Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy
Good afternoon, and thank you for joining us today to discuss our first quarter of 2022 financial results. We had a good quarter. We reported record quarterly revenue of $441.3 million, achieved non-GAAP gross margin of 41% and generated free cash flow of $90.1 million. We ramped IQ8 microinverters in the first quarter and started piloting IQ8D microinverters to small commercial customers. We exited the first quarter at approximately 41-15-26, this means 41% gross margin, 15% operating expenses, and 26% 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 our financials later in the call. Let's now discuss how we are servicing customers.
Our Q1 Net Promoter Score worldwide was 68% compared to 69% in Q4 and our North American Net Promoter Score was 74% compared to 73% in Q4. Our average call wait time decreased to 3.2 minutes in Q1 compared to 8.9 minutes in Q4. We reduced call wait times through staffing and training. During Q1, we added field service technicians in the U.S. and Europe to provide onsite help to our installers, particularly for batteries.
Let's talk about microinverter manufacturing. As we have discussed in the past calls, the global supply chain situation is still under stress. But our situation is table due to supplier management and qualification of alternate suppliers. With the growing demand for our microinverters, we remain vigilant regarding the global supply chain and logistics challenges due to COVID disruption. I'm very proud of our teams who have worked hard to manage the difficult situation. Currently, our quarterly capacity across all contract manufacturing facilities is a little bit more than 5 million microinverters. Mexico has a quarterly capacity of 2.5 million microinverters, India with Salcomp 1.5 million, and the rest is in China. To support the increased demand and improved delivery times to customers in Europe, we are adding an automated line at Flex's factory in Romania. This line will have quarterly capacity of approximately 750,000 microinverters starting in Q1 of 2023, and will enable a global capacity of nearly 6 million microinverters per quarter.
Let's now talk about batteries. Our two sources for battery cell packs currently have a total capacity of 180 megawatt hours per quarter. Our existing cell pack suppliers can add more capacity if needed. We are also on track to add a third cell pack suppliers in the second half of this year. Our lead times for batteries are still long at about 14 to 16 weeks, primarily due to global logistics challenges. The lead time should come down once shipping and port congestion conditions improve.
Let's move on to the regions. U.S. and international revenue mix for Q1 was 84% and 16% respectively. In the U.S., revenue increased 9% sequentially and 49% year-on-year. We are pleased to report record sell-through for microinverters and record revenue for batteries in Q1. The channel inventory for both microinverters and batteries were at a healthy level at the end of Q1. In Europe, revenue decreased 6% sequentially, while increasing 39% year-on-year. The sequential decrease was due to unforeseen shipment delays towards the end of Q1. Homeowners in Europe have a strong desire for energy independence. We recently teamed up with [Indecipherable], a German installer group to deliver microinverters and batteries to customers in Europe. We are currently shipping IQ batteries to Germany and Belgium, and plan to introduce them in other European countries throughout 2022. Our batteries are now compatible with most brands of third-party PV inverters.
We continue to see strong growth in our existing markets in Europe, including Netherlands France and Belgium and we're also pleased with our growth in newer markets, including Italy, Spain and Portugal. We expect our momentum in Europe to continue with more than 40% sequential revenue growth expected in Q2 versus Q1. We are continuing to expand the team and are very excited about our growth in the region. In Latin America, revenue increased 13% sequentially and more than doubled year-on-year. We had steady growth in our Solar plus storage business in Puerto Rico during the first quarter.
Now, I'll provide some color on Australia, Brazil and India. In Australia, we expect to introduce IQ batteries in the second half of 2022. We think regulatory changes, designed to improve solar installation practices will favor our safe AC approach as grids and utilities require more intelligent and safer solutions. As for Brazil, we have started shipping IQ7+ microinverters to installers in Q1, and expect to ramp continuously. We also expect to introduce an IQ8D version into Brazil to optimize cost. In India, we are making steady progress and adding more installers into our network, ramping digital sales and planning to introduce IQ batteries in early 2023.
Let's now discuss the overall bookings for Q2. Our overall customer demand for Q2 is quite robust for both microinverters and batteries and exceeds the higher end of our guidance range. The component availability is better than what we have experienced in the last 18 months. But there are still global challenges, which are not specific to Enphase. We remain optimistic that the lead times will come down by the end of this year.
Let's talk about batteries. We shipped 102.4 megawatt hours of IQ batteries in the first quarter, a 20% increase from Q4 of 2021. We are working diligently on improving commissioning times for installers. While we have done various fixes to improve quality and homeowner experience on the batteries, we are still not where we would like to be on commissioning and installation experience. We are doubling down on this in this quarter and expect to make good progress. Our goal remains to get the commissioning time down to an hour and ensure installers have a seamless experience. We expect to ship between 130 and 140 megawatt hours of batteries in Q2. Due to the increase in logistics and component costs driven by inflation, we implemented a modest price increase on our batteries in March of 2022.
Let's now discuss the installer training and certification on batteries. By the end of the first quarter, we have certified more than 1,300 installers in the U.S. on a cumulative basis. Our hands-on storage training in the U.S. uses mobile vans located in the East and West goes along with regional training centers. We started with an Enphase YouTube channel in Q1 for training, where installers can and access videos to learn installation tips and tricks.
Let's talk about new products. In Q1 we had shipments on IQ8 microinverters in North America and are receiving positive feedback about the product in general. As a reminder, IQ8 solar microinverters can form a microgrid during a power outage using only sunlight, providing backup power even without a battery. IQ8 grid farming technology eliminates traditional ratio requirements between solar system size and battery size. And with our sunlight jumpstart feature, IQ8 microinverters can start up home energy system using sunlight only after prolonged grid outages that may result in a fully depleted battery. We also expect to introduce IQ8 microinverters internationally into Europe and Australia during the second half of this year.
Let's talk about IQ8D microinverters for small commercial applications. We started piloting IQ8D 640 watt AC microinverters to select installers in North America during the first quarter and we expect production shipments in late Q2. The value proposition of IQ8D is the ease of installation, high quality and rapid shutdown capability. On batteries, we plan to introduce our next new product IQ Battery 5P later this year. This battery will deliver twice the power of our current battery at lower manufacturing cost, enabling homeowners to start heavier loads. Also, going forward, we will enhance our communication using Control Area Network, which is a robust required protocol for connectivity between the battery, the gateway and the system controller. We expect this to further streamline installations and simply commission.
Let's now discuss ClipperCreek, an acquisition which we completed in Q4 of 2021. The acquisition is performing in line with our expectations with reasonable gross margins and profitability in Q1. We are doing a few things to ramp the business. We are introducing EV chargers to our solar distributors and installers this quarter. We are also on track to begin manufacturing EV chargers at our Flex facility in Mexico in the fourth quarter of this year. We believe this will help us scale better and drive down costs. As for new products, we expect to introduce a smart EV charger to customers in the U.S. and Europe in early 2023. This will provide connectivity to the cloud through WiFi, as well as local connectivity into the Enphase home energy system.
The increasing penetration of electric vehicles have significant implications for home energy management. The energy consumed by the home will significantly increase with an EV. This increase will drive adoption of more solar and storage, which will enable homeowners to save money and charged to their vehicle in a green manner. The large EV battery could also be used for home backup called Vehicle-to-Home, as well as helping the grid in the future, called Vehicle-to-Grid. This acquisition plays extremely well into our strengths in energy management, ultimately helping the homeowner solar, storage, EV and other home loads. We are in discussions with a few EV makers to enable proof of concept for V-to-H and V-to-G features.
Let me cover grid services. During the first quarter, we announced that Vermont based utility Green Mountain Power will offer Enphase Energy Systems to its customers in a cutting-edge battery lease grid services pilot program. We have previously announced our participation in Connected Solutions covering three utilities in the Northeast U.S., Hawaiian Electric's Battery Bonus grid services program and Arizona Public Services Residential Battery grid services program. We also recently announced a partnership with Swell Energy to participate in VBP programs in California, New York and Hawaii. We also have many new grid services engagements in the pipeline and look forward to working with utilities and aggregators.
Let's discuss the installer platform. We are working on Solargraf Pro, a design and proposal tool with shading analysis, ability to detect obstructions on the roof and 3D modeling of homes. Approximately 900 installers use the Solargraf tool today. We expect to launch the Solargraf Pro, a higher version -- advanced version of the product in Q2, and already have a few installers piloting the software. In addition, we plan to expand the availability of Solargraf Pro internationally, starting with Germany. In March of 2022, we acquired SolarLeadFactory, which provides high quality leads to solar-installers in the U.S. Our objective is to substantially increase the lead volumes and conversion rates to help drive down customer acquisition cost for installers. We plan to expand the team, optimize lead management and offer this service broadly to our installers network.
We have made four acquisitions in the last 15 months, to strengthen our installer platform in the areas of lead generation, solar design software, permitting services and O&M software. In addition, we have robust and homegrown mobile apps for commissioning and monitoring of solar and storage systems. We plan to integrate all of these seamlessly onto one platform and offer them to our installation network, simplifying their lives and reducing soft costs.
Let me now give you a quick update on our Enphase Installer Network or EIN. We have now onboarded approximately 1,200 installers to our EIN worldwide through a highly selective process focused on installation quality and an exceptional experience to homeowners across the globe.
Next, I'd like to comment on some recent policy issues that are impacting the U.S. solar industry. As you aware, The U.S. Department of Commerce is investigating the circumvention of anti-dumping and countervailing duties on some premium margins. This is a time of great change in the energy market. Utility costs are rising, climate changes happening, geopolitical issues are driving energy security and EVs are taking off. At a time like this when there needs to be fully support for renewables, an AD/CVD investigation creates massive uncertainty in the marketplace, which we believe will impact U.S. jobs, raise electricity prices for homeowners and increase import from China, all of which are counter to the goals of the current administration. We are hoping that the current administration takes this problem seriously and results it rapidly well before the proposed August timeframe.
As it relates to Enphase, our products aren't directly impacted by AD/CVD as we don't make modules, but based on conversations with some of our partners, it is our opinion that the module supply for the residential segment will be less impacted than other segments. Many of our partners are currently working on securing module supply for the latter part of this year. Module pricing is expected to be higher in the interim. And we think the residential segment may be able to absorb higher price. All of this further underscores the importance of supporting domestic manufacturing through a production based tax credit or PTC, so we can proactively increase domestic manufacturing rather than reacting to such a market disruption. The support of domestic manufacturing is well aligned with the administration's goals to promote renewables, increase U.S. jobs, reduce electricity pricing for homeowners and lessen the dependency on imports from China. We would like to see rapid resolution of both AD/CVD, as well as implementation of PTC as soon as possible.
I would also now like to comment on the California NEM 3.0 proposed decision or PD which was announced in the December of 2021. We expect a modification to the current PD and an opportunity for stakeholders to participate and provide their feedback to the California PUC. We have been actively participating in the process and we'll continue to work diligently with various stakeholders to try and influence the best outcome.
Let me wrap up. Full home electrification and slowly but surely coming. EVs are ramping up considerably for obvious reasons, and so are heat pumps. Climate change coupled with situations like the Ukraine is forcing European countries and others to think hard about their reliance on oil, coal and natural gas. Countries like Germany are leading the way in adopting renewable technologies such as solar and batteries to support heat pumps, EVs and other home loads. Self consumption is becoming the norm and consumers want energy independence. There is no doubt that other countries will follow suit. It is just a matter of time. Our strategy is pretty simple. We create best-in-class solar plus storage home energy systems. We sell them to homeowners through our installation and distribution partners enabled by our installer platform. Our top most core value is customer first, and we are focused on providing a great experience to installers and homeowners. We are well placed to capitalize on the trend towards for the home electrification and look forward to ramping our presence in Europe in a significant manner over the coming months and years.
With that, I will hand the call over to Mandy for her review of our financial results. Mandy?
