It's got to be done at a higher frequency because the NEM3 experience is telling us that we do need to help in whatever way we can, and we are going to do exactly that. We have our sales, I mean, our team actually listening to our installers and their salespeople. We are, you know, we can do a lot more there in terms of simplifying our software so that we can really make sure that the selling at the kitchen table becomes a lot easier, and that's what we are going to do in the next few months. The next question comes from Gus Richard of Northland. Please go ahead. Yes, thanks for taking the question. I just had, first of all, on gross margin, you got it down about 500 basis points sequentially, and I was just wondering, is that a function of mix, or is it a function of underutilization, or is it something else? It's a function of mix and some underutilization reflected. So, okay, can you sort of, allocate to those two, or? No, we are not breaking down numbers. You can see our microinverters is basically- Okay Down, you know, compared to the prior quarter. So, Okay Basically, primarily attributed to that. Fair enough. And then, moving forward, you've got a number of cost downs coming in, you know, gen four battery and, you know, moving to GaN, IQ9, et cetera. I was wondering if you could just talk about, you know, how those, new products and cost downs sort of roll into the, to the model over the next couple of quarters and, and what, if any, impact it will have on gross margin. And that's it for me. Yeah. I talked about the three things on batteries. You know, once again, just to refresh, cell pack costs are coming down. Our microinverters are going to be made in America and then go into batteries, so that supply chain is going to become best-in-class. The third is. The first two are for all our batteries. The third is specifically for the fourth generation, which is improved architecture, integrating power conversion and battery management. These three initiatives should take the battery gross margins up north in a very nice fashion. Then the other one you talked about, GaN-based product. For us, GaN, we are essentially looking to release in our next generation inverter. That's called IQ9. IQ9, at this point, we are thinking of two power flavors, and approximately 427 watts of AC and 540 watts of AC. The challenge for us, and that's a challenge to the team, is to basically get the cost structure of the 427-watt product to actually be smaller than the product we are shipping today, which is IQ8, IQ8 product. We think it is possible because of one particular innovation there: is, along with GaN, we have something called as BDS, which is bidirectional GaN. So today, we use 4 silicon transistors at the output stage, and that can go into two GaN FETs because they are bidirectional. So therefore, GaN can actually, even if the GaN transistors themselves, you know, the overall cost of those GaN transistors may be the same as silicon. Even if that is the case, GaN comes with a lot of other advantages, like, for example, your, your transformers can now become a lot smaller if you run your FETs at a higher frequency. So in general, the inverter can get smaller, and the challenge for us is, how do you pack that power, 427-watt power, into the same form factor as IQ8 with a reduced cost structure compared to IQ8? That will allow us to make a lot of money, plus make those inverters in the U.S. The next question comes from Moses Sutton of BNP Paribas. Please go ahead. Hey, thanks. Thanks for fitting me in. So, Badri, I understand the sell-through and channel correction points, as well as your answer to Phil. What are your thoughts on the still shifting demand? So it looks like if you look at the front-end data, there are still states where demand is still dropping in real time, like even into January, and pricing for loans and leases hasn't inflected or hasn't at least changed to inflect organic market growth. How do you pull that together when you're thinking through your comments, specifically for, you know, 2H? Yeah, I mean, look, we all know that there is a seasonality factor for non-California states, but the fact of the matter is, at least our data, non-California states have, if you look at Q4 versus Q3, they're flat in terms of microinverters. And we think, we think they will bounce back coming off the seasonality. That's what we think. And then I already talked about the puts and takes on Europe and why we think Europe will also move continuously, not because they are at the bottom right now. California is, of course, a wild card. But there, you see, I think our downside will be limited because, as I told you, the revenue of an NEM 3.0 system is roughly 1.5 times that of an NEM 2.0 system for us, considering the attach we are seeing. I think in general, you know, of course, you know, I could be wrong if Q2 doesn't recover seasonally, but that's not what we have seen in the past. Got it. Got it, very helpful. And I guess just squeezing one more. In the unlikely event that IRA risk is on the table, or at least some modification to 45X credits, would you still be comfortable with 70% of manufacturing capacity in the U.S., or would you shift back to some other balance? I mean, look, we at that time, we will analyze the data in front of us. But look, that's why we break out for you gross margin without IRA and gross margin with IRA, because we never want to, we want to be straight with the gross margin, the native gross margin of the business. That's why we break it out. So if it doesn't make sense economically to manufacture here, that we have the same two contract manufacturers worldwide, and our lines can be shipped anywhere in the world. And of course, it is tough, and we will work with the contract manufacturer in terms of the labor, et cetera. And it is tough, and we'll do the right things there. But, you know, if the economics aren't there, we will not be there. The next question comes from Maheep Mandloi of Mizuho. Please go ahead. Hey, thanks for squeezing me in as well. Just a question on the gross margins. It looks like the gross margins, excluding 45X, is more or less in line quarter-over-quarter. But I guess the biggest delta is coming from the 45X tax credits in the quarter. Is that just a reflection of lower U.S. shipments or anything specific to kind of read into that on Q1 guidance? Yeah. Based on the Q1 guidance, our non-GAAP gross margin before IRA benefit is more or less in line with Q4 actual. But, with II, with IIA benefit, non-GAAP gross margin dropped by five points, 100% attributable to the IIA units. We plan to ship only 500,000 units in Q1, and that translate into about $13 million net IIA benefit reduction in Q1 versus Q4, and that $13 million is about five points. Got that. And on the IRA benefits, I'm not sure if this is us, but is it, can you talk about, like, if we can get the benefit on the microinverters added in the IQ batteries going forward? Yes, that's our expectation, that the microinverters, as long as they are manufactured here in the U.S., will also get the same benefits. The next question comes from Tristan, Tristan Richardson of Scotiabank. Please go ahead. Hi, good evening, guys. Just one for me. We'll keep it brief. Badri, I know quarter in and quarter out, you all, you make it clear that there, there's always competition, and I know earlier in your prepared comments, you say market share has been stable. Can you talk about this concept of component integration? If a competing battery that has an integrated central solar inverter, do you see any sort of threat in some of these high-attached geographies where you could see a shift in preference over power architecture? Yeah, I'm gonna have Raghu. Yeah. So look, we have said this before as well, competition's not new for us. We've been in a very competitive environment since the inception of the company. Specifically, we've been in a very tough competitive environment when it comes to fighting against, you know, string inverters or centralized topologies. So these are the kind of competitions we actually like. We have a very strong value proposition, vis-a-vis centralized or string inverter topologies. You know, the better performance, much higher reliability, much simpler to design, install, and maintain, as well as, safety around not having any high voltage DC in our system. Now, the added sophistication of our system with solar integration of solar, batteries, EV chargers, heat pumps, and all the energy management software that, we layer on top of that, creates a better moat. So this is not just about, a, you know, widget sale or a piece of hardware. This is now a complete solution sale. Furthermore, the solution means you need to have upfront design tools, which can help the installer design design the appropriate system for the homeowner. Of course, make it very simple, plug and play to install. And then on the other end, provide great, customer service for serviceability so that the homeowner is, taken care of. So competition's not new. Particularly competition against centralized topology is absolutely not new. We have honed our skills on that. But we are also, you know, very aware and paranoid about competition, so we make sure that we are continually improving our product. Great. Appreciate it, Raghu. The next question comes from Vikram Bagri of Citigroup. Please go ahead. Good evening, everyone. For me, two quick questions. I wanted to ask about pricing slightly differently. Is there a market share opportunity that you guys see with you holding stronger margin than your peers and room to sacrifice some of that margin to more permanent discounts than SPAs? Especially, Badri, you talked about new markets, Italy and launching batteries in India. Do you see that as an opportunity to gain more market share rapidly? And then more broadly, is there anything else on your radar that may make you rethink pricing? Is it just competition and more sort of like cost cuts, component cost cuts that will drive pricing, or if there's anything else on your radar that could change your view on pricing? Yeah, it's a question I keep getting asked. We price products based on value. Value means our pricing is the next best alternative, plus the value we generate on top of it. If we don't generate value, then, yeah, I mean, we are a commodity product. So that's not what our intention is. We have a differentiating value proposition. Microinverters, it's quality, it's service, it's reliability, it is superior power, power production performance. And in batteries, you know, we are getting there. So high quality for me is high price, right? Or we have the capability to demand a premium. And in microinverters, as you can see, even with those high prices, we, our market share is very healthy. So I don't believe that we need to drop pricing in order to gain market share. You need to have the product that solves the customer problems. At the end of the day, you need to take care of customers well, and they will reward you by paying you the premium that you deserve. So that's our philosophy, and we intend to stick to that. Thank you. The next question may be for Mandy. I was wondering how are you thinking about use of cash and intrinsic, intrinsic value here? $100 million of buybacks if price is significantly below $100. Given where the stock is trading, should we expect buybacks to meaningfully slow down, or would you still look to offset the share-based compensation dilution through buybacks in forthcoming quarters? Thank you. Sure. So Q4, we say we already buyback $100 million, right, at $85 per share. A quarter before, we bought $110 million, right, at $130 per share, right? Q1, we plan to do similar magnitude of share buyback, as long as we believe our share price is below the intrinsic value, right? We are very disciplined in doing share buyback. Every quarter, we look at the current share price, and then we propose for the board to approve, and we execute. The next question comes from Pavel Molchanov of Raymond James. Please go ahead. Thanks for taking the question. Just one from me as well. It's been about a year since you last made an acquisition. As I recall, it was one of the software developers. Can you talk about how you're thinking about M&A? And specifically, are there some, you know, quasi-distressed opportunities in the current environment that, you know, perhaps are more interesting than before? Yeah, we have... You are correct. We have made some reasonable, you know, acquisitions. Solargraf is an example of one. The permitting services is one. EV charging is one. And we are working on all of them, so we're careful about choosing what we want, and then we try to make them an integral part of the system. So what are the opportunities like that? And we constantly keep looking for those. The key places where we would look for is, I mean... Okay, first of all, what we are not going to be looking for is, we are not an installer, so therefore, we don't buy, you know, installation companies. We are a technology player. So there- and, you know, for example, on microinverters, we have all the necessary IP. We aren't going to look for anything outside. In places such as home energy management software, there's always opportunity for us, especially, you know, leveraging AI and, you know, ML talent to make, to accelerate our progress there, because I think energy management software will become the next frontier. That's one that we are always looking for opportunities. The other is on batteries, of course, innovative technologies on batteries. Batteries getting better and more reliable, more, you know, energy density becoming a lot higher. That's, of course, an area that we continuously look at. Those are the ones that are on our radar, you know, right now. But we look at a lot of companies, and when we make some decisions on those, you'll know. But we are very disciplined. We don't just buy companies because we have cash. Those companies need to fit into our company well. They need to be bolt-on acquisitions, what we like, and we care about integration a lot. That's important for us. If there's an opportunity and a match, we'll move, and you'll know. Thanks very much. The next question comes from Austin Moeller of Canaccord. Please go ahead. Hi, good evening. Just a question from me here. If, say, in the U.S. market, if interest rates fall by 50-100 basis points this year, do you expect to see more demand of combined orders from microinverters with batteries? Or do you expect the initial demand will primarily be for microinverters? Thank you. I think, you know, in the non-California states, it'll obviously be for microinverters because the battery attach is small. But in California, I hope, you know, it will move the needle for both microinverters and batteries. Great. Thanks for the color. 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. Yeah, thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.