Badri Kothandaraman
President and Chief Executive Officer at Enphase Energy
Good afternoon, and thank you for joining us today to discuss our third quarter of 2022 financial results. We had a good quarter. We reported record quarterly revenue of $634.7 million, achieved quarterly non-GAAP gross margin of 42.9% and generated free-cash flow of $179.1 million. Approximately 47% of our Q3 microinverter shipments were IQ8. We exited the third quarter at approximately 43, 12, 31, this means 43% gross margin. 12%, operating expenses and 31% operating income, all as a percentage of revenue on a non-GAAP basis. We will go into our financials later in the call.
Let's now discuss how we are servicing customers. Our Q3 NPS worldwide was 70%, compared to 68% in Q2. Our North American NPS score was 71%, the same as Q2. Our average call wait time was 4.8 minutes compared to 4.7 minutes in Q2. The elevated call wait times over the past few quarters are related to the rapid growth in our business. We're not happy with the call wait time and we are targeting to get our call wait times under 1 minute by more aggressive staffing of our teams in U.S., Europe and Australia.
We remain laser-focused on customer service. The emphasis on superior customer experience has further increased due to severe weather events. During the recent Simon Puerto Rico and Florida, our customer service team, field service technicians and engineers were able to help customers with the issues they faced. While our systems performed well in general, there is some more room for improvement. Our focus is to ensure seamless installer and homeowner experience through such events. Our teams have shared many stories with us of their efforts to help customers and customers have also expressed their deep gratitude for the help. I'm quite proud of our teams.
Let's talk about microinverter manufacturing. Situation remains quite stable right now due to diligence supplier management as well as qualification of multiple sources. Our quarterly capacity is around 5 million microinverters today. We are on track to begin manufacturing in Flex, Romania starting in Q1 '23, enabling the global capacity of 6 million micros per quarter. The Inflation Reduction Act or IRA has extended the investment tax credit, ITC for residential solar to 30% for another 10 years, and also implemented a standalone storage ITC with the same terms. Both are very good for the industry at large. In addition, the IRA has a provision for $0.11 per AC Watt reduction based tax credit for domestic manufacturing of microinverters. Therefore, we have been actively looking at manufacturing in the U.S.
We are working with three contract manufacturing partners. One new and two we have today already. We plan to open four to six manufacturing lines in the U.S. by the second-half of 2023. Our thought process is that we will need the additional capacity anyway, considering our fast-paced growth globally. There are still a lot of questions to be answered regarding the actual implementation of the IRA for domestic manufacturing. U.S. Department of Treasury is seeking comments from stakeholders in early November for clarification on these questions, and we are working with industry partners and stakeholders to provide comments. Once the IRA details have been finalized and the implementation is clear, the U.S. manufacturing provide a substantial benefits in terms of the production based tax credit.
Let's talk about IQ batteries. We are on track to add an additional cell pack suppliers from China for the next year for our third-generation battery. Our lead times batteries are 10 to 12 weeks allowing us to respond a little more quickly than before for customers.
Let's move on to the regions. Our U.S. and international revenue mix for Q3 was 71% and 29%, respectively. We experienced strong growth in Q3, both in North America as well as in Europe. In U.S., our revenue increased 7% sequentially and 69% year-on-year. We had record quarterly revenue and record sell-through for microinverters in Q3. Our microinverter channel inventory in the U.S. was at a very healthy level at the end of Q3, while our storage channel inventory was a little elevated due to longer install times. I'll go into more details about our IQ batteries later in the call.
In Europe, our revenue increased approximately 70% sequentially and 136% year-on-year led by strong demand for our microinverters in Netherlands, France, Germany, Belgium, Spain and Portugal and for our IQ batteries in Germany and Belgium. Microinverter supply continues to be tight, and channel inventory continues to be below normal.
We continue to invest heavily in Europe. We are expanding engineering, sales and customer service teams, along with opening a manufacturing line in Romania in Q1 '23. In addition, we expect to begin shipments of IQ8 Microinverters into the Netherlands and France in the fourth quarter, and rest of Europe in the first half of '23. We also plan to introduce IQ batteries into Austria in the fourth quarter.
We recently acquired GreenCom Networks, a home energy management software company with headquarters in Germany. The acquisition allows us to add a local engineering team to service the accelerating clean energy transition in Europe, provide installers with a complete home energy management system integrating Enphase microinverters and Enphase batteries with third-party EV chargers and heat pumps, and enable homeowner to monitor and control all of these devices from the Enphase app. In summary, we are quite pleased with our growth in Europe, and look forward to the continued momentum.
In Latin America, revenue increased a 100% sequentially, and 129% year-on-year. We had steady growth in our solar plus storage business in Puerto Rico during Q3, and expect continued growth in the region as demand for solar and storage has increased since the recent hurricane. The storage attaches nearly a 100% in Puerto Rico. Our IQ8 microinverters as well IQ8 batteries provide a differentiated solution, invaluable to customers during the storms.
Now, I'll provide some general color on Australia, Brazil, and India. In Australia, the solar market continue to recover in Q3, and we believe the forecasted increase in electricity prices will drive demand. We expect to introduce IQ batteries in the first half of '23 in Australia. For Brazil, we had sequential revenue growth in Q3 due to a steady increase in demand for IQ7A microinverters. In India, we made progress on adding more installers in the Enphase installer network. The module power is substantially increasing in these emerging markets. We plan to introduce a 480 Watt AC high-power residential microinverter in the first-half of '23 to match the increase in module power.
Let's discuss the company's overall bookings for Q4. Our demand for Q4 is quite robust, and the easily exceeds the higher-end of our guidance range. As for Q1, it's a little bit early to comment but we see that the bookings are quite healthy right now. On supply, the component availability is getting better. There are still some spots of tightness that keep coming up from time to time, and our operations team is doing a nice job, closely managing the situation. The logistics situation has also improved a little bit with reduced shipping times.
Let's talk about batteries. We have now certified approximately 2,100 installers worldwide since the introduction of IQ batteries into North America, Germany and Belgium. We shipped 133.6 megawatt hours of IQ batteries in Q3. We are working hard to improve our customer experience as it is not yet up to our standards. We continue to host a weekly installers round table to deeply understand their pain points. Our installers in North America experienced a median commissioning time of 118 minutes exiting Q3. We have made substantial improvements in our software, which was just released a few days ago, to reduce commissioning times further and make transitions more robust. With these changes we expect the median commissioning times improved to 80 minutes exiting Q4. The third generation of our IQ battery product will have additional features, which further addresses the installer pain points.
Our installers are extremely busy given the strong demand. Any inefficiency in the installation process impacts their profitability. This means their battery installers -- their battery installation experience must be as good as the microinverter experience, which is what we are working to improve. With the significant changes we are making in the product, we are confident that storage installations will become as efficient as microinverter installations, and as a result installer profitability will improve and storage deployment will accelerate. We expect to ship 100 and 135 megawatt hours of IQ batteries in Q4, and we expect steady progress throughout '23.
On the new product front, we expect to generate our third generation IQ battery, starting in North America and Australia in the first half of '23. We then plan to introduce it into Europe and emerging markets in the second half. The battery will have wired connectivity to the IQ Gateway and System controller via a chain bus. The modularity of the batteries 5 kilowatt hour. The battery will have double the continuous and peak power compared to the second generation, enabling heavier loads such as air conditioners to start more easily. We are targeting commissioning times to be sub 30 minutes with this battery. With every generation of batteries, we expect to make steady improvement in the customer experience, just like what we did with microinverters. We are already working on our fourth generation IQ battery to be introduced in 2024, which was regarding substantial energy density improvement compared to the third generation.
Let's talk about our product for small commercial solar in the U.S. Based on customer feedback from pilot runs on IQ8D, which was our previous product, we are increasing the power of the microinverter by 50% from 320 Watts to wants to 480 Watts AC, and we are reverting back to a single panel architecture. We understand this is a few more months of delay, but we think it is the right long-term decision as panel power continues to increase rapidly in the small commercial space. We expect to pilot this product in the first half of '23. This product is very closely aligned with the 480 Watt residential microinverter for emerging markets, except for the three-phase cabling. We are bullish about penetrating the small commercial solar business shortly, with this powerful new product.
Let's just EV chargers. We shipped more than 6,370 charges in Q3, compared to 8,250 in Q2. We are on track to manufacture Enphase branded EV chargers at our contract manufacturing facility in Mexico by the end of this year, helping us to increase capacity and get down cost. As for the new products, we expect to introduce smart EV chargers to U.S. customers in the first half of '23, followed by Europe. We are excited about this product as it will provide connectivity and control, enabling use cases like grain charging and allowing homeowners visibility into operation of the Enphase solar plus storage plus EV system through the Enphase app. We are very bullish about our EV charging business and continued to invest in significance.
Let me give you a quick update on our Enphase Installer Network or EIN. We have now onboarded more than 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. We have talked about our installer platform on previous calls. From lead management to design and proposal to FinTech connectivity to automated permitting, installation and commissioning and operations and maintenance. We recently added battery design and document management features to our Solargraf software. We are also making enhancements to our Solargraf software to cut down permit plan set creation cycle time significant.
Next, I'd like to comment on NIM 3 in California. As of now, there is still no-decision from the California Public Utilities Commission, CPUC. We hope the CPUC eliminates the grid participation charge while providing a glide path for the solar-only market, as well as incentivizing the solar plus storage market. In summary, we are happy with our performance and strong demand for our products. We are working on several important initiatives to grow our business. Fully ramping IQ8 microinverters across the word, fixing customer experience on our IQ batteries, accelerating our business in Europe further, and introducing high-power IQ8 microinverter variants for residential and small commercial solar markets.
With that. I will turn the call over to Mandy for a review of our finances. Mandy?