President and Chief Executive Officer at Enphase Energy
Good afternoon and thank you for joining us today to discuss our fourth quarter 2022 financial results. We had a good quarter. We reported record quarterly revenue of $724.7 million, shipped approximately 4.9 million microinverters and 122-megawatt hours batteries and generated free cash flow of $237.3 million. Approximately 55% of our Q4 microinverter shipments were IQ8. We exited the fourth quarter at 44% gross margin, 12% operating expenses and 32% operating income, all as a percentage of revenue on a non-GAAP basis. Mandy will go into our financials later in the call. Let's now discuss how we are servicing customers. Our Q4 Net Promoter Score worldwide was 71% compared to 70% in Q3. Our North American Net Promoter Score was 74% compared to 71% in Q3. Our average call rate time was quite down to 1.6 minutes compared to 4.8 minutes in Q3. We staffed our teams well, focused on root cause, fixes of customer issues and improve our business processes. Let's talk about microinverter manufacturing. Our overall supply environment remains quite stable in general. There are issues that crop up from time to time. Our teams are staying on top of them. Our quarterly capacity was five million microinverters exiting Q4. We are on track to begin manufacturing at Flex Romania starting this quarter, enabling us to service Europe better. This will enable a total quarterly capacity of six million microinverters exiting Q1.
We are going to increase this capacity even more with US manufacturing. Let's cover that now. As we discussed last quarter, we are pleased that the IRA will help bring back high-tech manufacturing to the U.S. and stimulate the economy through the creation of jobs. We are excited to service the U.S. customers better with local manufacturing. We plan to begin U.S. manufacturing of our microinverters in the second quarter of 2023 with a new contract manufacturing partner and in the second half of 2023 with our two existing contract manufacturing partners. We plan to open six manufacturing lines by the end of this year adding a quarterly capacity of 4.5 million microinverters, bringing our total quarterly capacity to more than 10 million microinverters as we exit 2023. We continue to await the details of IRA implementation from the U.S. Department of Treasury. Let's cover the regions. Our U.S. and international revenue mix for Q4 was 71% and 29%, respectively. In the U.S., our revenue increased 15% sequentially and 59% year-on-year. We had record quarterly revenue, record quarterly sell-through for our micro inverters and record quarterly installer count in the fourth quarter. Our microinverter channel inventory was quite healthy at the end of the fourth quarter, while our storage channel inventory was a little elevated. I'll go into more details about our batteries later in the call. In Europe, our revenue increased 21% sequentially and more than 130% year-on-year, led by strong demand in Netherlands, France, Germany, Belgium, Spain, Portugal and the U.K. We had record sell-through and record installer count in Q4 as we continue to grow our business.
We started shipping our IQ microinverters into Netherlands and France in Q4. We are working hard to introduce IQ8 into other European countries shortly. Also, we are currently shipping IQ batteries into Germany and Belgium. We expect to start shipping IQ batteries into Austria, France, Netherlands and Spain in the first half of this year. Our GreenCom Networks acquisition, which closed in the fourth quarter helps to integrate Enphase microinverters and batteries with third-party EV chargers and heat pumps, enabling homeowners to control their devices from one app, which is the Enphase app. We are integrating the GreenCom offering with the Enphase ecosystem and expect to make it available to our European installers shortly. Now I'll provide some color on Latin America, Australia and Brazil. In Latin America, our revenue doubled year-on-year. We had steady growth in our solar plus storage business in Puerto Rico during 2020. In Australia, the solar market continued to recover in Q4 after a weak first half of the year. We expect to introduce IQ Batteries in Australia, along with IQ8 Microinverters in the second quarter of '23. As for Brazil, we experienced significant quarter-over-quarter revenue growth as we saw increased deployment of our IQ7 family of Microinverters. The residential solar market in Brazil continues to grow rapidly. We have a very strong team in place and we are excited about our future growth in the country. The emerging residential markets in Brazil, Mexico, Spain and India are all moving to high voltage panels. In order to service them better, we plan to introduce a high power 480 watt AC Microinverter in the second quarter.
Let's discuss our overall company outlook for Q1. We expect our Q1 revenue for the company to be within the range of $700 million to $740 million. We are fully booked for Q1 right now. Let me provide some additional information on the key regions. First about Europe, then about the US. Our Europe business is doing very -- is very strong as I noted. Note that we also doubled our revenue from 2020 to 2021 and more than doubled the gain from '21 to '22. We have a strong team in place and are quite bullish about 2023. We expect to introduce IQ Batteries and IQ8 Microinverters into many more countries in Europe as we progress through the year. Our value proposition is our differentiated home energy management systems, combined with high quality and great customer experience. As for Q1, we expect healthy growth compared to Q4, consistent with the overall growth in the European market. Let's now cover the US. We expect our US business to be slightly down in Q1 compared to Q4, primarily driven by seasonality and the macroeconomic environment. We are seeing that our distributor and installer partners are a little more cautious in booking orders. We normally have a six-month order visibility and that has been somewhat reduced as our partners watch their spending closely. On the sell-through of our microinverters, while December was quite strong for us, we saw a more pronounced seasonality in January than normal.
There are a couple of interesting observations I thought I will share with you. Even with the pronounced seasonality and sell-through in January, we'd like to point out that our activations are holding up. The second point to also note is that in conversations with our installers and distributor partners, they have started to see originations pick up in January when compared to December. Although the data we have is limited, these two points make us cautiously optimistic about Q2. We've also seen some analyst reports about a possible shift from loans to PPA due to the high prevailing interest rates. We work with thousands of installers every quarter. Our installer base is very diverse, both small and large installers that offer cash, loans and PPA options to homeowners. Any shift from one type of financing to another only has a minor impact to our business, almost negligible. No matter what the conditions are, our approach at Enphase does not change. We manage for the long-term. The basic thesis ongoing solar and storage remains intact, aided by a few factors: first, the utility rates, which are rising in many states across the U.S.; second, the 30% ITC tax credit, which has been extended for 10 years with the IRA; and third, the desire for energy independence and taxing climate change. At Enphase, we will continue to make best-in-class home energy systems with a laser focus on product innovation, quality and customer experience.
Let's switch to talking about battery. We shipped 122-megawatt hours of IQ batteries in Q4. We have now certified approximately 2,300 installers worldwide since the introduction of IQ batteries into North America, Germany and Belgium. Our installers in North America experienced a median commissioning time of 91 minutes exiting Q4 compared to 118 in Q3. We made significant software changes to improve communication, big transitions and commissioning time, and I'm quite happy with the performance of the team. As a result, we saw slightly higher sell-through of our batteries in Q4 versus Q3. We've also got a number of feedback from the installers about the fact of improved performance in terms of commissioning. We plan to ship 100 to 120-megawatt hours of IQ batteries in Q1. We also expect to start ramping our third generation IQ battery in North America and Australia in the second quarter. This battery has got 5-kilowatt hour modularity, two extra power compared to our existing battery and 30-minute commissioning time in addition to being easier to install and service. We expect the higher charge discharge rate as well as the 5-kilowatt hour modularity to be uniquely beneficial to the homeowners under the upcoming NEM 3.2 tariffs in California. With the significant changes we are making to our IQ batteries, we are confident that storage installations will become as efficient as microinverters and as a result, the profitability for installers should get better.
We expect our battery business to perform well in the second half of the year, both due to our third-generation battery as well as NEM 3 adoption in California. Let's now talk about our product for the small commercial solar market in the U.S. We are on track to pilot the IQAP product and release it to production in the second half of the year. As our panel power continues to increase rapidly, we are increasing the power of the microinverter by 50% from 320 watts to 480 watts AC while sticking to the single panel architecture. This product as well as the 480-watt residential microinverter for emerging markets, share the same design. Let's discuss EV chargers. We shipped approximately 7,600 EV chargers in Q4 as compared to 6,370 charges in Q3. We began manufacturing Enphase branded EV chargers at our contract manufacturing facility in Mexico this quarter, helping us to increase capacity and reduce costs. We expect to introduce IQ smart EV chargers to customers in the U.S. in the second quarter. These chargers will provide connectivity and control, enabling use cases like green charging and allow homeowners visibility into the operation of their Enphase solar plus storage plus EV charger system through the app. We recently demonstrated our bidirectional EV charger technology combining vehicle-to-home, vehicle-to-grid and green charging functionality. This new bidirectional EV chargers along with Enphase's solar and battery storage can all be controlled from the Enphase app, empowering homeowners to make use, safe and sell their own power. We are working with standards organization, EV manufacturers and regulators to bring this technology to market in 2024.
Let me give you a quick update on our Enphase Installer Network, or EIN. We have now onboarded more than 1,300 installers to our EIN worldwide through a highly selective process focused on installed quality and exceptional experience to homeowners across the globe. Let's discuss the installer platform. We made several updates to the solar graph, design and proposal software during the fourth quarter, incorporating battery design and proposal, document management, consumption modeling and several other improvements as requested by our installer partners. In addition, we made significant strides in automating the creation of permit plan sets with solar graph software. We now have over 1,000 installers using solar graphs software. Next, I'd like to comment on NEM 3.0 in California. The CPUC has finalized its decision on NEM 3.0 in Q4. While we wish the export rates had been stepped down a little more gradually, the policy is generally in the right direction for incentivizing homeowners to adopt storage. The next step is for installers to educate homeowners to increase adoption of NEM 3 and companies like Enphase need to help in making this transition possible. That's where solar graphs design and proposal engine comes in. Installers will be able to use solar graph to provide homeowners with a proposal that optimizes their bills under NEM 3 and their tariff to minimize payback and maximize ROI. The advantage with solar graph is that the underlying algorithm used by its engine will be the same as what is used in the actual operation of the Enphase home energy system.
As the system complexity increases with solar, batteries, EV chargers and dynamic rate structures such as NEM 3.0, the tight coupling of solar graph and actual product operation will maximize value to homeowners. In summary, we are quite pleased with our performance. As a reminder, our strategy is to build best-in-class home energy systems and deliver them to homeowners through our installer and distributor partners, enabled by the installer platform. We have many new products that are coming out in 2023, that will increase our served available market and positively contribute to the top line. We look forward to introducing IQ8 Microinverters worldwide, introducing IQ batteries into more countries in Europe, launching our third-generation battery in North America and Australia, as well as introducing our highest power 480-watt IQ8D Microinverter for both the US, small, commercial and emerging residential markets. We're also excited about the upcoming solar graph graft functionality, especially the NEM 3.0 functionality. And finally, the work we are doing to bring both smart EV chargers as well as by directional EV charging capabilities to the market.
With that, I will now turn the call to Mandy for a review of our financials. Mandy?