Ladies and gentlemen, thank you for standing by, and welcome to the Enphase Energy Third Quarter 2020 Financial Results Conference Call. At this time, all participant lines are in listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, Mr.
Adam Hinckley. Please go ahead, sir.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's Q3 2020 results. On today's call are Badri Kothandaraman, Enphase's President and Chief Executive Officer Eric Brandura's Chief Financial Officer and Raghu Balor, Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its Q3 ended September 30, 2020. 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 availability of components and manufacturing capacity, the availability and market adoption of our products, the performance of the tools we make available to the capabilities of our installation partners, safe harbor shipments, the impact of the COVID-nineteen pandemic and expected regulatory changes. 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 ks for the year ended December 31, 2019, which is on file with the SEC and quarterly report on Form 10 Q for the Q3 ended September 30, 2020, which will be filed during the Q4 of 2020. And Phase Energy cautions you not to place any undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statement as a result of new information, future events or changes in its 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?
Good afternoon and thanks for joining us today to discuss our Q3 2020 financial results. I hope all of you are staying safe and healthy. Our team continued to do a great job managing the impact of COVID on our business. We reported revenue of $178,500,000 shipped approximately 1,400,000 microinverters, achieved record non GAAP gross margin of 41% and generated strong free cash flow of $63,600,000 Our non GAAP gross margin excluded a $23,000,000 refund on tariffs, which we previously paid on microinverters imported to the U. S.
From China. In addition, we began volume shipments of our Encharge storage system to customers in North America. We exited the Q3 at approximately 41.17.24. This means 41% 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.
I'm happy to report that our worldwide demand significantly improved in Q3. I'm proud that our employees continued to do an excellent job during the pandemic while working from home. I'm also thankful for the strong support from our suppliers, customers and partners worldwide. Due to these combined efforts, we were able to increase our Q3 revenue by 42% sequentially. Let's talk about how we are servicing customers.
Our customer experience personnel in all 4 worldwide locations, U. S, Europe, India and Australia are still working from home supporting installers and homeowners. We have not missed a beat as our systems are cloud based. Our Q3 NPS was 67% and our North America NPS was 71%. Our average call wait time increased in Q3 to more than 3 minutes as the steep growth in installations resulted in more calls from installers and homeowners.
In addition, the launch of Encharge storage system during Q3 created more calls as our installers were learning how to install the product. We are working hard this quarter to bring back the call wait times under a minute by hiring additional customer support personnel and improving self help services through enhanced installer toolkit, chat functionality on the Enlighten app and the online Enphase community. Let's now discuss manufacturing. With the increased demand, we ramped production back up in Q3 and expect higher levels of production in Q4. Our factory in Mexico is doing well producing more than 75,000 microinverters per week, putting us on track to achieve our target of 1,000,000 units from Mexico in the Q4 of 2020.
As I discussed on last quarter's call, we have completed the qualification of Salcom, our 2nd contract manufacturing partner for microinverters based in India. We began microinverter production at Falcom earlier this month, and we are expecting to start shipping to customers later in the quarter. We have a high quality state of the art automated line with quarterly production capacity of 500,000 units and have the space to add a second line with the same capacity. This is our 2nd tariff free manufacturing location for microinverters after Flex Mexico. In terms of battery capacity, we qualified our 2nd supplier ATL, a leading global supplier of lithium ion batteries based in China.
ATL provides the cells and their subsidiary, PowerM Technology Limited, provides the cell pack. We will be taking 1st deliveries from ATL late this quarter. And when A123, our first qualified Cellpac supplier and ATL are fully ramped up in the first half of twenty twenty one, it will bring our available capacity to 480 Megawatt Hours a year. Moving on to the regions, our U. S.
And international revenue mix for Q3 was 78% and 22%, respectively. We saw sequential revenue growth in all regions during the quarter despite COVID-nineteen. The U. S. Market rebounded pretty nicely in the 3rd quarter.
Revenue was up 39% sequentially, partially aided by Encharge storage system shipments. In addition, sell through from our distribution partners were particularly strong for microinverters, reaching new records. The sell through in the month of September was 49% higher than in the month of June. Due to the record sell through, we ended our we ended Q3 with our microinverter channel inventory slightly lesser than our target range of 8 to 10 weeks. We started production shipments of in charge storage systems to installers in the U.
S. During Q3. 528 installer personnel have completed online courses to achieve provisional certification in Q3. The demand for the product is strong and feedback from the installers and homeowners is positive as they appreciate its modularity, reliability and safety. It is important to note that Encharge storage systems contributed above 10% of our overall revenue in Q3.
We were constrained by new product introduction ramp in Q3 and are looking forward to easing this constraint as our suppliers ramp up their deliveries. In Europe, our revenue increased nicely by 67% sequentially. We added several new installers and distributors during the quarter, including top distributors in Belgium and Netherlands. We are well staffed in Europe and are continuing to hire as we see opportunities. We launched the IQ 7A microinverter, our highest power product in Europe during Q3.
We announced a strategic partnership with Sonnenstrom Fabric to develop a high efficiency Enphase energized AC module with IQ7 plus microinverters. In addition, we expect to ship our IQ7A microinverters for Maxeon's AC modules this quarter. I'm pleased with our team's performance in Europe and I'm excited about the region's projected growth. In Australia, we achieved record quarterly sell through and installer count despite COVID restrictions in metropolitan Melbourne. We introduced the IQ7A microinverter similar to Europe, and this IQ7A microinverter is ideal and cost effective for high power panels up to 4.50 watts.
We also expect to ship IQ 7A microinverters to Maxeon starting this quarter. On the policy front, the South Australian Government's new rooftop solar installation rules present a favorable competitive environment and hint to the future regulatory landscape for solar nationwide. Not only we are fully compliant with Health Australia's new regulations, but we also remain one of the few inverter manufacturers who have submitted test reports as evidence. Revenue from Latin America increased sequentially quarter on quarter. In Latin America, Puerto Rico witnessed a strong rebound in activity during Q3.
We expect continued growth in this region due to our in charge storage systems. Activity in Mexico also started to rebound well. In September, we were honored to welcome the U. S. Ambassador Christopher Landau to our Made in Mexico event where he received a tour of the Flex manufacturing facility in Guadalajara along with an overview of Enphase's investment in Mexico.
Now that we covered the regions, let's discuss the overall bookings for the quarter. At this point, we are already 100% booked to the midpoint of Q4 revenue guidance. We cannot predict how COVID-nineteen is going to play out in November or December, so that's always a risk. However, we feel very good about the progress we are making and the demand that we are seeing for both microinverters and inCharge. Resiliency is top of mind for people working from home.
Let's talk a little bit about our inCharge system rollout. We started shipping the product in July after extensive alpha and beta testing. We introduced online training and certification in July for our long tail installers. We had our engineering field application engineers and customer service teams working round the clock to support the installations. We had a few issues early on, which were solved relatively quickly, but in general, the rollout has been pretty smooth.
We have developed metrics and dashboards to track problems reported by installers and homeowners and are making them highly visible across the company. We are treating every issue that a homeowner or installer reports as a defect. I'm really proud of the tremendous progress our teams have made in a very short amount of time. We have always been very clear that long tail installers are our number one priority. We see them acting as consultants to homeowners and influence their buying decisions.
Many of these installers are doing their first storage installations. Therefore, the cycle of learning is understandably high. Our job is to make the entire process seamless and quick in the installation for the installer. Within the first week 1st few weeks of the product rollout, we have identified a few things to iron out in the installation process and are laser focused on leaning out the process to maximize the installer's productivity. We expect to get this activity done in the Q4 through software upgrades to our Enlighten platform, both on the installer as well as homeowner apps.
I would now like to provide some color on our battery cell pack supply. In Q4, this quarter, we have approximately 50 megawatt hours coming from A123 systems and we have customer orders for most of that capacity. We expect to start shipping in charge storage systems with ATL battery packs only in the Q1 of 2021. We expect A123 to be fully ramped in Q1 2021 and ATL to be fully ramped by the end of Q2 2021, positioning us with full capacity in the back half of twenty twenty one. The reception from our long tail installers has been very encouraging.
However, these customers are going to take some time to scale as more and more of them get trained and finish their first few installations. We are receiving a lot of interest for in charge storage systems from Tier 1 and Tier 2 installers and have been working very closely with these important customers. Our philosophy on value based pricing is unchanged here and we are confident that larger installers will see a benefit that our product and platform brings. We will share updates on these developments as and when appropriate. Let's talk about our upcoming products and features.
Our Encharge storage system is compatible to the installed base of IQ6 and IQ7 microinverters on the roof. This corresponds to more than 300,000 homes. On our last earnings call, we discussed making the Encharge storage system compatible with the installed base of M Series microinverters on the roof. This adds another 300,000 homes to our 3rd available market. We expect to release a software upgrade in Q4 this quarter to make this happen and already have alpha systems running today.
The other feature is generator integration, once again made possible through the power of Ensemble. We expect to allow various generators to be plugged into our Npower smart switch, obviating the need for a separate generator ATS. Our Enlighten mobile app will seamlessly integrate the generator functionality providing a single comprehensive view of all distributed energy resources to the home world. We expect this feature to be released through enlighten in Q1 2021. We are making great progress on launching IQ8, our grid agnostic solar microinverter.
We already have IQ8 Alpha systems with and without n charge storage systems installed at various sites. As a reminder, IQ8 is the world's 1st grid independent microinverter. We expect to complete beta installations on this system in the Q1 of 2021. Our small commercial product, the 640 watts AC IQ8D microinverter is also making good progress. The design and reliability testing of the microinverter is already complete.
The focus is now shifting on full system testing and performing diligent alpha and beta testing. Similar to IQ8, we expect beta installations on the IQ8D system in Q1 of 2021. Let's now briefly cover digital transformation. Our approach here is pretty simple to provide a great experience for homeowners and installers through a comprehensive digital platform. Installers can leverage the platform to accelerate the installation process and improve the homeowner experience.
We have onboarded more than 400 installers in North America to our Enphase installer network through a highly selective process focused on installation quality and homeowner experience. These installers can benefit from Enphase lead generation, priority access to new products and a variety of tools on the digital platform to make the installation more efficient. Regarding tools, we are currently piloting permitting services for installers and edge chip application services for homeowners. We are working on introducing more tools in the near future, namely for solar and storage design financing as well as grid services. In summary, we are pleased with our results for the Q3.
We are excited about the rebound of customer demand worldwide. As we look to close the year, we are focused on ramping and charge storage systems, while providing the superior customer experience, introducing the new products, which I talked about and accelerating our digital transformation. As always, the health and safety of our employees, customers, suppliers and partners remains our topmost priority. With that, I will hand the call over to Eric for his review of our finances.
Eric? Thanks, Badri, and good afternoon, everyone. I will provide more details related to our Q3 of 2020 financial results as well as our business outlook for the Q4 of 2020. We have provided reconciliation of these non GAAP to GAAP financial measures in our earnings release posted today, which also can be found in the Investor Relations section of our website. During the Q3 of 2020, we had our first significant revenue and margin contribution from Encharge storage system sales.
This reflects the beginning of a new era in Enphase Nothing is more exciting than successfully introducing an industry leading software defined product to the market while continuing to support our profitable growth. We are also very pleased with the rebound in microinverter demand and our distribution channel management despite the impact of the pandemic in the Q3 of 2020. As I will discuss later in our Q4 guidance, we remain focused and on track for continued profitability. Total revenue for the Q3 of 2020 was $178,500,000 which did not include any revenue from safe harbor shipments during the quarter. Total revenue increased 42% sequentially and we shipped approximately 4 78 Megawatts DC in the Q3 of 2020.
We are very pleased to have returned to year over year revenue growth after excluding Safe Harbor revenue from the prior year despite the challenging microeconomic environment resulting from the pandemic. As we discussed on our last earnings call, certain of our microinverter products met an exclusion to the Section 301 tariffs that we have been paying on imports to the U. S. From our China contract manufacturing since September 24, 2018. The fact that our microinverters met certain size and weight conditions for exclusion is a testament to our product innovation.
We requested refunds totaling approximately $39,000,000 plus accrued interest of which $23,000,000 were approved so far and have been accounted for as a reduction in cost of goods sold in the Q3 of 2020. We have already collected $60,000,000 to date and have excluded The Section 301 tariffs exclusion expired on August 7, 2020, once again making those microinverter products subject to tariffs. Non GAAP gross margin for the Q3 of 2020, which included our first significant contribution from in charge storage system sales and excluded the $23,000,000 tariff refund was a record 41% compared to 39.6% for the Q2 of 2020. The record gross margin was achieved despite ramping production of its in charge storage systems, which generated a healthy gross margin for the quarter. The sequential improvement was driven by stable pricing on microinverters and continued cost reduction efforts.
GAAP gross margin was 53.2 percent for the Q3 of 2020. Non GAAP operating expenses were $29,600,000 for the Q3 of 2020 compared to $26,000,000 for the Q2 of 2020. The sequential increase was primarily due to engineering and regional self headcount additions to support our innovation and growth. Overall, we hired 113 new employees during the Q3. GAAP operating expenses were $43,200,000 for the Q3 of 2020 compared to $37,500,000 for the Q2 of 2020.
GAAP operating expenses for the Q3 of 2020 included $13,100,000 of stock based compensation expenses due to higher headcount and $546,000 of amortization expenses for acquired intangible assets. On a non GAAP basis, income from operations was $43,700,000 for the Q3 of 2020 compared to $23,700,000 for the Q2 of 2020. On a GAAP basis, income from operations was $51,800,000 for the Q3 of 2020. On a non GAAP basis, net income for the Q3 of 20 20 was $41,800,000 compared to $23,500,000 for the Q2 of 2020. This resulted in diluted earnings per share of $0.30 for the Q3 of 2020 compared to $0.17 for the Q2 of 2020.
GAAP net income for the Q3 of 2020 was $39,400,000 compared to GAAP net loss of $47,300,000 for the Q2 of 2020. Just to remind everybody, Q2 GAAP Q2's GAAP net loss was driven by a non cash charge in fair value of derivatives related to our convertible notes due 2025. The derivatives were re measured at fair value and reclassified to additional paid in capital on the balance sheet in the Q2 of 2020, resulting in no income statement impact in Q3 'twenty or future periods. GAAP diluted earnings per share was $0.28 for the Q3 of 2020 compared to diluted loss per share of $0.38 for the Q2 of 2020. Now turning to the balance sheet and the working capital front, inventory was $37,500,000 at the end of Q3 2020 compared to $31,200,000 at the end of Q2 2020.
Days of inventory outstanding excluding the $23,000,000 tariff credit decreased to 32 days compared to 37 days in Q2. The sequential dollar increase in inventory was driven by the purchase of battery cells for the projected increased shipments of Encharge in Q4 'twenty to support our new product ramp as well as to a lesser extent a higher level of microinverter shipments. Accounts receivable were $122,400,000 at the end of Q3 2020 compared to $89,500,000 at the end of Q2 2020. The sequential increase was due to the higher revenue in Q3. DSO of 52 days increased slightly from 50 days in the prior quarter.
We exited the Q3 of 2020 with total cash balance of $661,800,000 compared to $607,300,000 for the Q2 of 2020. We did not make any share repurchase against our $200,000,000 share repurchase authorization. However, we spent $52,000,000 on withhold to cover tax transactions year to date through September 30 on employee stock vesting that prevented the issuance of approximately 1 point 2,000,000 shares. We generated $67,500,000 in cash flow from operations and $63,600,000 of adjusted free cash flow for the Q3 of 2020. Capital expenditure was $3,900,000 for Q3 'twenty mainly for the in charge battery manufacturing capacity increase, IT enhancements and lightened software app development costs and product production ramp with our 2nd contract manufacturing partner.
Now let's discuss our outlook for the Q4 of 2020. We expect our revenue for the Q4 of 2020 to be within a range of $245,000,000 to $260,000,000 Our revenue guidance does not include any safe harbor shipments. Turning to margins, an additional $16,000,000 of tariff refunds has been requested but not yet approved. As a result, both our GAAP and non GAAP guidance for the 4th quarter excludes any tariff refunds. We expect GAAP gross margin to be within a range of 37 percent to 40% and non GAAP gross margin within a range of 38% to 41%, which excludes the stock based compensation expenses.
We expect our GAAP operating expenses to be within a range of $51,000,000 to $54,000,000 including a total of approximately $16,000,000 estimated for stock based compensation expenses and acquisition related amortization. We expect non GAAP operating expenses to be within a range of $35,000,000 to $38,000,000 The sequential increase in operating expenses is due to continued higher support our growth plans and the expectation of resuming bonus accruals and payments, which have not occurred during the past two quarters. Before opening the call to questions, I would like to discuss the potential for safe harbor shipments. Discussions around safe harbor shipments have picked up recently and there may be some modest safe harbor sales in the Q1 of 2021. The exact magnitude is still uncertain, but it will be a fraction of the $44,500,000 self hardware revenue in the Q1 of 2020.
Recall that to satisfy the self hardware provisions, customers will have to take the lever before the year end or prepay for this product before year end. With that, I will now open the line for questions.
Our first question comes from Eric Lee with Bank of America Merrill Lynch. Your line is now open.
Hey, good afternoon. Thanks for taking the question and congrats on the quarter. Hi. Hey. So first off here, maybe to touch upon Encharge a bit more.
You mentioned that this was about 10% of 3rd quarter revenue. Could you talk about how much volume on a megawatt hour basis was shipped for Encharge? And perhaps what the gross margin associated with that segment might be tracking at?
Yes. We have been very clear that N Charge will fall in line with our corporate gross margin targets, which is 35%, 15%, 20%. And then we are not breaking out the exact megawatt hours, but what we have done for you is told you that it is about 10% of revenue and also we have given Q4 capacity saying that we have Q4 capacity of 50 megawatt hours and we are mostly booked to it.
Okay. Got you. No worries if you can provide further granularity there yet at this time. Could you talk about what your expectations for battery capacity on a forward basis might be? I know you talked about the 4 80 megawatt hours, but I believe you have mentioned a 3rd supplier in mid-twenty 21.
How should we think about the potential capacity increase associated with that? Or is that something still up for determination based on how demand trends into that decision?
[SPEAKER SWAYAMPAKULA
RAMAKANTH:] Right. We obviously need to look at how demand is going to come. But to simply answer your question, we from Q3 onwards, we will be at a capacity of 120 megawatt hours a quarter with our current 2 suppliers, which is A1, A2, A3 and ATL. Then from then onwards, we are talking to a 3rd supplier of batteries. And right now, the plans are in solid.
We will share those plans with you when they are finalized, but we expect to have somebody on board by the end of 2021, a 3rd supplier.
Remember that the supply information that we are providing is contextualizing our capacity availability in the event of demand being available, right? So it's not a statement of demand, it's a statement of supply. Also remember that we are CapEx and OpEx flex because we use contra manufacturing. So we are in a great position here to flex that capacity up and down as we consider the demand into the future. And finally, I don't know if you remember, we always talk about having a 36% surge capacity available.
That is also is included in the number that Valerie just mentioned that we need to have in case the demand remains very strong, right? So all of those things are baked into the number that you just heard from Badri as we ramp our capacity exiting this quarter.
Okay. And one last question for me and I'll jump back into the queue here. Could you just talk about where attach rates are currently standing? I know you have provided the 8% to 10% attach rate guidance for 4th quarter, but what was that number for Q3, if you may?
A lot of the folks in our industry talk about the attach rate. We talked about the attach rate last quarter, but then it started to get confusing because we ship product to every I mean to all the states in the U. S. Many of these states are still ramping up on storage. So we have to really give you much more granular data and then overall attach rate is almost meaningless.
That's why what we did was we provided even more visibility to you in terms of megawatt hours. That's why for Q4, we said, look, we have a capacity of 50 megawatt hours. We're almost full to that capacity and that will give you easier modeling. But having said that, we've always been clear that long tail installers are our number one priority. Our attach rate is extremely healthy with the long tail installers.
And now what we have going for us is we are in talks with several Tier 1s and 2s who basically want to get on board because Ensemble is an extensible platform. When you have a platform which is capable of giving you a long lifecycle, which is you can start with solar and our what is called as an Npower smart switch. You can start with IQ8 Solar and Npower smart switch, then you can add batteries. You can come back after a year, you can add generators. You come back after some more time and say, okay, I don't want a generator, I want to add a fuel cell, fine.
Then you can add EV chargers soon. So, we are thinking about an extensible architecture capable of load control. And so, when we share our product roadmap with all of these tier 1s and 2s, there is enormous interest. And so we are working closely with them. We're not going to compromise on our value based pricing like what I said.
And we'll inform you if there are significant developments in that front.
Got it. Thank you.
Thank you.
Our next question comes from Mark Strouse with JPMorgan. Your line is now open.
Yes, good evening. Thank you very much for taking our questions. Badri, I hope I'm not splitting hairs here, but just wanted to go back to your comments about the IQ8D. I think you said shipments or revenues starting in 1Q of 2021. I think previous comments were kind of testing that product out later in 2020.
Just wondering if there's any change in the timing of that product? And if not, how we should take your comments about 1Q? Should we just expect that to be kind of testing revenue or could there be kind of more material volume shipments? Thank you.
Look, I mean, we've always been very clear. Even on our storage product, I refuse to go to market until we are absolutely ready. Quality and customer experience is our number one priority. That's how we go to market. That's how we win market share.
And that has been our success story on the microinverters. It's going to be no different on IQAD. In IQAD, the great news is that treating it like a microinverter, the work is almost done, which is the design and reliability. But it is no longer a microinverter. It is a complete full system.
And it is a cultural change for us in the company in order to make sure everybody thinks about it like a full system. So therefore, what we are doing this quarter is there are alpha systems, which are pretty big alpha systems. We expect anywhere from 50 kilowatts to 200 kilowatts, real alpha system installed. We are going to be hammering on those. Based upon the learning of our in charge storage systems, we think applying the same best practices, we will be able to start beta installations in the Q1 of 2021.
And that's why I gave you that number, I mean, that date. And that's our expectation. If there is a change, we will let you know.
I just want to add one more thing on this. Back last year when we did Analyst Day, I actually mentioned that there will be some beta revenues potentially in Q4, very small. So you're right, we said that. Normally beta revenue is really small. It will not make a mark.
I think that what Vale is doing now is spending more time on the software element of the RAT and looking at these as a system and it's taking more time on the testing side. So the beta revenue will come in Q1 instead of Q4. But it was never meant to be materially important, more symbolically important for the company about having the new product introduction in the quarter. But I just want to clarify that because that's correct. You said some revenue in Q4 and that is slipping into Q1.
Yes. Yes, grand scheme of things, not that big a deal. Just want to make sure my model is right. So thank you for that. And then just Eric, real quick, and I apologize if I missed this.
Did you give the split of U. S. Versus international either for megawatts or revenue?
Yes, we did it for both I think, right? We provided the international. We didn't do it by region. We like 78% is domestic, which is actually pretty impressive if you think for because we were over 80% or 90% actually last quarter. And now the presence of Europe and Asia Pacific, especially Europe, is becoming very prominent even though we also have ensemble shipments in Q3.
So that's providing that the growth in Europe is helping on the regional diversification of revenue.
Right. So the answer is 78%, 22% 78% revenue in the U. S. And 22% international.
Excellent. Okay. Thank you very much.
Our next question comes from Brian Lee with Goldman Sachs. Your line is now open.
Yes. Hi, guys. Thanks for taking the questions. I hopped on a little bit late, so apologies if you've already covered this. But did I hear that 10% of revenues were from battery storage in Q3 and that you're switching over from the 8% to 10% attach rate guidance for Q4 and you're just talking about it in capacity terms.
Maybe asking in a different way, are you basically saying you had a little less than $20,000,000 of revenue from batteries in Q3 and based on 50 megawatt hours of capacity and being sold out in Q4, that seems to imply more than doubling the $40,000,000 of revenue in Q4, if my math is right. Is that the right ballpark?
Well, you're obviously good in math. You're approximately right. And yes, we did a little bit more than 10% of our overall revenue in storage, which is fantastic for our new product in the Q1.
Okay, that's great. I appreciate that additional clarity. Maybe two more questions, and I'll pass it on. But the gross margin bump for the guidance in Q4, I know it's subtle, but you guys continue to kind of move it up into the right. How much is that from the mix of Encharge revenues in the quarter increasing sequentially?
And how much of that is just organic margin expansion on the micros? And then secondly, now that you're talking about this sort of in capacity terms, can you remind us sort of from the 50 megawatt hours in Q4 where the interim targets are for maybe early 2021 and then as we move through the back half where you'd be in the back half of 2021? Thanks guys.
Right. Okay. Thank you for the question. So first is the gross margin question. Gross margin depends upon pricing and cost and we are extremely disciplined in both.
Pricing is value based pricing. Cost is we hammer on costs on microinverters, accessories, storage accessories, and charge storage systems. So all of that, we've just started hammering on the storage costs because we just introduced the product pretty recently. So most of our cost reduction so far has been coming from the microinverters, which is fantastic. And we believe we have long legs there because we've already started to focus on IQ9, which will probably come out in 2022, early 2022.
But there, IQ9, we are focusing on a very advanced materials plus an ASIC architecture that will substantially reduce both the footprint as well as the cost and the efficiency. So we are working on that. It's a lot of innovation there, so we're going to take some time there. With regarding the question on capacity of battery, so we said Q4 is roughly 50 megawatt hours. We think, like what I said in the script, by the end of Q2 2021, our capacity will be around 120 megawatt hours per quarter with our existing 2 suppliers.
That's the answer.
All right. Thanks guys. Appreciate it. I'll pass it on.
Thank you.
Our next question comes from Jeff Osborne with Cowen and Company. Your line is now open.
Yes, good afternoon and congratulations on the results. Just two questions on my end. I was curious, Eric, on the Safe Harbor comment around the early visibility there. Is there any dependency on the outcome of the election? For example, if Trump wins, do you anticipate more safe harboring as opposed to less?
Yes, I think there is and there is also an element of I've done it before, I know how to do it and I wait and see. So there is less complication on figuring out the mechanics and the legalities, right? Remember, these were specific contracts with a lot of special language, a lot of logistics order fulfillment, warehousing requirements, labeling requirements, all of those are learnings from the past. So now these guys are probably waiting probably until the last possible time in order to make a decision. We don't see a lot of activity for Q4 this time.
There is some we will probably see it in Q1 and it will be probably not as big as it was last year, right? Or this year, actually, early in Q1 this year. So we should expect to see some, but maybe not as many.
Then speaking of Q1, what visibility do you have lined up to that just given the rampant recovery in the market and some projects seem to be pushed for a variety of reasons, labor shortages, etcetera. Are you hearing from your distributors or customers that projects are being pushed to Q1 at this point or no?
No, no. I mean,
we normally don't comment about Q1 beyond the quarter, right, Jeff. And frankly, on the safe harbor, I told you is all I know, right, at this point.
Okay. Maybe one that you will answer, you certainly have ample cash. Can you just talk about what your thoughts are on M and A, either in software, other adjacent areas, just given there's been some activity in your space?
Yes. We have actually deep thoughts on that area and Raghu is actually working with Adam around the clock with a very healthy pipeline of M and A opportunities that we are evaluating. And you know how we are, right? We look at every detail. We look at every angle.
We see the multiples that some of these opportunities are commanding, and we want to make sure that we do the right thing for the company at the right time, right? So yes, it's very active, very visible and is part of the development of the digital strategy of the platform that Valerie mentioned earlier. So yes.
Got it. Thank you. You're welcome.
Our next question comes from Colin Rusch with Oppenheimer. Your line is now open.
Thanks so much. I just want
to dig a little bit into the customer awareness and understanding of the value of the grid formation capability with it?
Yes, I think hi, this is Raghu. So as we mentioned, the installers still have a pretty big influence in they are selling the product to the homeowners. So they do a lot of education. And for us, we do extensive amount of training with the installers as well and educate them on the importance of grid forming not only with obviously with energy storage, but also with the IQ8 PV that's coming soon after. And to a great extent, as we mentioned, right, today, people working from home, resiliency is top of mind.
So they want to have systems
that are backup systems.
And of course, all the challenges that we're seeing here in California, it is on everybody's mind is that how do I provide a backup solution and the conversation naturally leads into okay, can I do that with solar and storage? So it's a lot of training, a lot of education that happens and then of course the environment itself is such that people are quite aware anymore.
Thanks. And then just thinking about
the OpEx spend, specifically in R and D, I mean as you guys start to scale up revenue in a more substantial way and you've got some financial flexibility in terms of the target model, I mean, how should we think about R and D spend and target areas? Obviously, you've just answered the question about M and A, but thinking about the internal team and where you're focusing resources, how should we think about scale up to that spend and where are you focusing in terms of the development of technology platform?
Yes. Like what we have told you before, 35, 15, 20 is our model. The OpEx model is about 15% of sales. So we have to grow if sales grows faster, we have a little bit more room on OpEx. Having said that, we live and die by innovation.
We basically the stuff I told you on IQ 9, we are working on, it requires a lot of engineers trying out various things. So our R and D centers of excellence are in India and are in New Zealand with management oversight from the U. S. We are investing very heavily. That's why Eric said this 113 new hires in 1 quarter.
And of these 65 people are from the top universities in India. That's called Indian Institute of Technology, outstanding engineers, software engineers, hardware engineers, our conversion engineers. And we expect to be hiring more such people. In fact, I can't yes, I don't have enough engineers in the company. And we are going to hire in a hurry there, but we are going to be disciplined, making sure we are going to be around that model at our times.
All right. Thanks, guys.
Thank you.
Our next question comes from Amit Dayal with H. C. Wainwright. Your line is now open.
Thank you. Hi, Badri. Could you talk about some of the deployment challenges you may be facing? Just any examples to help us visualize what are the issues and how you're addressing those?
When you said the deployment challenges you mean with respect to storage?
Yes, yes, yes. With the new product, yes, the storage going on.
Yes. With respect to storage, many, many times, people, for example, they switch when they switch to off grid product and let's say it happens and they don't even know because their product seamlessly switches from on grid to off grid, if they don't change their user patterns, then what happens is the batteries can deplete quickly. And so by the time the night is over, the batteries may deplete and the house may not have power. And so, in those cases, obviously, our next generation product will take care of those cases because it is going to have load control. And when it has load control, when you switch from on grid to off grid, we will make sure the critical loads are on first.
Right now, the product that we introduced doesn't yet have that feature. So therefore, we have to educate people that sometimes this happens and that education cannot come manually. It has to be some form of push notification that comes on their devices, phones, iPads, etcetera, saying that you're now off grid, start to reduce your consumption, conserve your consumption so that in the morning, some comes up and your batteries again, your batteries are automatically charged. So, education like that, I mean, you might think about it as pretty simple. But remember, the people we are selling this product to, they are they belong to various demographics, various in the 20s to in their 70s.
And so we have to make sure this product works seamlessly. While we are on that product development cadence, in the short term, we have to educate people and we have to educate people with our customer service team. Our engineering team needs to do some quick containment, which we are actually working on. I gave you an example, but those are the types of things we are doing right now.
Understood. Thank you for that. Just maybe one more question on the guidance for the Q4, with 50 megawatt hours coming from potentially the storage side, Is microinverter roughly flat year over year than for the Q4?
No. Microinverter, we said, if you take a look at it, the I mean, think about it like this. My revenue in Q2 was Q2 was in the 120s. Q3 is 178. Q4 is midpoint is 253.
This cannot happen with the micro inverter revenue flat. The micro inverter point of sales has gone up by 49% in the last 3 months. Our sell through for microinverters in September is 49% higher than in June. There is record point of sales for microinverters. We are continuing to take share, I believe, on microinverters.
And especially, and I talked about the long tail of installers before. It's the quality, it's the customer experience. As long as we are leading on that front, We believe this will continue to happen.
Amit, remember that we have 50 megawatt hours of capacity. And if you are, let's say, hypothetically fully booked, that based on the dollar per kilowatt hour assumption gives you a number minus the 252.5 midpoint of the guidance that shows you a growth from 178.5 and that is pretty
pretty big, right? So if you do it that
way, the math, whatever number you use per kilowatt hour on ASP. So it's a good year for Micros, right?
As comparing it to 4Q 'nineteen.
Well, I mean think about it. 4Q 2019, we have had the pandemic. We have had the pandemic. So what we are looking is, you look at the revenue approximately in 4Q, we had a lot of safe harbor at that point in time. And if we had excluded safe harbor in 4Q 2019, that number is roughly in the 160s for Q4 2019.
Now we take that number, now we compare with our midpoint of guidance, which is 252.5 minuteus the 40 megawatt hours. And if you apply or minus the 50 megawatt hours, you apply the model, you will see that there is still very significant growth even in microinverters year on year.
Yes. I was in factoring the safe harbor for 2019.
That's critical for you to track because safe harbor is like you guys know it better than me. It is a lot of forward pulling.
And we made a special mention on safe harbor on our guidance. I actually were the first ones that came up with Safe Harbor carving out the numbers to make it clear for you guys. So I mean anytime.
Understood. Thank you guys. Appreciate it.
Our next question comes from Eric Stine with Craig Hallum. Your line is now open.
Hi, everyone. Thanks for taking the questions.
Hi. Hi, Eric.
Hey. So I guess, asking this question in the context of the resurgence we're seeing in COVID right now. And thinking back to the Q2, really tough quarter for the industry, but there were also a number of positive steps taken, installers and other industry participants even just starting to do business differently. So I mean, when you think about going forward and if things do trend to where things get worse, I mean, how do you think the industry or does it give you comfort that you think that the impact to your business would not be severe as it was in the Q2?
I think one of the things that we have seen is the how quickly the industry adapted to the new to the environment, right? One of the things is that they went a lot of things went online. And the second thing is, again, resiliency has become such a big such a key and important top of mind issue for a lot of the homeowners. So in some sense, as unfortunate as COVID has been, it's been actually a really big advantage for resiliency products such as energy storage. Second thing also is
if you look at what we
are doing with our digital transformation, we are building out a comprehensive platform that is helping our installer partners have a very efficient journey all the way from leads through design, through permitting, through contract, commissioning, interconnection, etcetera. So I think even if a situation like what you're saying occurs with the resurgence, the combination of the adaptability of our installer partners plus all the tools that we are bringing to bear, I think the industry will be pretty resolute in getting through it.
Got it. Good to hear. Yes, I mean, obviously hoping that is not the case, but good perspectives. Maybe last one for me. Just on the upgrade program, I know that in the past you've talked about this as a pretty substantial opportunity and the thought that you would upgrade the M Series or see if homeowners wanted to upgrade the M Series to the IQ Series.
What you talked about earlier, I just want to confirm, I mean, how should we think about that upgrade program if you are targeting software that would make the M Series compatible to N Charge. Is there any change to that or have things changed I mean, it's a little different when we think about it going forward?
It's a massive opportunity for us. I mean when do you get 300,000 homes additional when you've already served them once, this one is an opportunity to seamlessly add storage to their existing solar installation. But having said that, we got to make sure we get our capacity issues solved and then we are going to I mean, the beautiful thing is we know exactly where they are located. We know their consumption patterns. We also know that there are we can specifically target those people for whom resiliency is top of mind, which is places like California, Florida.
We can target those very easily when we have the right capacity. So, it's very much in our mind and it is applicable for IQ also, M Series also. And like what I said, we are planning to release that software upgrade in the Q4. And we'll start the promotions.
Yes. So is it fair to then to think about it's just more it's better for Enphase if you are deploying Encharge systems on those houses where they're M Series microinverters, but they've gotten the software upgrade rather than going to IQ6 and IQ7. Okay, very helpful. Thanks a lot.
It depends also on the state of the warranty. Remember that some of these M Series people bought it a long time ago. So some of them they may say I may as well change and switch. Many homeowners actually to our surprise, they actually use the opportunity for doing a reassessment of their energy requirements, how many people are getting EV. So the opportunity to upgrade to IQ base system with ACMs in many cases is still there, right?
Right.
But I mean, short answer is we don't need them to do it. That's a huge barrier that is gone. And some people like what Eric pointed out, M190, their warranty, original warranty was only 15 years. So they are basically they're almost running out. But there are some folks with M250 whose warranty is they're only 4 years into their warranty, 5 years into their warranty.
For them, many of them will not want to move to IQ. And so even for them, it is no problem. You can buy and charge. It is seamless. No issue.
Got it. Thank you.
Thank you.
Our next question comes from Philip Shen with ROTH Capital Partners. Your line is now open.
Hey, guys. Thanks for the questions. So the mix of U. S. International was $78,000,000 $22,000,000 in the quarter.
As you think through 2021, how could this mix evolve? Do you think Europe and other international markets could grow faster? Could we see seventythirty next year? Or do you think it stays similar to this eighty-twenty?
We are making huge progress in Europe. So Europe grew 67% compared I mean in Q3 compared to Q2. And the areas of growth are the obvious ones Netherlands, France. We are starting to make some serious inroads into Germany. We have hired sales folks in many countries.
We are going to introduce our product in Italy very soon. We have engaged. I mean, we have partnerships with Sonnenstrom Fabric, which is an ACM partner. We have not yet talked about our second ACM partner. We will soon.
And then we have our 3rd ACM partner with Maxeon. So that's good. And again, it is the foundation is quality and customer experience. That's why people that's why we are expanding rapidly. One big thing which will come, we will introduce by Q3 of 2021 will be basically storage systems in Germany and Italy.
We are going to be introducing in charge in Germany and Italy and the other countries that need it in Europe. And that's going to happen. We are also I mean, we are working on that product as well. So I think I'll be disappointed if we don't get to seventythirty at least as we exit 2021.
Interesting. Thanks, Badri. Do you think the supplier for Germany and Italy would be the same 2 that you have now? Or could it be a 3rd? I know you talked about earlier or possibly even a 4th that supplies Europe.
Yes, let's walk before we run first. So the current 2 suppliers, the design would be compatible to the current 2 suppliers. And then if we are demand constrained, we will obviously recognize that fast and make sure we add a third supplier quickly.
And we do
have plans to do that by the end of the year anyway.
Okay, fantastic. In some of our checks, we picked up that there might be some components that may be short for you guys. I just want to see if you might be able to talk through this. It's not the microinverter or well, n charge certainly is short and there's a lot of demand there, but just kind of peripheral components. Do you expect this to sustain?
Do you think you can catch up? Do you think or is this not really an issue? Any thoughts on that would be great.
Yes. I mean, look, the nice thing is the channel is very lean right now. We talked about our normal general inventory is 8 to 10 weeks, but we are much tighter than that. Yes, you're right. The channel is running light, but we have the capacity to catch up very quickly.
Like right now, I have three sources right now. I have Flextronics Mexico, which produces tariff free product up to 1,000,000 units a quarter and I can expand that easily. I have Cellcoms Chennai that produces tariff free product 250,000 units in our 200, 250,000 units for Q1 of 2021 and probably 500,000 units per quarter Q2 of 'twenty one. And then I always have China, which can go more than 1,500,000 to 2,000,000 units. And of course, they have the downside as we pay tariffs.
So we have enough capacity, microinverter capacity. We have systematically built the company such that we don't I mean, we are not limited by demand for microinverters. And so there may be some short term constraints here and there, but we are working furiously, our long tail installers and all our installers are top priority for us and we are operationally excellent. Our Chief Operating Officer, his job is to make sure no customer is unsatisfied, especially in these times. We will continue to work with them and we are going to solve these issues.
Great. Thanks, Bhajin. Keep it up. Great work.
Thank you.
Our next question comes from Mike Sicos with Needham and Company. Your line is now open.
Hi, guys. Thanks for taking the questions here. Just one for you on this digital transformation initiative that you guys are talking through with the in phase installer network. I think I heard that you guys have now 400 installers on boarded. And I'm just going through my notes here.
I think you work with, call it, about 1500 of these long tail installers in the U. S. Per year. So I wanted to get a sense of, first, how big do you plan on growing that network? And then secondly, can you kind of walk us through how you guys are putting together these leads and packaging these tools for that network?
Just curious from a competitive dynamic what the response is and can you guys actually get visibility on your end then as far as how close rates and other items like that are tracking?
Yes. So we have a much we view it very strategically when we think about this comprehensive digital platform that we were talking about, right, historically. The involvement of Enphase and Enlivu specifically the tools started at the time of commissioning and then commissioning and interconnection permission to operate and then operations. What we have done now is extend that to the beginning of the process, which is starting with leads and lead management. That's 1.
It also interweaves both the installer journey, if you may, which includes design, proposal, contract, permitting and so on and so forth, as well as full visibility into how the interaction occurs between the homeowner as well as the installer. So we have mapped out that journey. The goal being to provide an excellent customer experience both for the homeowner as well as the installer and the journey begins right from the beginning. As far as the and of course, the name of what enables this is the Enphase installer network and that's a worldwide network. It's U.
S. As well as in all the regions that we are in. And we qualify, they have to
go through a pretty stringent selection process. So even
though we start with 1500 installers, based on the quality of their installation and most important, the customer experience, we have in the U. S. As an example, we have now 400 installers in our EIM. So we'll continue to provide as we continue developing additional tools for them, etcetera, there will be metrics that we're going to track. And of course, at the appropriate time, we'll share some of those metrics similar to what we have done as we track NPS as an example.
We'll do something similar at the appropriate time.
Just to clarify, we do business with more than 2,500 installers at any given year, right? So this EIM or in phase installer network is a very exclusive unique group of installers that there are meet a particular defined criteria of excellence with customer experience, installation designs, and they get access to the full suite of the digital platform tools, including leads and other benefits, right? So they are classified into 3 categories. We have a very clear way to define that, and that's what we are doing. But we continue doing business with pretty much that kind of all of these installers.
Right. And if you
actually go to our website and if you go look at a particular zip code and if you type that in, you can see the platinum, gold and silver installers in that area. You can actually see how they are sorted. You can see the ratings, public ratings that they have. Now your question was how is it embedded into the platform? We are in the process of releasing the platform.
We haven't released it yet. It's going to take us a little bit more time. But the way we are thinking about is, for example, if a homeowner from a particular zip code, he approaches Enphase, Enphase would give him would show the Enphase installer network in that area. The Enphase installer network, the way we will prioritize this obviously by the people who service the homeowners with the highest Net Promoter Score, highest customer experience. So therefore, what we would do is we would have an algorithm which picks the right installers, a few of them, maybe 3 or 4 to show the homeowner so that the homeowner makes the right decision on what is good for him, but it will be based upon Enphase installer network.
It's also important to know that these installers have actually given all of the details that a homeowner would like to see when they are making a decision. And the details means, for example, which zip codes they service, what is their pricing, upper end and the lower end of pricing per watt for solar, what is their pricing for storage, what are their preferences, are they is the installer okay to utilize AC modules, What if we do upgrade programs, what are the rates that he is going to charge the homeowner? So, we are building a comprehensive database. The 400 installer database is going to be very comprehensive because that will be the basis of the digital platform. When a lead comes, the data will be automatically taken from the platform from those installers and that installer data will be directly shown to the homeowner without interference from Enphase.
All we choose is the best homeowner experience, nothing else. So that's our philosophy and we don't need to do more. I mean, we don't need to do more work before we release it. And we need to add several tools. Our installers, our EIN, Enphase installer network, they get priority to tools that we have.
For example, if we have a solar and storage design software, they will receive special priority depending upon their tier, whether it's platinum, gold or silver. Similarly, if we introduce a permitting service, they will get special priority. That's the whole point. We want to build a very high quality network that services their job is to service the homeowner with the best customer experience. Thank you for that level
of detail. It sounds like a compelling opportunity there. And then one more, if I may, just thinking through the baseline financial model that you guys have laid out, that 35%, 15%, 20%, given how you guys have been outperforming that model, Maybe you can talk us through how you think about that model moving forward or the opportunity to increase those margins over time?
I think that what we normally say to investors is think about the immediate midpoint of the guidance as a very short term view of our performance and forecast the immediate quarters thinking on those lines. We also need to think through that we don't the concept of growth requires significant amount of flexibility and we want that flexibility. We need that flexibility. And as we continue ramping up new products on the introductions of new products or continue to increase the volume on existing products like Ensemble, we like you folks to focus on that the baseline model is the right model for the long term, right? And when we feel comfortable to improve on that model, we will communicate that one as we did it before, right?
But in the short term, midpoint of the next quarter guidance sounds about right. In the, I will say, midpoint, mid term scenarios, I think you should think through the 35% gross margin as a good baseline. It's cash generating. We have very flexible operating model, so in terms of investments, right?
All right. Very helpful again. Thank you, guys. Good luck.
Our next question comes from Sean Milligan with Williams Trading. Your line is now open.
Hey, guys. Thanks for taking the question. If we think about where you're exiting this year at 50 megawatt hours on the battery on the storage side from capacity and where you're heading mid year next year, what are kind of the biggest gating factors to hitting sales that are equivalent to that 120 megawatt hours mid next year? Is it bringing on additional installers? Is it just a matter of having the capacity because the demand is there?
Just trying to understand if there's some kind of gating factor in the 1st part of next
year? D. Moriarty:] Yes. Thank you for the question. So basically, like what I talked about, we focus on long tail installers.
And we have been clear long tail installers is number 1 priority. And that business does not happen overnight. It is hard for us to build it installer by installer. The installers have to go through online training because right now that's the way to do things. They have to do their first installation.
We have to be patient with them. We have to make sure that installation experience is a seamless experience. We lean out all efficiencies in the process. We need to get that installed to less than one day install. And then the and make sure that we are on top of those long tail installers.
That's one. That is a multi quarter process, right? Like how we built our microinverters over microinverter business, it took us a long time to build one brick at a time. Storage business, especially with the long tail, will take time to build. However, once built, it is an extremely healthy business to have because our foundation is based upon outstanding quality, outstanding customer experience.
Therefore, they our desire is they look nowhere else for buying products. Now, having said that, we also want to work with the Tier 1 and 2 installers who like Ensemble, who like the fact that IQ8 is going to be the 1st grid independent microinverter in the world. They want to engage on our platform. And so we like to work with the Tier 1 and 2 installers. And like what we said in the script in the prepared remarks, we are working with several of them and getting them on board with Encharge and Ensemble.
And that is it may not take the same time to add the long tail. Expect that to happen relatively quickly, but still that's a time consuming activity. So those are the 2 things that need to happen. We are so far within 3 months, we are extremely happy yet at the number of people who have gone through training at the way we have managed the installation so far, we are not perfect, but actually when we had problems, we jumped on them right away. We treated every homeowner, every issue as a defect.
I look at it. My entire executive staff looks at it. We start the executive staff meetings with the focus on homeowners for Ensemble. So I'm very happy with the progress we have made. There is more to be done on both fronts, getting more long tail installers and getting Tier 1 and 2 installers.
Okay, great. Thank you guys for the question.
Thank you.
Our next
question comes from Maheep Mandloi with Credit Suisse. Your line is now open.
Hey, thanks for squeezing me in. Just on Encharge, could you talk about like are these installations for new solar installations? Or are you getting any retrofit demand for older solar installations either from your MCGs or other IQA 7, 6 series customers or from the customers? P.
Vijay Kumar:] I'd say it is a pretty healthy mix. I would say many are new installations. I would say many are retrofits. Our statistics is limited so far. I think it will be meaningful if we give something to you next quarter.
Right now, our statistics aren't meaningful enough to give you, I mean to draw a conclusion. But I see healthy trends on both sides.
Yes. And just to be clear, M Series will the M Series attach will be that product will be launched at the end of this year. That's a software upgrade for our system to enable it to work with the M Series product. Right.
Got it. And I'm really helpful about that. And just on the Enphase installer network, just quick thoughts on how does that compete with the Tier 1, Tier 2 installers who probably are also offering their own services similar to what you have over there? And last, just like what could we expect at the Analyst Day later this year? Thanks.
Yes. I mean, it's we've always been clear on our strategy, right? While we will go absolutely all out, to take care of our Tier 1 and Tier 2 customers. Our bread and butter has always been the long tail installers. The long tail installers do not have a clear comprehensive platform to work today.
And our objective, while not being arrogant, is if we can create such a platform where we generate leads, we transfer to the installers, we track the entire installation or we even manage the lease that the installers actually bring and we give them several tools during that process. We think we will make these installers we will have a sticky experience with them. And that's our philosophy to build in highest quality to take care of both homeowners and to keep installers homeowners with Enphase continuously connected at all times. That's the digital platform. So yes, you're going to hear more in the Analyst Day, which will probably be sometime soon.
And we'll give you info.
All right. Thank you.
Our next question comes from Joseph Osha with JMP Group. Your line is now open.
Two questions for you. One sort of easy one and one more complicated one. On the easy side, wondering if you can share with us on Encharge what where your typical customer configuration is ending up in terms of size? That's the first question. And then the second question is, as IQ8 starts to show up and these grid capabilities start to show up, how do you think about the potential for working with installers on grid services?
That's and obviously that might inform the type of installers that you're going to work with. How do you think about that once IQA is out there? Thank you.
The first part of the question, I think it is anywhere between 10 kilowatt
hours.
Then the second part of it.
Yes, grid services, as storage becomes more prevalent out there, especially particularly behind the meter storage, which is what we service, the coordination of coordinating all these DERs is going to become more and more critical and that's the opportunity. And what we are doing, what our plan is to offer grid services as an integral part of the solution that we are providing. So it will be available to any installer that's anyone in REIN and any one of our LEIN and any one of our installers to offer it to their homeowner customers, so they can sign up or if you opt in to taking advantage of because they have their storage solution. And if there is a program available for the services, then they can opt in and sign up for it. So we are going to make it appropriate and broadly available.
Okay. And as a follow-up to that, I'm just wondering and this kind of follows on one of the questions about M and A or you will have seen that Generac has bought Ambala, Fluence bought AMS. I'm wondering as you look at this, do you feel that there are any sort of derms management skill sets you need to acquire? Do you have what you need at this point?
Obviously, we won't we don't get into any such details at this time. But in general, we have a very powerful platform in with enlighten. And so whether that's done through there are multiple opportunities available, provide APIs to provide grid services, all of the entire Ensemble system is always on, which means it's fully connected. Ordination of all of these DERs is going to be launched off of the existing Enlightened platform itself. So how we go about doing it, the details of it, we won't share at this time.
But suffice it to say that we see that the ER coordination is extremely important and we'll offer that to all of our installer partners.
Thank you.
Our next question comes from Marshall Carver with Heikkinen Energy Advisors. Your line is now open.
Yes, thank you. You saw really impressive sequential growth internationally, particularly in Europe in 3Q. Any comments on 4Q 2020 growth rates, U. S. Versus international?
Or give us the anticipated approximate revenue split U. S. Versus international?
Usually, you don't break that out, but our team is doing a really nice job in all the regions. We are very strong in basically Netherlands. We are continuing to grow. We just added top distributors in Netherlands and Belgium as an indication. We are making a lot of progress in Germany.
As I said, we will introduce IQ7 hopefully in Italy very, very soon in Q1. And then there are several other countries in Europe that we have actually hired salespeople before we only had 5 salespeople last year. At this time, Q4 of 2019, we only had 5 people. I think now we have north of 15 or 20. So we have increased by 4x and we plan to increase even more going forward.
So in general, I think things look good there. The one big market there is storage, especially Germany and Italy. I think we'll be ready for that like what I said in the Q3 of 2021.
Okay. Thank you.
Thank you.
Our next question comes from Pavel Molchanov with Raymond James. Your line is now open.
Thanks for taking the question. You mentioned the Safe Harbor playing a much less noticeable role versus a year ago. I'm curious if the ITC were to be extended as part of a post election stimulus package in Congress, which the trade groups of course have been lobbying for. How would that impact kind of the trajectory of the business into next year visavis safe harbor?
I think yes. So obviously, if ITC gets expanded, then there's no real need to Safe Harbor anything. So you will obviously see that at least the Safe Harbor contribution will not will be minimized or non existent, actually are expected to be non existent. In general, our view on Safe Harbor is that there's a lot of learning from last year. And so I think people now know what to do and how to go about executing on safe harbor.
And if somebody does want it, we'll be ready for it.
Okay. One more question about M and A, if I may. A lot of interesting comments from you guys about software, which is fascinating. Is there a target in your mind whether dollar value or percentage of the revenue mix that you would like to have recurring over time? So SaaS managed services etcetera.
That's not how we think
about it.
We think about it as, hey, is what is the right is it a good strategic fit for what we do? Is it very complementary with what we are providing? And are we bringing real value to our homeowners in order to provide the best homeowner experience. So that's kind of the criteria that we use. Of course, we do incredible amount of diligence in terms of how much we are paying for it, the valuations and so on and so forth.
But at the end of the day, it's all about making sure we deliver the best homeowner experience and a good strategic fit for us.
We are in a good position. We got an incredible architecture within Sampo. So we got plenty of optionality there on how we want to play that out if the event we want to play it out, right? No matter what, we need to think about this from the homeowners' point of view. That's what we are thinking.
So that backwards into us, right? And through our healthy relationship with our partners, distributors and installers, right? And so everybody wins in the process, especially the homeowner, which buys our products, right? So but we are not discarding any possibility, right, on how we're going to approach our go to market strategy providing different services through our platform, either enlightening or our digital platform outside enlightening as well.
Thanks very much.
You're welcome.
Our next question comes from the line of Amit Dayal with H. C. Wainwright. Your line is now open.
Hi Badri, sorry, I just had one follow-up. The 120 megawatt hours per quarter by the second half of next year for the storage side, are you going to rely on the long tail network to deploy this? Or should we expect maybe some partnerships to come through between now and then to help support that deployment?
It's too early to tell, but I'll just go back to the microinverter business. Microinverter business today is a nice healthy mix of long tail as well as Tier 1 and 2 installers because everyone wants to work with us due to high quality and high customer experience. So if we do a good job on the storage side, then all of this capacity can be can turn out to be positive for us,
but we need to execute.
Thank you. That concludes
today's question and answer session. I'd like to turn the call back to Badri Kothandaraman for closing remarks.
Thank you for joining us today and for your continued support of Enphase.
We look forward to
speaking with you again early next year. Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.