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Enphase Energy Q4 2021 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Karen Sagot
    Investor Relations
  • Badri Kothandaraman
    President and Chief Executive Officer
  • Eric Branderiz
    Chief Financial Officer
  • Mandy Yang
    Chief Accounting Officer and Corporate Treasurer
  • Raghu Belur
    Co-founder, Chief Products Officer

Analysts

Presentation

Operator

Thank you for standing by and welcome to the Enphase Energy Fourth Quarter 2021 Financial Results Conference Call. [Operator Instructions]

I would now like to introduce your host for today's program, Karen Sagot. Please go ahead.

Karen Sagot
Investor Relations at Enphase Energy

Good afternoon and thank you for joining us on today's conference call to discuss Enphase Energy's Fourth Quarter 2021 results. On today's call are Badri Kothandaraman, Enphases President and Chief Executive Officer; Eric Branderiz, Chief Financial Officer; Mandy Yang, Chief Accounting Officer and Corporate Treasurer; and Raghu Belur, Chief Products Officer.

After the market closed today, Enphase issued a press release announcing the results for its fourth quarter ended December 31, 2021. During this conference call, Enphase management will make forward-looking statements, including but not limited to statements related to Enphase Energy's expected future financial performance, the capability of our technology and products, including features, performance in our operations, including manufacturing and customer service, the anticipated growth in our sales and in the markets in which we operate and target, the benefits to homeowners and installers, and regulatory issues. These forward-looking statements involve significant risks and uncertainties and Enphase Energy's actual results and the timing of events could differ materially from these expectations.

For a more complete discussion of the risks and uncertainties, please see the company's Annual Report on Form 10-K for the year ended December 31, 2020, which is on file with the SEC and Annual Report on Form 10-K for the year ended December 31, 2021, which will be filed with the SEC in the first quarter of 2022. Enphase Energy cautions you not to place any undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations.

Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted, and have been adjusted to exclude certain charges. The company has provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in its earnings release posted today which can also be found in the Investor Relations section of its website.

Now, I'd like to introduce Badri Kothandaraman, President and Chief Executive Officer of Enphase Energy. Badri?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Good afternoon and thanks for joining us today to discuss our fourth quarter 2021 financial results. We had a good quarter. We reported revenue of $412.7 million, shipped approximately 3 million microinverters, and 100.2-megawatt hours of IQ batteries. Achieved non-GAAP gross margin of 40.2%, and generated free cash flow of $84.1 million.

We started production shipments of our IQ8 Microinverters for customers in North America during Q4, and we have been very pleased with customer feedback so far. We exited the fourth quarter at approximately 40, 17, 24. This means 40% gross margin, 17% operating expenses, and 24% operating income, all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35, 15, 20. We will go into detail about our financials later in the call.

Let's now discuss how we are servicing customers. Our Q4 NPS worldwide was 69% compared to 67% in Q3. Our North American NPS was 73% compared to 71% in Q3. Our average call wait time increased to 8.9 minutes in Q4 compared to 5.5 minutes in Q3 as we onboarded new installers and fielded more calls on our batteries. The ramp of our batteries has significantly increased call volumes as new installers learn how to commission the system and homeowners learn about the system's features. We are not happy about the higher wait time and we are working on it to reduce it under a minute through staffing and training. During Q4, we also increased the number of field service technicians in the US and Europe to provide onsite help to our installers, particularly on batteries.

Let's talk about manufacturing. Our operations team did a great job flexing manufacturing as 2021 played out. As we have discussed in the past earnings call, the global supply chain situation -- the global supply chain is still under a little bit of stress, but our situation has been stable, primarily due to diligent supplier management and qualification of alternate suppliers during the past year. Our supply of AC FET drivers is at a very healthy level and we have five sources for AC FET drivers. For ASICs used in our microinverters, our supply was quite healthy in Q4 and we continue to manage it closely as we ramp IQ8. And we have two foundry sources for our ASICs. With the growing demand for our microinverters, we remain vigilant regarding the global supply chain and logistics.

Given our strong demand, we added a fully automated line in Q4, bringing quarterly capacity to 2.25 million microinverters in Mexico. We had already added a second fully automated line earlier in 2021 at our contract manufacturer, Salcomp in India, bringing that quarterly capacity to about 1.5 million microinverters. Along with our existing capacity in China, we can now do a little more than 5 million microinverters per quarter in total for all microinverters worldwide.

We are also planning to add a contract manufacturing facility for microinverters in Europe by the end of this year. We see rapid growth in the region and would like to service customers better. Let's now talk about batteries. Our two sources for battery cell packs have increased that capacity to 180-megawatt hours per quarter from 120-megawatt hours. Our existing cell pack suppliers are capable of adding even more capacity if needed and we are continuing discussions with additional cell packs suppliers as well. As always, there were a few components that we are managing to ensure we don't have a supply disruption. There is never a dull day for our operations team in these times. Our lead times for batteries are still long today at approximately 14 weeks to 16 weeks, primarily due to logistics challenges, which are global. The lead times should come down once global shipping and port congestion conditions improve.

Let's move on to the regions. Our US and international revenue mix for Q4 was 82% and 18%, respectively. For 2021, we achieved record revenue across all regions with more than 78% growth year-on-year. Our US and international revenue mix for the full year was 80% and 20%, respectively. In the US, the revenue increased 74% year-on-year. We reported record revenue and sell-through from our distribution partners to installers for both microinverters and batteries in Q4. Our microinverter channel inventory was at a healthy level at the end of Q4, but our storage channel inventory remained tight due to strong demand and logistics challenges. We expect microinverter channel inventory to remain healthy in Q1 and storage channel inventory to improve.

In Europe, revenue more than doubled year-on-year. I am very pleased with our team's performance and excited about the growth in 2022. During 2021, we expanded into Italy with solar microinverters and introduced batteries in Germany and Belgium. We do plan to introduce batteries in other countries in Europe, steadily, throughout 2022. In Asia-Pacific region, revenue increased 80% year on year. Heading into 2022, we look to capitalize on the industry's recovery from COVID restrictions as well as recent regulatory changes that are favorable to our software-defined AC architecture. We plan to introduce batteries in Australia in the second half of 2022.

In Latin America, revenue increased 77% year-on-year. We remain quite bullish about our solar plus storage business in Puerto Rico and expect steady growth there in the next few quarters. We are also very pleased with the progress we are making in Brazil as we started ramping IQ7+ microinverters, installers in Q4.

Now that we covered all the regions, let's discuss the overall bookings for Q1. Our overall customer demand for Q1 is quite robust for both microinverters and batteries and exceeds the higher end of our guidance range. The component availability is certainly better than what we experienced last year. We are primarily left with logistics challenges which are global in general and not very specific to Enphase. We are quite optimistic that our supply will catch up to demand during the year.

Let's talk about our storage systems. We shipped 100.2-megawatt hours of IQ batteries, which was a significant 53% increase from Q3. As I mentioned, our lead times are little long at around 14 weeks to 16 weeks, mainly due to logistics challenges. We expect to ship between 110-megawatt hours and 120-megawatt hours of batteries in Q1. This represents a 15% growth from Q4. Due to the increase in logistics costs, which are significant, and increase in component cost driven by inflation, we are implementing a modest price increase on our batteries beginning March of 2022.

Let's talk about installer training on battery. By the end of Q4, we trained approximately 4,845 installer personnel, representing approximately 2,000 and plus -- 2,000-plus installation companies. Our hands-on storage training continued through the use of mobile vans and regional training centers in the fourth quarter. We are continuing the work on commissioning times for installers while adding features such as load control and generator compatibility to our batteries. We expect to introduce batteries in North America and Australia with a modularity of 5-kilowatt hour and double the continuous than peak power in the second half of 2022. We believe this will not only enhance the customer experience significantly, it will also bring down the cost.

Let's talk about new products. We started production shipments of IQ8 Microinverters for customers and North America in Q4 -- late Q4. The IQ8 fundamentally changes the paradigm for solar technology, which otherwise requires a grid connection to operate. IQ8 can form a micro-grid during a power outage using only sunlight, providing backup power even without a battery. For homeowners who want a battery, there are no sizing restrictions for pairing an Enphase battery with an IQ8 solar system. We also expect to introduce IQ8 Microinverters internationally in the second half of 2022.

Let's now talk about the IQ8D full system for small commercial solar application. We have achieved compliance on the 640-watt AC microinverter for North America and we are now focused on getting the full system and installer platform ready. We expect pilot shipments of the full system to select installers in this quarter, Q1, with volume shipments beginning in Q2.

Let's go to ClipperCreek, an acquisition we completed in Q4. ClipperCreek offers EV charging solutions for residential and commercial customers in the US. They have been a pioneer in the EV charging market since 2006 and have sold more than 110,000 Level-2 charging stations, AC charging stations, since inception. The business is very healthy and the gross margins are in line with Enphase.

The ClipperCreek brand has a reputation for quality -- high quality and great service, which we like a lot. Let me outline our plans for ClipperCreek. We plan to transfer manufacturing to our contract manufacturing facility in Mexico by the end of this year, so that we can rapidly scale the business and support demand. We are also looking forward to introducing the products imminently to distribution and installation partners in the US. In addition, we plan to introduce connectivity in every charger we'll be shipping to enable EV charging with the Enphase app. This will enable charging on a schedule, tariff optimization, and charging with green electrons from an Enphase solar-plus storage home energy system. For the long term, we plan to work on bi-directional charging and grid services integration for vehicle to home and vehicle to grid applications.

Let me go to grid services. In December, we announced our participation in Arizona Public Service, APS Residential Battery Grid Services Program. The program offers homeowners who install Enphase -- Enphase batteries in APS' territory the chance to participate and earn money through one-time upfront incentives. We believe this new program from APS will help accelerate the adoption of Enphase systems in Arizona. We have previously discussed our participation in the Connected Solutions Program and Hawaiian Electric Battery Bonus Grid Services Programs. As a reminder, Connected Solutions is an incentive program implemented by three utilities in Connecticut, Massachusetts, and Rhode Island to reduce electrical demand during high use periods. The Hawaiian Electric Battery Bonus Grid Services Program offers incentive for homeowners on the Island of Oahu, who install a new home battery.

We also have about a dozen new grid services engagements in the pipeline and we look forward to working with more utilities and aggregators in the months ahead. Let's talk about the installer digital platform. We are working to release Solargraf Pro later this quarter to improve the installer experience with an all-in-one solar and storage design and proposal tool that incorporates shading analysis, the ability to detect abstractions on the roof, and 3D modeling of homes, all driven by AI. The product is currently being piloted by key installers, yeah, some of our top installers, and will be released later this quarter. The former solar business of DIN Engineering, now Enphase Noida, provides proposal and permitting services. There, we have added significant resources to accelerate automation and we expect to offer enhanced permitting services in the second half of the year.

As part of our efforts to further strengthen the installer digital platform, we acquired 365 Pronto in Q4. The company offers the predictive software platform dedicated to simplifying maintenance by matching cleantech asset owners to a local and on-demand workforce of service providers. The software platform will provide our installers the ability to service their own O&M contract.

Let me now give you an update on our Enphase Installer Network or EIN. We have now onboarded approximately 1,130 installers to our EIN worldwide through a highly selective process focused on installation quality and an exceptional homeowner experience. Next, I would like to comment on the California NEM 3 Proposed Decision or PD which was announced originally in December. In our opinion, the PD in its current form unfairly penalized the solar only systems by imposing fixed charges, significantly reducing export compensation, and retroactively changing the length of the original NEM contract. The PD was meant to encourage the transition from solar only to solar-plus storage. While we believe this transition is a correct, long-term goal to meet California's energy targets, storage is not yet fully mature for a 100% attach in terms of cost, in terms of supply, in terms of permitting, warranty, and training. We would like to see a modified PD where the fixed charges are removed, the original length of the existing NEM contracts are restored, and a multi-year glide path is established to gradually reduce the export compensation. We are working diligently with various stakeholders to try and influence a better outcome in order to eliminate any market disruptions and create a win-win for all rate payers and utilities.

In summary, we are pleased with our overall performance. As a reminder, our strategy is to build the best-in-class home energy systems and deliver them to homeowners through our installation and distribution partners, enabled by an installer digital platform. With our recent acquisitions, we are now able to offer more complete home energy systems to our partners comprising of solar, batteries, grid services, load control, EV chargers, and even compatibility with most third party generators. We can also now offer design and proposal software, permitting services, installation and commissioning software, fleet management and monitoring software, and finally, O&M services for our installers through the digital platform.

I would like to thank our employees for their hard work towards strategy and continued dedication to advancing a sustainable future for all. Before I turn the call over to discuss our financials, I want to inform you that Eric is retiring from Enphase. His last day at Enphase will be February 14. He has been a great partner to me over the last three-and-a-half years, and the financial leadership helped drive a sustained profitability and shareholder value. We would like to thank him for his service and wish him well as he takes time to spend with this family.

I'm pleased to announce that Mandy Yang, our Chief Accounting Officer and Corporate Treasurer has accepted the role of CFO, effective February 15. With Mandy as our CFO, we will have a seamless transition as we continue to deliver growth and operational excellence. Eric will be in a -- in an advisory capacity with Enphase through June 30 to assist with this transition.

With that, I will hand the call over to Eric for his review of our financial results. So, Eric?

Eric Branderiz
Chief Financial Officer at Enphase Energy

Thanks, Badri, and good afternoon, everyone. I would like to convey my deep gratitude for my experience at Enphase. I have had the pleasure to work with not only a very talented executive team, but also a remarkable group of professionals who have shown such hard work and dedication to the company. I want to especially thank Badri for his partnership and leadership in driving them first success [Phonetic]. I plan to remain a shareholder and I wish the company continued success.

I will provide more details related to our fourth quarter of 2021 financial results and hand over the call over to Mandy to provide our business outlook for the first quarter of 2022. We have provided a reconciliation 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 $412.7 million representing an increase of 17% sequentially and a quarterly record. We shipped approximately 1,082 megawatts DC of microinverter and 100.2-megawatt hours of IQ batteries in the quarter. Non-GAAP gross margin for Q4 was 40.2% compared to 40.8% in Q3. Non-GAAP gross margin was impacted by product mix. GAAP gross margin was 39.6% for Q4. Non-GAAP operating expenses were $68.2 million for Q4 compared to $57.3 million for Q3. The sequential increase was primarily due to increased investment in product launches, R&D, and IT infrastructure. And GAAP operating expenses were $105.6 million for Q4 compared to $103 million for Q3. And GAAP operating expenses for Q4 included $35 million of stock-based compensation expenses and $2.7 million of acquisition-related expenses and amortization for acquired intangible assets.

On a non-GAAP basis, income from operations for Q4 was $97.7 million compared to $85.9 million for Q3. On a GAAP basis, income from operations was $57.7 million for Q4 compared to $37.4 million for Q3. On a non-GAAP basis, net income for Q4 was $102.8 million compared to $84.2 million for Q3. This resulted in non-GAAP diluted earnings per share of $0.73 for Q4 compared to $0.60 per share for Q3. And GAAP net income for Q4 was $52.6 million compared to GAAP net income of $21.8 million for Q3. GAAP diluted earnings per share was $0.37 for Q4 compared to diluted earnings per share of $0.15 for Q3.

We exited Q4 with a total cash, cash equivalents, and marketable securities balance of approximately $1 billion compared to approximately $1.4 billion at the end of Q3. We repurchased our common stock for a total amount of $300 million in -- on the open market in December 2021 and gained [Phonetic] our previously announced $500 million share repurchase authorization. Together with the $200 million of share buyback in May 2021, we repurchased approximately 3.2 million shares in 2021 for a total of $500 million with an average price of $155 per share. This represents approximately 2.4% of our outstanding shares.

In Q4, we generated $97.2 million in cash flow from operations and $84.1 million in free cash flow. For the year 2021, we generated a record $315.5 million of free cash flow. Capital expenditure was $13.2 million for Q4 to expand both microinverter and storage manufacturing capacity, as well as cost related to new product development.

I will now hand over the call to Mandy to discuss our Q1 outlook. There is no greater joy for me to see her accept [Phonetic] in this role of the CFO of Enphase. I cannot think of anyone more capable or with higher integrity to take on the challenges of this function as the company continues to grow, both organically and in complexity. Mandy is a remarkable professional with the right combination of finance and accounting technical skills coupled with a proven track record of building large global finance teams. Under her leadership, she will take this function to an even higher level of excellence. Mandy has been Chief Accounting Officer and Corporate Treasurer at Enphase for the past three-and-a-half years and has done on an outstanding job leading the controllership, finance operations, internal audit and control treasury, and tax functions of Enphase. With this transition to her as the new CFO, we will not miss a beat. And I'm very pleased she has accepted this new role. Mandy?

Mandy Yang
Chief Accounting Officer and Corporate Treasurer at Enphase Energy

Thanks, Eric. It's been great for me to work with Eric at Enphase. Under his leadership, we have built an exceptional finance team and I look forward to building on that foundation. We see our revenue for the first quarter of 2022 to be within a range of $420 million to $440 million, which includes shipments of 110 megawatt hours to 120 megawatt hours of IQ batteries. We expect GAAP gross margin to be within a range of 37% to 40%. And non-GAAP gross margin to be within a range of 38% to 41% which exclude stock-based compensation expenses and acquisition-related amortization. We expect our GAAP operating expenses to be within a range of $130.5 million to $133.5 million, including a total of approximately $63 million estimated d for stock-based compensation expenses and acquisition-related expenses and amortization. The estimated stock-based compensation expenses include approximately $12.3 million, accrual for the earnout that are tied to certain performance targets for preparing the company's stock [Phonetic] for the acquisitions of ClipperCreek and 365 Pronto.

We expect our non-GAAP operating expenses to be within a range of $67.5 million to $70.5 million. With that, I will now open the line for questions.


Questions and Answers

Operator

Certainly. [Operator Instructions] Our first question comes from the line of Philip Shen from ROTH Capital Partners. Your question, please.

Philip Shen
Analyst at ROTH Capital Partners

Hi, everyone. Congrats on the strong quarter. Our checks suggest demand for the battery product is very strong, even in the face of the two recent price hikes. When do you expect your battery volumes to possibly hit 180-megawatt hours and when could a third supplier or the capacity within the existing two suppliers be increased? Thanks.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, thank you, Phil. We are very happy with our demand on batteries. So, I'll give you some color on how we have done in the last year. You know, first of all, our battery is AC coupled, it's modular, low voltage DC operation, uses lithium-ion phosphate, which is extremely safe chemistry, air-cooled, no need of any fans. Additionally, we offer 15-year warranty, no single point of failure. Through the last year, we have offered load control, we have offered power start, generator compatibility, and all of those are bells and whistles that we have continuously added on top of our batteries, the basic functionality. In addition, the most important thing I am proud of, we have trained over 2,000 installers, long-tail installers. It's no secret that long-tail installers is Enphase's bread and butter. We have trained 2,000-plus installers, installation companies, that is. And then, out of that 2,000, that is 1,300-plus installers were certified which is they have done an installation, they took the training, they did an installation and we certified them. Extremely difficult to do, one installer at a time, in the last year. And we believe that's the reason why our business is very strong and diversified.

At the same time, in the last year, almost on a weekly basis, we have done weekly round tables with our installers, where in every meeting we have 10-plus installers around, and they are not afraid to talk about issues. And I'm not saying we are perfect. But what we promise installers is we take feedback, we work on it, we improve our product and we make our product better and better and better. That's why you saw us growing 53% from Q3 to Q4 and those are nice numbers, by the way. From a supply chain perspective, every quarter we are doing better on batteries. But it is no secret that the logistics challenges are global. And that's what is causing a 14-week to 16-week lead time on batteries. When do I expect it to get better? I expect it to get better continuously throughout 2022. And it is global, nothing specific with Enphase. Of course, we have pockets of shortages here and there, but our team has become excellent at navigating all of those very well.

So, I expect continuous growth in batteries throughout the year. I'm not going to give you a number on when we will break the 180-megawatt hours and if we break the 180-megawatt hour zone, our cell pack suppliers are willing to flex and they will take us to a little bit more. So, we are not worried about that too much. Right now, we are focused on servicing customers properly, adding new installers and making sure we improve customer experience.

Philip Shen
Analyst at ROTH Capital Partners

Great. Thanks for that color, Badri. And in terms of my follow-up, was wondering if you might be able to share where the margins on the storage product is or are today and with the price increases, does that correspond with the 7%, I think, expected for March 1 increase? Does that correspond directly to that margin and how do you expect that battery margin to trend through '22?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

We're not breaking out the battery gross margin. The overall company gross margin was 40.2% in Q4. And I'll talk -- I'll give you guys some general color on gross margins. And in the last year, the overall -- the overall industry almost all industries, I have seen lot of component shortages and logistics, no problems, which is from a component cost perspective, the cost have increased significantly. And the same thing on logistics, a container before, which was $3,000, it is now $18,000, 6 times increase.

So, our costs have gone up, but what our team has done is remarkable, which is both our microinverters and batteries, we are able to still take costs, so yeah, a couple of examples, which I mentioned in the Analyst Day was the bulkhead. The bulkhead on our microinverter, that's the project we've been talking about for some time. It is a painful learning for us, but it's a very important project because it helps us to remove an adapter cable shipped with the microinverters. And if we shipped -- I mean, if we remove that adapter cable, the cost of the microinverter obviously goes down.

So with initiatives like that, our costs has actually gone down, but because of the component shortages, the suppliers have raised -- costs I know which is understandable, and due to inflation as well. So, similar on batteries. On batteries, the same dynamics with reference to suppliers. What are we doing about it? Every day, we work on the tactical stuff, how can we optimize enclosure, how can we optimize the battery management circuit. And then, we are going to introduce a product in second half of 2022 where because we are going to increase the modularity a little bit from 3.3-kilowatt hours to 5-kilowatt hours, we gain economies of scale there. So that's going to help us improve the cost on batteries, come the second half of 2022 structurally.

In addition, on top of that, I showed you in the Analyst Day that early in 2023, we'll have a radically new structure, at least for power conversion and battery management where we integrate both power conversion and battery management into a single board, both hardware and software unified. And then there is only one board between the battery and AC line versus we have 7 boards that we showed you in the -- on the Analyst Day. So we are extremely excited by that product and that will help us to get even more flick down on costs, as customers expect the optimal pricing from us. So -- hopefully I gave you some color.

And so, we are quite confident of the gross margin trajectory and we are going to make a lot of progress soon.

Philip Shen
Analyst at ROTH Capital Partners

Great. Thanks, Badri. I'll pass it on.

Operator

Thank you. Our next question comes from the line of JB Lowe from Citi. Your question please.

JB Lowe
Analyst at Smith Barney Citigroup

Hey, good morning, guys. Question was on the 14 [Phonetic] margins. I know the costs are increasing, but the margins you said were down due to mix. Can you just walk through what the product mix was and how it affected margins in 4Q?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Well, like what I said -- the product mix, we are talking about a drop from 40.8%, I think, in Q3 to 40.2%. So it's kind of very small we are talking about. We just broke it out saying that -- on storage, we basically exceeded the higher end of guidance, so slightly depressed. But all the comments I just talked about on the margin are true and the margins have been understandably because of inflation and because of increasing component costs and because of increased logistics, which I pointed out, there is always pressure on gross margins. But we are able to counter it, that's what we do. We have a world-class cost task force on both microinverters and batteries. We are not stopping to work on anything. We work on capacitors, we work on transformers, we work on semiconductors, we work on resistors, we work on partnering. And I told you the big stuff like the bulkhead. But we work on numerous things at the same time. So we don't distinguish between microinverter or batteries. We -- the company continues to get healthier all the time. So when the component shortages go away, the supply chain constraints go away, the logistics constraints go away, then we'll have structurally better gross margin.

JB Lowe
Analyst at Smith Barney Citigroup

Okay, great. And then on the 1Q guide, I'm just wondering if you could break down the growth that we're going to see in top line, 1Q. Can we break it down between volume and improvement? And I know we're seeing volume improvement on the storage side of 15%, but I guess break it down between volume improvement on the micro side versus the pricing increases rolling through?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Well, the price increase is only from March. So, it's not going to be for the full quarter. I'd say impact of price increase is not going to be much. The -- in terms of -- in terms of microinverter, you all know that Q1 is seasonally down, but yet our business is not down. Batteries is a 15% -- increase. So, if you assume $600 to $700 or $600 to $800 per kilowatt-hour is the price range, you can calculate it yourself. So, you can see that there is steady growth on both businesses, both microinverters and batteries.

JB Lowe
Analyst at Smith Barney Citigroup

Okay, great. Thanks, Badri. And congrats, Eric.

Eric Branderiz
Chief Financial Officer at Enphase Energy

Thank you.

Operator

Our next question comes from the line of Brian Lee from Goldman Sachs. Your question, please.

Brian Lee
Analyst at The Goldman Sachs Group

Hey, guys. Thanks for taking the questions. Congratulations, Eric, on the retirement. You've always been one of my favorite CFOs, so you will be missed. And look forward to working with you going forward, Mandy.

Couple of questions, I guess, just, there's a lot of moving parts here, so can you guys -- I mean demand is obviously great and you're fixing on the supply chain issues from last year. But can you give us also a sense of I guess first on the Q1 outlook, how much is ClipperCreek adding? And then can you talk about their margins and what that does to your overall margin profile?

And then with the price increase on the batteries, are you seeing or anticipating any demand-pull forward in Q1, ahead of the price increase? Is that embedded in the outlook? Just wondering if there is anything into Q1 we should be aware of? And then I had a follow-up.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, we are not -- we are not breaking ClipperCreek -- out right now. With regarding gross margins, I already said, the gross margins of ClipperCreek are in line with Enphase, so you can assume that. With reference to battery price increase, the price increases are beginning in March. So, the contribution for Q1 is a little bit less, but do I think that will influence demand? I mean, I don't think so. It is fairly inelastic right now. Our backlog is quite high, the customers do understand we are taking care of them whenever we are able to. They know that we don't pass all of our cost increases, we try to absorb them and we only pass whatever we feel like we have to. So -- and we are going to give them plenty of time and that's why it is effective in March [Phonetic]. We give them plenty of time to adjust, very transparent to them. So we are not worried about demand.

Brian Lee
Analyst at The Goldman Sachs Group

Okay. That sounds great. So, I guess as a follow-up to that, Badri, I know Q1 is seasonally a little bit weaker. You would anticipate battery demand and volumes kind of back to that 30% sequential growth that you've been seeing outside of the slightly slower Q1, is that a fair assumption into 2Q? And then another kind of question around pull forward is your Q1 outlook. I don't think it does but do you anticipate having any pull forward demand from NEM 3.0 uncertainty in California in Q1? Or is that something we might maybe see in 2Q? Just wondering if you've either seen any of that or you're forecasting to have some of that in the next couple of months here? Thanks, guys.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Right. So I'll give you some numbers for context. We grew 53% from Q3 to Q4. And a 15% growth from 100 is not too shabby. That's our comment as -- yes, we'd like to grow 30%, but I already told you the comment on -- our lead time is 14 weeks to 16 weeks. Our backlog is very strong. Our lead time is 14 weeks to 16 weeks due to logistics. The logistics situation will ease up every quarter a little bit, so we expect to continuously grow. If it is -- whether it will be 30% or not, I cannot make a comment on, but we are very happy with our performance on batteries.

And, Brian, the last portion of the question, can you please repeat so I can -- answer?

Brian Lee
Analyst at The Goldman Sachs Group

Yeah, Badri, just -- you alluded to NEM 3.0 uncertainty and your opinion on what needs to change? But in terms of impact on your business, are you actually seeing any demand pull forward in the State of California due to that uncertainty in your Q1 outlook? Or is that something you maybe anticipate would start to show up in Q2, if that uncertainty around NEM 3.0 continues to persist? Thank you.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, if I were to see the situation before December and after December, I wouldn't say -- if I were to extrapolate to the situation, I would not say there has been a pull through. And I'm not sure if I can predict Q2 but you saw the -- you saw that the PD decision is delayed. I don't know when the new schedule is but that's good news, in general. I guess the installers are taking a breather right now.

Brian Lee
Analyst at The Goldman Sachs Group

All right, thanks for the call. Appreciate it. Congrats. Eric. Bye.

Eric Branderiz
Chief Financial Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Julien Dumoulin from Bank of America. Your question, please.

Julien Dumoulin-Smith
Analyst at Bank of America

Hey, good afternoon, team. Congratulations, Eric, Mandy, here.

Let me start with the easy one and I'll follow up with a more complicated one here. Just on the share buyback, just can you guys talk a little bit more to the thought process and further authorization? Obviously, incredible year if you look past sense perspective, it looks like trends as you've already articulated look pretty robust. Shares obviously reacting. How do you think about that and further authorization?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, I mean our general philosophy is anti-dilution. So we look at saying, okay, how do we compensate for that? And we decided to do share buyback. So, we first look at do we have enough capital for the needs of the business, the daily needs of the business, do we -- and if we want to invest in contract manufacturing lines, if we want to do something on batteries, do we have capital for that, that's what we see first. And then, we basically look at, okay, are there any M&As that are in the hopper, where we can truly increase the value of the enterprise. So we look at that next and we have -- we evaluate a lot of companies, every quarter. And then, if we find we have enough for number one, we have enough for number two, then we go down to number three. And number three, what we say is, okay, am I confident that the share price today is below the conservative intrinsic value for the company. So I look at that and then I make decisions. I may not hit it. I may not get the lowest stock price -- lower stock price over a period, but I know I bought it because I consider the share -- the stock price below the intrinsic value of the company, and that too a conservative value. So that's our thought process.

And so, for this year, we did -- we did roughly over 3 million shares which was about 2.4%. It's a pretty healthy number and you should expect that philosophy from us going forward. We still have -- we still have our $200 million left out of the $500 million authorized by the Board and we will execute on it when we think the time is right.

Julien Dumoulin-Smith
Analyst at Bank of America

Got it. Alright. Excellent. And then, just -- I want to revisit the storage conversation just a bit more. Just to time a couple of things that you said back. I mean given the lead times that you described, I mean conceivably you have visibility in the -- well in the second quarter, as you start to think about that 16 weeks out, and what that means on your thought process here, I mean you also said you're not going to comment on when you break that 180-megawatt hour threshold here, but can you elaborate a bit more on how you're thinking about the year shaping up on NEM, especially given the potential pull-forward that could manifest once you get clarity on that policy as well as just the underlying demand? I mean, as you've already alluded to and as already been discussed, I mean, demand seems strong, you've posted good numbers, 4Q, 1Q. Conceivably, you've got some degree of visibility into the year. I mean maybe look for the parameters on how you're thinking about even staffing and securing supply around what a number above 180-megawatt hours might look like as well?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, I mean, just to tell you, you are right. Lead time is 14 weeks to 16 weeks so we have good visibility -- good visibility on the situation in Q2. And because now we have time for Q2, we are getting things ready. And like what I said, our business is very strong. But we are not going to guide Q2 for now. I'm going to have Raghu talk about the NEM situation and how he sees that [Speech Overlap]

Raghu Belur
Co-founder, Chief Products Officer at Enphase Energy

Yeah. With regards to NEM 3, the original decision which was supposed to happen now had -- had it come into effect at least four months to five months after the decision was made, and then it also required additional time for the utilities to gear up for that change. So, realistically, it was late 2022 or even in 2023, when it would take --come into effect. So I think from a pull-through -- and demand was -- would probably not be seen in at least for the next few quarters. It's likely going to be, if there is -- if NEM 3 holds in its current form, which is -- may not be likely, demand pull-through is likely to happen end of the year or even sometime early next year.

Julien Dumoulin-Smith
Analyst at Bank of America

Got it. All right. It sounds like everything is good but a little bit early to talk about exactly how that compares versus the earlier guidance, right?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yup.

Julien Dumoulin-Smith
Analyst at Bank of America

Excellent. All right. Wish you all the best of luck. See you soon.

Operator

Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer. Your question, please.

Colin Rusch
Analyst at Oppenheimer & Co. Inc.

Thanks so much. I guess as you start investing in some of the software applications and have the remote upgrade possibility, how are you thinking about the business model and the revenue model for some of the software upgrades? Is it still included in the functionality of the hardware? Or is there another line item that you guys [Phonetic] would start thinking about in the next couple of years?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

It's still included in the functionality of the hardware. The way we think about -- of course, we have businesses like Solargraf Pro, we have businesses like Pronto now which are software-type businesses. But if you ask me in reference to upgrade features, etc., the way we think about it is we want to offer more and more and more features utilizing machine learning and AI but with a view to improve customer experience. And so, the data that we collect, the consumption data, the production data, we are -- we are not going to monetize it in the traditional sense. And we are not going to aggregate the data and do strange things with it. Rather, what we are going to do is we are going to look at patterns in the data, we are going to basically develop algorithms. We are going to do regression. We are going to ensure that we experience -- we improve the customer experience going forward. Which is we can do production forecasting, we can do consumption forecasting, we can do grid services events properly, we can figure out if it is possible to predict the grid stability and provide customers an earlier warning before.

So, all of those for us are belong to the customer experience bucket. And our belief is, if we do that properly for customers proactively, they are going to choose us all the time, every time.

Colin Rusch
Analyst at Oppenheimer & Co. Inc.

Got it. That's helpful. And then just with the -- love to get an update on the state of the NOL and when you're going to start having to pay cash taxes, and how should we think about the tax rate as we get into the out years?

Mandy Yang
Chief Accounting Officer and Corporate Treasurer at Enphase Energy

Sure, I can answer that one. So, currently in US, we don't pay material income taxes. We still have sensible NOL. For the upcoming 10-K, you will see on Friday, We are going to file, we have more than $150 million of Federal NOL. And also, we have Federal and State R&D tax credits.

So between this year and next year, we don't expect to pay any significant taxes in the US.

Colin Rusch
Analyst at Oppenheimer & Co. Inc.

Great, thanks so much, guys.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Mark Strouse from JP Morgan. Your question, please.

Mark Strouse
Analyst at J.P. Morgan

Yeah, thanks very much for taking our questions. And, Eric, congrats again, very much well deserved. Badri, I wanted to go back to -- you talked a lot about the supply situation on this call. Wanted to go back to the 3Q call though, when you talked about specifically the IQ8 and the potential for supply constraints there for just the ASICs given your early read on demand, can you just give us an update specific to IQ8, do you still see that as something worth monitoring this year?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Got it. It's always worth monitoring but the situation is a little bit better. So, IQ8, we started ramping IQ8 in late December, so shipped a little in Q4. IQ8 users, I mean the overlap between IQ8 and IQ7 is quite high except for the ASICs, as you rightly pointed out. We don't see any problems with respect to that ASIC supply right now. So, we would be heavily ramping the mix of IQ8 versus IQ7. That's our preference going forward.

Mark Strouse
Analyst at J.P. Morgan

Okay. And then, with the facility you're looking at in Europe for microinverters later this year, anything you can share yet regarding the potential output of that on a microinverters per quarter or per year type metric?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

We haven't finalized the location or the contract manufacturer yet. We are well under negotiations there, but typically what we do is when we install a contract manufacturing facility, we put something called as a complete auto line, one full auto line. One full auto line is fixed, that's about 8 -- 750,000 microinverters a quarter. So you can model that saying, we will have likely a full auto line and we need to finalize the location. We will -- we are going to try our best to get it operational by end of the year and it will be capable of producing 750,000 microinverters per quarter.

Mark Strouse
Analyst at J.P. Morgan

Perfect. Okay, very helpful. Thank you.

Operator

Thank you. Our next question comes from the line of James West from Evercore ISI.

James West
Analyst at Evercore ISI

Hey. Good afternoon, guys, and congrats on a nice, strong finish to the year. And also congrats to Eric and Mandy. Look forward to working with you going forward. I wanted to continue on the path of Europe here. I mean, you're pretty excited. You talked about rapid growth. What do you see driving that growth the most in Europe for you? And what made kind of make this decision to build a facility in Europe?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah. Europe, we are excited at the prospects of growth there. We grew double in 2021 compared to 2020. Europe has been a little bit more advanced than the US in terms of solar. And basically, the adoption is quite nice there. And we are very strong in Netherlands, we are very strong, France, we are very strong, Belgium. We just introduced storage in addition to solar that's nicely ramping. Germany is one of the very exciting markets in Europe, which is probably over a gigawatt -- one gigawatt solar and 80% attach of that per storage. And the reason it's 80% attach is most people do self-consumption because of feed in tariffs there. They don't have net metering -- feed in tariffs.

So, storage is strong. And actually Italy, we are entering Italy. And through our partner, Maxeon is our partner as well and they -- with the help of AC modules, we are going to be ramping on solar in Italy. And now we are going to add storage in Italy. Spain is very strong too. Spain is strong, Poland is strong, UK is starting to ramp up, so we have pockets of, yeah, actually not even pockets, but in many countries which are in the process of ramping, both solar and storage, and we have plans introduced -- storage through the year, one or two countries every quarter this year.

So, in general, we are extremely excited. In the Analyst Day, if you see in 2019, in 2019 I told you we had a handful of people in Europe [Speech Overlap] like five people or six people and now that team, we have -- probably, we have 35 people to 40 people today.

James West
Analyst at Evercore ISI

Great.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

We have increased those. We are going to continuously ramp that team and they're doing well.

James West
Analyst at Evercore ISI

Okay, great. Great. And then on the IQ8, you talked about the rural supply issues that you're heavily ramping the mix of IQ8 or you plan to, does that suggest that perhaps you -- that normal four-quarter to six-quarter adoption period could be on the solar side?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

No, no, no. I said I plan to and not heavily ramping yet, right, because we've just started.

James West
Analyst at Evercore ISI

Got you. Okay.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Just started. We shipped it -- we -- late December is when we started ramping. And typically our profile, I would call a successful ramp four quarters to six quarters.

James West
Analyst at Evercore ISI

Right.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

That's what I call a successful ramp and we expect IQ8 to fall within that range. Having said that, we do have installers, for example, like Semper Solaris. We did a press release. Semper Solaris switched to us because of IQ8.

James West
Analyst at Evercore ISI

Right.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

And many installers love the sunlight backup feature, they love it. They may not -- they may not use it as a significant fraction, but they love the fact that it's got technology and that they can use it if they want to. So they'll buy IQ8 over IQ7.

James West
Analyst at Evercore ISI

Right. Got it. Thanks, Badri.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Kashy Harrison from Piper Sandler. Your question, please.

Kashy Harrison
Analyst at Piper Sandler Companies

Good afternoon. Congrats on the quarter. And, Eric, congrats on the retirement.

Eric Branderiz
Chief Financial Officer at Enphase Energy

Thank you.

Kashy Harrison
Analyst at Piper Sandler Companies

[Technical Issue] fair [Phonetic] question but if there weren't any logistic-related challenges today, in that theoretical world, do you think that demand would be closing in on your 180-megawatt hours of cell supply capacity today, or is that maybe a bit too optimistic?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Well, I'm not going to break out numbers, but the demand is very strong.

Kashy Harrison
Analyst at Piper Sandler Companies

Okay. And then maybe a question for either Eric or Mandy. So, I know margins or gross margins for batteries aren't as high as the gross margins for the inverters. But I was wondering if you could maybe talk a little bit about the incremental opex associated with battery sales? And basically, I'm wondering if -- if -- since the channels for inverters and batteries are so intertwined, does the gross profit from batteries just go straight into the operating income line with no real impact to opex or would you expect an increase in opex as you ramp batteries as well?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Well, we don't look at it like that. We basically now -- regardless, you know the Company's model on opex. Our baseline is 35, 15, and 20. Time to time we may be a little bit higher on the opex side, but we will always be available the operating income. But we don't think about opex like that. For us, we think about a full system. When we think about a full system, it is a microinverter, it is a battery, it is a gateway, it is a system controller. And when you combine all of these together, okay I -- yeah, I forgot load control. I forgot EV charger, generator compatibility. When I combine all of those, the number of interactions explode. And the number of interactions explode means our -- our R&D has to scale up. And they, you know, we cannot scale up R&D randomly. It will scale up as a fraction of revenue. We have been disciplined there. So, it's a long way -- I mean, it's a long-winded answer but we invest at a system level and it is not batteries versus microinverter, everything has to scale up in the company.

Kashy Harrison
Analyst at Piper Sandler Companies

Thank you.

Operator

Thank you. Our next question comes from the line of Joseph Osha from Guggenheim Partners. Your question, please.

Joseph Osha
Analyst at Guggenheim Partners

Hi there. And, Eric, we look forward to hearing what your next venture is going to be.

Two totally unrelated questions. First is regards grid services, you've talked about the progress we're making there. Are you typically working with someone that aggregates and manages resources like Stem or an Enbala or an AutoGrid or is this is a situation where you're providing the functionality all the way to facing off to the utility?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

We do both business models. We work for example in the Connected Solutions program. We work with an aggregator called Energy Hub. And they work with the three utilities -- and the three utilities I talked about and we work in that model. But having said that, our relationships are getting better with the utilities and we are starting to work directly with the utilities. The APS program, [Speech OVerlap] you saw that. You're going to start seeing more announcements like what I said, we have a dozen grid services engagements in the pipe. And many of them are working directly with the utilities.

And we do have all of the software capability, all of the VPP capabilities [Speech Overlap] dispatching -- and dispatching a fleet at an aggregate level, we can provide that software to the utility and they can utilize that software to control an Enphase fleet.

Joseph Osha
Analyst at Guggenheim Partners

Okay, so that's interesting. You've got -- you've got that -- the whole stack. Thank you. That's very helpful. Totally unrelated question. Looking at your success in Europe, obviously, that maket's growing. If you had to sort of split up your growth there into market growth versus share gain vis-a-vis, still some of the fairly large legacy string inverter providers there, I'm wondering how you might think about that?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

You're talking about with reference to Europe?

Joseph Osha
Analyst at Guggenheim Partners

Yeah, yeah, sorry. That was a convoluted question. Let me try it again. How much of your growth do you think is coming from just the market growing in Europe, and how much is coming from taking share?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, I would say, a mix of both. Obviously, the market is growing and therefore we get our fair share, especially in places like Netherlands and France. And primarily what moves competitors or what most customers to us is our quality and our service, as long as we are able to maintain our target 500 DPPM, which is 0.5% annual failure rate, as long as we are able to maintain it on microinverter, as long as we provide outstanding customer service, 24/7 to customers, we think we have the upper edge there. And so that's a big reason why customers move over to us.

Joseph Osha
Analyst at Guggenheim Partners

Yeah. The reason I'm asking and I'll go away in a minute here is that in the US, obviously, it's just down to you and one competitor. In Europe -- in Europe, it definitely is not. So I'm just wondering if we could plausibly imagine a future in a couple of years where really it's only you and your main competitor and some of these string inverter companies just go away.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Well, I mean, look we can't predict the future, but the reasons are very similar. People are tired of enduring bad quality product. And that's the single most reason they come to us. We are a little bit expensive, but you cannot be looking at expense, you cannot be looking at pricing in vacuum. You got to be looking at the entire cost of ownership. And as long as we maintain our quality, like what I said, that's the most important thing, which we are committed to and the customer experience, that cannot get us down. We'll continue to gain share.

Joseph Osha
Analyst at Guggenheim Partners

Thank you. Okay, thank you, thank you very much.

Operator

Thank you. Our next question comes from the line of Ameet Thakkar from BMO Capital Markets. Your question, please.

Ameet Thakkar
Analyst at BMO Capital Markets

Good afternoon. Thank you for taking my question. Most of my questions have been asked, but I was just wondering if you guys had any sense or color on how much of the battery capacity you've delivered to date? It's been for customers that are actually retrofitting existing systems versus kind of new solar PV plus storage installations? And was that included -- the retrofit opportunity, was that included in your I guess Analyst Day presentation when you guys talked about a serviceable, addressable market of 1.5-gigawatt hours?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

It was. And it's hard to track. But I would say that is a good healthy mix of both. That's what I would say. And obviously, when they have Enphase microinverters, they would prefer Enphase batteries.

Ameet Thakkar
Analyst at BMO Capital Markets

Great, thank you for that. Congratulations on the quarter.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Praneeth Satish from Wells Fargo. Your question, please.

Praneeth Satish
Analyst at Wells Fargo & Company

Hi, good afternoon. Can you talk about the IQ8D and how that rollout is progressing? And I guess for the small commercial market, is there enough to win over the installers that serve this market, or do you need to ultimately partner with someone like a developer to really accelerate deployment into the commercial market?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

The IQ8D product is a little bit late. Yeah, as you know, I thought we would be in production in Q1, but we are a little late. And the reason why we are a little late is we would like to take the time and do the full system. When I say the full system, I mean it is not just a microinverter which is already qualified and past compliance, it is the gateway, the cloud software, the fleet management, the design proposal software, the permitting software. And the reason why we like the small commercial market is because it is an extension of residential market.

In the residential we service up to 20 kilowatts, that goes from -- 20 small commercial goes from 20 kilowatts to 200 kilowatts. And why is that important is the same long-tail installers are the ones who participate in the small commercial markets, and that's our focus. And that's our focus. That's where we think we add a lot of value because the pain points are the same. It is quality and service and we do have to pay attention to those areas and the challenges will be a little bit different as we go from 20 kilowatts to 200 kilowatts. We have -- we use plc for communication, and now when you are doing it with hundreds of microinverters, those will be stretched. But we look forward to -- yeah, ramping with those installers we already know and do business with. And we can do rapid shut down as well -- easily. So that's a major driving force versus other competition.

So, in short, it's the -- similar install base is residential. We have the relationships already. They need rapid shut down, they need very high quality, they need great service, and it's a natural extension for us from residential.

Praneeth Satish
Analyst at Wells Fargo & Company

Thanks. And just to follow up, what then is your latest timing in terms of IQ8D?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah. Like what I said, we are going to ship to select installers for a pilot ramp in Q1. So, we'll have a small revenue in Q1, but the real ramp will be over the next few quarters. This is not a -- it's not that when I'm ready I start ramping immediately from day one. It is -- it will take some time for the market to develop there. So you should expect over the next several quarters is when it will ramp to a healthy level and we broke -- we broke down those details in the Analyst Day.

Praneeth Satish
Analyst at Wells Fargo & Company

Got it. That's it from me. And congrats, Eric, on the retirement.

Eric Branderiz
Chief Financial Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Steven Fleishman from Wolfe Research.

Steven Fleishman
Analyst at Wolfe Research

Just a question maybe to put NEM 3.0 in some context. Could you give us some sense of what percent of revenue is coming from California in your Q1 forecast or from 2021 actuals?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, I'm not sure about the exact number. I would estimate something like 20 -- yeah, 20% of our revenue, roughly, overall revenue.

Steven Fleishman
Analyst at Wolfe Research

Great. And then, separate question. Just in some of the I know BBB has kind of disappeared from focus recently, but some of the versions -- later versions included subsidies for domestic production inverters and including microinverters. If you -- if we were to ultimately get a bill that had that in there, how quickly could you shift to domestic production?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

So the BBB, the one in debate is $0.11 per watt credit for microinverters and you know that we are -- we will never do manufacturing ourselves. We will enlist the help of our contract manufacturers. It's quite attractive to have a Made in America product with that kind of credit, and we do have contract manufacturers who are potentially lined up should this happen. Your question on how long it will take from when we -- select a contract manufacturer to when we can start ramping in the US, would take me six months to nine months.

Steven Fleishman
Analyst at Wolfe Research

Great. Thank you. I appreciate it.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Sophie Karp from KeyBanc. Your question, please.

Sophie Karp
Analyst at KeyBanc Capital Markets

Hi, good afternoon. Thank you for taking my question. And congratulations again on the great quarter. All of the questions have kind of been answered. Maybe just a couple from me. First, how do you envision your year shaping up setting aside, I guess, the unpredictable events such as the outcome of NEM or any major disruptions? You grow so fast that it now, it almost doesn't matter but should we be expecting maybe some pocket of relative softness somewhere throughout the year based on your seasonal patterns?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

I think our business is fairly diversified that between the different states in Europe between not just shipping solar -- sorry, different states in the US and not just shipping solar only, but you're seeing that solar plus storage is also -- many different states have now -- the tax rates are continuing to grow up well beyond California -- it's California or Florida, Texas, Puerto Rico, Hawaii, East Coast, etc. Grid services is becoming the business and grid services is also continuing to grow. We talked about how fast Europe is growing, over the year, more storage -- we'll start shipping storage into newer countries in Europe as well. So, in general, and as well as countries like Brazil is continuing to grow. So, what you're seeing is our business being more and more diversified, not only within the US or not only within California but outside of California, other states in US and Europe as well.

So, while we may see these occasional road bumps like a NEM 3 issue here in California, I think the business is pretty robust anymore that we'll be able to absorb those bumps.

Sophie Karp
Analyst at KeyBanc Capital Markets

Thank you. And as a follow-up question, maybe if you can talk a little bit about what your views are now on M&A? You recently didn't -- did transactions but fairly small. Is there anything out there, I guess, that you use a potential attractive opportunities in some spaces or some technologies that you may look into, potentially doing more deals this year?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Well, I mean, we have a strategy. That strategy is basically selling best-in-class products for home energy systems to homeowners through our installers and distribution partners, enabled by a digital platform. So components of the home energy system, if you see, we have solar, we have storage, we have grid services compatible to generators, we have load control. We didn't have EV before, we bought EV chargers. We think EV chargers is -- you have to -- they need to be managed. And we bought them for that reason. We have fuel cell partnerships. There is nothing much to talk about it yet. We'll talk about it when we are ready there. That's on the home energy system. So, we'll continue to add more and more things at a product level there if it is aligned with our strategy. And I'm not -- I cannot talk about any specific companies right now.

On the installer digital platform, there are six pieces, which I mentioned in the Analyst Day which is Lead Management, which is an interesting area for us. And we'll inform, I mean we'll keep you informed when our plans are finalized there. So that's a potential area.

Design and proposal software, we bought a company Solargraf Pro and we are making it meaning a Sofdesk and we are making it a lot better by introducing shading, by introducing storage, 3D, all bells and whistles. So we are making that better. Then permitting services, our team in Noida services nearly 30% of the entire North American Solar business, solar permitting business. They do that today. And we are going to make that better in terms of injecting more automation, etc.

Then we'll come to commissioning software. There it's home-grown and there is no way we are going to buy a company for that. It's got hundreds of man-years of work in it and we are going to make that continuously better. We have a very large team there. Then comes the Enlighten mobile app, yeah, this is the homeowner app -- monitoring fleet management, etc., which again enormous investments, hundreds of man-years, and we will grow organically there.

O&M, you saw the investments that we made in 365 Pronto. These are software platform. That's why we like it. We are not going to get into the O&M itself. We are not going to add trucks and ladders, but we are going to enable transactions with a two-sided marketplace; customers on one hand, service providers on the other hand, and we connect both of them; the two-sided marketplace. So the two components we have to be thinking of is best-in-class home energy systems, best-in-class digital installer, digital platform, and whatever acquisitions we need for that, we will do, but those will likely be smart acquisitions, they'll be tuck-ins. There is no silver bullet there.

Sophie Karp
Analyst at KeyBanc Capital Markets

Got it. Thank you so much.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Tristan Richardson from Truist. Your question, please.

Tristan Richardson
Analyst at Truist Securities

Hey. Good evening, guys. Really appreciate all the commentary tonight. Just one from me on the EV charging product, now that you've had that under the umbrella a few months, curious about the innovation pipeline there? And whether it'd be vehicle to grid or vehicle to home and the potential there to develop that product or -- and if so, could that be margin accretive, or are you seeing more of the EV charging product complementary to just your core Ensemble strategy?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah. So, I'm going to articulate a little bit on what we are doing tactically, yeah, maybe for the next few months and then Raghu will talk about the vision on V2 -- V2H and V2G. So we're very happy with the acquisition ClipperCreek. They already made very high-quality level two chargers. They have shipped 110,000 of them. Healthy revenue, growing -- and the market is growing at a 40% CAGR. At what we told you at the Analyst Day, and very nice gross margins, profitable business. And so we are very happy there. All we want there is, immediately, we want to do three things, give them a lot of scale. Scale means only a contract manufacturer can do it properly. So, professionalize that. That's number one. Number two is introduce ClipperCreek chargers to our installers and distributors. And obviously, we need to make sure that the supply chain is robust there and that's why I said that we need to transfer to contract manufacturing first. Number three, which is important is I'd like every ClipperCreek charger shipped from the contract manufacturer to have connectivity in it. And that connectivity is extremely important because we need to make these chargers intelligent. They need to be able to support optimized tariff, they need to be able to support charging on a schedule. They should help support green electrons, if a homeowner I want to utilize solar for my EV charging, he should be able to pick that preference immediately and make that happen. It should be able to work with that Ensemble system seamlessly.

So connectivity will help us on those fronts. So those are the three actions that we are thinking immediately. And then comes -- international expansion is another one which I should have said. That's in our short-term focus, which is Europe is a very big market for EV, so it's obvious that we need to be in Europe. So we are going to be -- we've got to be starting to ramp heavily in that front -- ramp our plans there. The last one is bidirectionality, so Raghu is going to talk about that.

Raghu Belur
Co-founder, Chief Products Officer at Enphase Energy

Yeah, I think as Badri mentioned, integrating EV into Ensemble where you're treating EV purely as a load, brings a lot of value for the homeowner because you can really control, you can decide on what the source of the electrons are, the duration, the rate, etc. So a lot of value in the energy management system.

But beyond EV just as a -- should not be looked at simply as a load, there is an opportunity to do reverse power flow there, which is fully bidirectional where you can use the EV for -- both for things such as grid services as well as for resiliency. So, the grid services part would be the vehicle-to-grid part, and then the resiliency part would be the vehicle-to-home part. In the event of an outage, you have this extra significant amount of source there which is about 100-kilowatt hours, can that [Phonetic] participating keep your home -- keep the home microgrid sustained in the event of an outage. So both of those -- both vehicle-to-grid and vehicle-to-home requires some development. And that development includes -- decisions have to be made, whether you're going to deliver that energy DC or AC doesn't -- and for us, it doesn't matter. We are open to doing it with both AC or DC or IQ8 is capable of delivering -- of providing a DC interface into the car or an AC.

In addition to that, there are a few other things -- challenges that need to be solved, like standards development still needs to complete. There are a couple of standard CCS and CHAdeMO but I think there are IEEE standards are being developed to figure out how to do this bidirectional power flow. And finally, the grid interaction is pretty complex because now the EV has to be fully compliant to all the advanced grid function requirements.

So we have -- we are diving deep into it. We are laying out the full plan, but regardless of whether we do it through an AC to AC interface on an AC to DC interface, our IQ8s are capable of providing both of those. And I think bringing the EV on to the Ensemble platform and providing and not just being a smart load, but also being a very intelligent source brings a lot of value for our customers.

Tristan Richardson
Analyst at Truist Securities

Raghu, Badri, thank you. And, Eric, all the best to you.

Eric Branderiz
Chief Financial Officer at Enphase Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Eric Stine from Craig-Hallum. Your question, please.

Eric Stine
Analyst at Craig-Hallum Capital Group

Hello. Just sneaking one in here on ClipperCreek. I know you just touched on that, but just curious, I mean based on the nature of that product, when you do install -- roll that out to the installer network, I mean how do you see that play out maybe compared to the storage product? And then, curious how do you think of this, or how should we think of it in terms of attach rates or maybe capture rate of spend per home?

Just anything like that to guide us going forward.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, I mean with regarding the introduction to our installers, we think they will lap it up [Phonetic]. They would love it because solar plus storage plus EV, charging infrastructure, setting up in your home, they would love that because it ain't that expensive. I mean with a fully installed -- maybe with all installation, an EV charger install will cost you $1,500, and if you couple it with solar plus storage, it might even be lower.

And there is obviously tax credit, etc., that are there. So, we think it's a general positive and that's why we are excited to introduce it to our installers and distributors, and globally as well.

Eric Stine
Analyst at Craig-Hallum Capital Group

Got it. So, I mean really in terms of thinking about the growth, it's more about, as you said, getting the contract man -- manufacturer in place, getting the supply chain in place, rather than the limitations being training installers and attach rates or educating the customer. I mean this is really about just getting the manufacturing site in place?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah, that's right. It's a relatively simple product to install. Some education but not terribly complicated. And, of course, we got to get the secret sauce right which is to make sure that it is compatible to an Ensemble system and provide that intelligence to the homeowner. And in terms of thinking about the business, you -- I don't need to tell you, but you can correlate the business directly to the growth of EV. So, if the EVs grow at 40%, for example, CAGR, these will grow even faster than that. And so, yes, it's going to be a healthy CAGR and we need to get our manufacturing straight. That's why we are moving [Technical Issue] contract manufacturing in-house.

Eric Stine
Analyst at Craig-Hallum Capital Group

Okay, thank you.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. Our final question for today comes from the line of Pavel Molchanov from Raymond James. Your question, please.

Pavel Molchanov
Analyst at Raymond James

Thanks for taking the question. Just one from me also about ClipperCreek. You mentioned that installer awareness and skill set is not a constraint. But, in practical terms, what portion of your existing kind of installation customers are -- have any historical background in installing charging equipment in homes? Is there a number or a percentage that you can provide?

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Yeah. I wouldn't be able to provide it now, but I would say that there is probably a 20% to 30% overlap. That's my guess.

Pavel Molchanov
Analyst at Raymond James

Okay, very good.

Raghu Belur
Co-founder, Chief Products Officer at Enphase Energy

And bear in mind that installing is a supply equipment. And so they already have the main panel open when they're installing solar plus storage. And so coming in and installing a piece of equipment on the wall and drawing a conduit on a -- and a 40 amps -- and landing it on a 40-amp circuit is going to be pretty straightforward. It's what -- it's the kind of work that they do already with solar and storage.

So I don't see a huge jump in requirement in training or skill set to do that.

Pavel Molchanov
Analyst at Raymond James

Okay, appreciate it.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

Thank you.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Badri Kothandaraman for any further remarks.

Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy

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

Operator

[Operator Closing Remarks]

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