Good morning. So welcome to our Analyst Day. We have a lot of people here, both the analysts and the investors, and we have a few people joining us from the webcast. Yes, Phil Shen is there. We also have 2 of our Board of Directors here.
So TJ is here. Yeah, TJ. And we have Ben Kortling here. Is Isidoro here? Okay.
All right. Good. Okay. Thank you. We also have 2 of our top customers here.
So Momentum Solar, Arthur, please stand up, he's the CEO of Momentum Solar, okay, there in the back of the room. And Mark Jones is the CEO of Sunpro Solar. I mean, both of them have seen explosive growth and they are our loyal customers basically. Let's get started. So safe harbor slides.
I'm going to be talking about look back at 2019 and talking about our core areas of differentiation and moving on to vectors for profitable growth. Okay. Raghu is going to follow-up with describing the products that will drive the profitable growth for us. And then that will last till about 10:30. We'll have a 15 minute break.
And basically, Arthur and Mark are going to do 15 minutes presentations each. And so by the time that's done, that would be 11:15 when Eric comes on to talk about their financials. So I expect to get to Q and A by 11:30 or 11:35. And then, I mean, the Q and A, I think, will last for an hour. So we should break by 12:30 for lunch.
At about 1:30, buses from here will depart to our Fremont headquarters. There we have multiple demos planned for you. Basically, one which is primarily on Ensemble storage, you're going to see the battery in action. Then the other one, Raghu has got a few exciting products to show you, which primarily focus on small commercial and off grid. You're going to see about total of 5 product demos, including Ensemble.
So that would take an hour. So let's assume that the demos start at 2 p. M. We should be able to send you home by 3:15 p. M, all right.
That's the schedule for the day. All right. Let's go to slide number 5. So we had a great year, an absolutely fantastic year. 2019, we grew about 96% in terms of revenue and about 4 95% in terms of operating income.
It's been a little bit more than 2 years since I joined the company. If I were to describe the years as they went past, 2017 was when we stopped the bleeding. I mean, if I were to characterize one event that I did in 2017 that was crucial is we walked away from empty calories business. That was the single most important thing for us there. So there we basically focused on cash.
And then 2018 was actually studying the boat where we introduced IQ7, the fantastic product. We focused on customer service. We focused on quality. We focused on building a healthy balance sheet. Towards the end of Q4 2018, we were kind of caught with a good problem, which is our demand basically exploded.
The demand primarily exploded because we had a strong balance sheet and IQ7 I mean, most importantly, IQ7 was a fantastic product and so easy to use, extremely high quality. And that basically drove a huge backlog. So much of 2019, we basically had to fix our operations. We fixed our component shortages. But I think today we are in excellent shape.
There in terms of just the metrics that I described in terms of on time delivery. Our on time delivery was probably in the 70% range in 2018. And that on time delivery basically has improved to 99% in Q3 of 2019. It's a big deal. And our Chief Operating Officer, Jeff McNeil, who is sitting here, he is largely responsible for fixing the operations of the company, both in terms of component shortages as well as streamlining the supply chain, so we take care of customers well.
So now here I mean, now here we are with the 2019 as a year of massive growth, and I think we have a nice base. What you're going to see today is, how we are going to develop on that base. So what went well in 2019 and what did not go well? I mean, so you can see there are actually 6 things that are positive and only one thing that is negative, right? So in Q2 of 'seventeen, when I did the Analyst Day in New York, June of 2017, at that time, I basically presented a 30, 20, 10 financial operating model.
I said Enphase would achieve that in Q4 of 2018. So we gave ourselves roughly 6 quarters to achieve that. And we did. We achieved it in Q4 of 2018. And then in the most recent quarter we reported, we are at roughly 36%, 14% 22%.
So basically, we are at 22% operating income, all non GAAP numbers. And so our financial target, we have exceeded it well. And I think we plan on maintaining that. So Eric will introduce our baseline financial model is going to be 35%, 15% and 20%, which is 20% operating income. So he is going to talk more about that.
We introduced new products. The latest and greatest new products that we introduced was IQ 7A. The IQ architecture is fantastic. It basically offers an extensible the resonant topology, the semiconductor architecture, they help us to scale the power quite easily. So you're going to see more of that concept in the presentation on how we are going to attack small commercial, for example.
So the IQ7A is our highest power product, about 3 49 watt AC, and it can address 400 watt panels, okay, with the usual trademark of quality and customer experience. We improved quality and customer experience a lot in 2019. If in just to give you some rough numbers, in Q1 of 2018, our net promoter score was in the teens, was 10% And that number is at 54% right now. So we have improved the Net Promoter Score 5x. Our call wait times were not very good.
They were of the order of several minutes, teens of minutes. And as I stand here today, the call wait time is 60 seconds. And our target is to basically half that number, but even more importantly, why have customers wait at all? So we are thinking about how to eliminate calls. In terms of quality, I made it clear multiple times that 500 d PPM is our quality standard and we one of the reasons our demand has exploded is because of that.
People are seeing extremely high quality in their installations. And that is a key selling point, key differentiating value proposition for us. In terms of tariffs, I am forecasting about 500,000 microinverters from Flex Mexico in Q4 of 2019. And we started working on transferring the microinverter technology to Mexico. It's been a nice 2 to 3 quarters of solid execution by the team, once again, Jeff McNeil's team.
And so we are happy to say 500,000 units will ship from Mexico in this quarter. And then that number will increase to 1,000,000 units in about 4 quarters, I mean 1,000,000 units per quarter. So I already talked about the supply chain issues. The supply chain is really getting on time delivery. 99% is world class, and we are there right now.
Strong growth in North America, that's actually obvious, right. So with great partners like Momentum Solar, Sunpro, SunPower, all our AC module partners, for example, like Solaria, we had really strong growth. The underlying base of the strong growth is the Tier 3 and 4 installers. I've made it no secret that our quality and customer experience really works well for the small and medium sized installers. They all have small crews.
They don't have more than 1 or 2 crews. They run small businesses $5,000,000 to $10,000,000 each per year. And they just want no problems. They don't have time to attend to quality failures or they don't have time to wait on the phone for more than 5 minutes. So really so we have fixed that and that is our underlying base.
Tier 3 and 4 installers, if you see a number that I'll give out is in North America, there are a total of about 5,000 installers. And almost half of us work with us at any point in time. And our goal is to basically see how we can expand that base of Tier 3 and 4 installers. That's our bread and butter. On the negatives, the company grew 90%, 95%, 96%, but Europe grew only 25%.
So I'm not happy about Europe. And it's primarily a focus area, I mean, focus issue. So focus issue is me as well as Dave. So we are going to change that. Dave is going to be spending half his time in Europe starting now.
And you're going to see a plan that I'll talk about in detail on how we are going to address the growth in Europe. Let's come to the areas of core differentiation. Three areas of core differentiation, I want you to take this away. I mean, if there is only one thing you take away from this presentation is our three areas of differentiation: semiconductor, software and Ensemble. I joined the company in April of 2017.
I got a call from TJ in February of 2017. He said, you know, I'm on the board of this company called Enphase. They make microinverters. Why don't you come in and talk to the team? So when I went and talked to the team, they showed me IQ6.
The CEO then showed me IQ6. IQ6 was an amazing product, 300 components, all packed with the ASIC right in the center, all in an outstanding form factor just a little bit more than an iPhone 8 plus, right? That's the single most reason I joined the company, because the company was a semiconductor based semiconductor based architecture packing a lot of power into such a small form factor. And I saw the possibilities of scaling. We could really take this company really, really big and offering 25 years of warranty.
Power Electronics, the iPhone, for example, has got only a power of 5 watts. We are talking about this device is a 300 watt device, right, 300 components in, outstanding cost structure, 25 years of warranty. And
that is
the core technology underlying that microinverter is based on semiconductors. For example, the chip in IQ8, that's called as the Swift, Swift ASIC, we started working on that 3 years ago. The ASIC, it actually digitizes the power electronics. What does that mean? The power electronics is actually controlled by 1s and 0s coming from the ASIC.
And in addition to that, the ASIC also communicates. It does the power line communication protocol. What does that mean? It communicates the information on power, the energy through power line communication on top of the AC line, waveforms on top of the AC line that get decoded into a gateway, I mean, by a gateway, which is connected to the cloud. So that complex power line communication is also done in the ASIC.
It is a team in the heart of Silicon Valley in house, a bunch of 20 engineers working on state of the art technology. The IQ8 ASIC that I call Swift has got 5,000,000 gates, 55 nanometer technology, high speed digital switching. This ASIC is instrumental in making our microinverter a single stage architecture. A single stage means less number of components. Less number of components means highest quality, better efficiency.
So this is the foundation of our microinverter. Now in order to access the microinverter, you need to make it software defined. So how do you access the microinverter? The best way is through the cloud. Every one of our microinverter is the Internet of Things connected device.
So for us, cloud software is important. We use AWS. Then the next level is the software in the gateway is important. And the next level is the software in the microinverter or the battery or the transfer switch. Those are three levels of software.
So if I want to, let us say, fix, I want to improve our production with a software tweak, So what I do is I just update my cloud software that automatically goes through the router in your home. It communicates to the gateway, which is called as the Envoy. And then from the gateway, the gateway directs it to go through PLC, power line communication, to the microinverter. It then goes and updates the flash memory inside that microinverter. And then the ASIC picks up that content from the flash memory.
So it's a string of events, but all you need to know is cloud software, embedded software in the gateway, microinverter software, software defined architecture. And the last one is why we are going to be even more differentiated as Ensemble. Not only Ensemble is the grid forming technology, it can form a grid. In the absence of a grid, it can form 1. If there is a blackout during your day, you do not need a storage.
IQ8 is enough, right. So in addition to grid forming, Ensemble automatically manages all the resources, be it the solar, be it storage, grid, loads, even a generator. So really our core differentiated, everything comes from these 3, semiconductor, software and ensemble. And you'll see there is a thread of all 3 in virtually most of the products Raghu will be talking about. Now with those as a foundation, management discipline is in 4 areas: quality, customer service, pricing and cost.
So in terms of quality, our quality is 5 times better than our own M Series. I've told you about the 500 dPPM target, and we are actually very close to that number for IQ7 already. And how do we do this? This doesn't happen automatically. Yes, you need to have a great technology.
Yes, you need to have semiconductors. Yes, they reduce the number of components, But there has to be tremendous management discipline. Management discipline means every week a meeting where you analyze the failures. And then I learned from T. J.
The what is called as the root cause corrective action, which is you go look at each problem, you hammer on the problem until you understand the root cause. And it is really very hard to do, very easy to say, very hard to do. One problem at a time. You figure out the root cause, you look at 5 whys on why this happened, why this happened, why this happened, right? You zoom in into this is the reason.
Ultimately, it could be a subject matter reason. It could be a cultural thing. It could be a business process thing. But getting to the root cause is the most important. Once we get to the root cause, the solution is usually obvious.
And Jeff McNeil's team once again does that with clinical efficiency every week, analyzing every failure. We have improved in IQ7 alone. We have gone from we have improved by 2x in the last year. And when you have less problems, meaning when your quality is good, people don't call you that much. So our customer experience automatically improves, right.
Even then, why do we receive calls is because of application issues. The Envoy connectivity is not there. Something is wrong with my installation. Why? Because Enphase is the only conduit to the homeowner.
Once the installer actually finishes the installation, he's usually gone, right. And Enphase at that time basically helps in customer service in working with the installer to understand the homeowner issues. If you see, about 2 years back, I mean, 2 years back, this is actually a story where we didn't even answer homeowner calls. After I came in, I fixed it. So from end of 2017, we started answering homeowner calls.
And now our call volume has shifted to 50% homeowners and 50% installers. And the homeowners call us because they know that we will do the right things for them. We will connect them with the right installer if they don't have the installer. So we are doing the right things on customer service. Having said that, these numbers, 54% is not a number I'm happy with.
If you look at Apple, they are probably in the 80s for NPS. So we are going to be continuously driving the company to an NPS that is higher. And in terms of wait time, I already talked about it. Our competition is not doing great in this area. And our competitive differentiation is pick up the phone when it rings.
It's pretty simple. Eliminate the problems you have. Reduce the number of calls. Our focus here is to also use a lot of technology, self-service, chatbots, AI engines, so that we can solve majority of the problems through automation and people don't even need to call us. That's where we want to go to.
So laser focus on quality and customer service. The operational excellence on gross margin management. Gross margin, we see a lot of potential here on gross margin. And the first thing is pricing. So when I came into the company, the pricing, I told you again, the pricing was unmanaged.
So we had to shed empty calories. And we did that. I formed a pricing team that is a VP of Pricing in the company. And there is a team of about 5 employees working only on pricing. And pricing is hard, and I'm not sure where people fully appreciate it.
For most people, pricing is okay, you drop the price by or you drop the price or increase the price, yet one customer, then they talk about pricing anecdotally, but that's not how you look at pricing. It's a 1,000 little things to be done at a time and doing them all right, doing them with passion, optimize and take out every dollar for Enphase, improving the gross margin is pricing management. It's a transactional blocking and tackling skill that many people underestimate, but it's really, really, really critical for the company to improve gross margin. So a large, large our gross margin is largely attributed to pricing management. Product segmentation is one of the key things in pricing is you don't price I mean, you don't price you don't give one price for a product.
You segment the products into features that matter and then you basically optimize the price and maximize your margins by segmentation. So we have IQ7, 7 plus, 7X, 7A, and these are all higher and higher and higher power. They offer a lot more value to the installers and homeowners. So that's why we are able to if you segment them right, we can charge the right value. And when I talk about value, it is not you charge a price for because you want to be high or because you want to make high gross margin.
The pricing is always a function of value on top of the next best alternative. You always look at what is the next best alternative for customers, what value do you add on top of it. Is it quality? Do you do quality better than others? Is it customer experience?
Is it the grid forming capability? Once again, I go back to the operational excellence. If we do, if we have enough differentiation, we can add a lot of value above the next best alternative. And that's what we are talking about in price. Cost management.
Cost management, we started again a world class cost task force 2 years ago, and we've been hammering on cost.
This again
is not something that just comes due to the technology portion is because of our architecture and technology. But another significant portion is because you hammer on these every week. You have a business process that basically looks at ASIC, how can I integrate more components into the ASIC? How can I optimize my transformer? How can I use a different FET, for example, a gallium nitride FET?
How can I transform the connector? For example, one of my favorite projects is the connector here, the DC connector to the microinverter. And the DC connector, right now, we have an MC4 connector that comes from the PV module. And then we have an adapter that basically converts that MC4 into a proprietary Enphase standard, and I have a proprietary Enphase connector on the microinverter. If I get rid of the adapter, that saves a lot of cost for me and a lot of headache for the installer because it's one less component to deal with.
So what we are trying to do is to why can't I put the MC4 or MC4 compatible connector on the microinverter itself. And that single project alone can drive huge gross margin dollars for the company, substantial difference to the company. So examples of those are in the product innovation. And when you start to manage the supply chain like Jeff and team are doing, then we start to think about how can I make the tariffs structurally go away? Let's say, the tariff increases that the three zero one tariffs increases in the goods imported from China, that should not be an issue for us.
We should have multiple options. We should have options in Mexico. We should have options elsewhere with the second Centimeters. So we are looking at solving these structurally, and we believe we have done the first installment of that with Mexico. The same thing on Xparex.
Now we have our component supply under control. We don't need to spend between gross margin between our 200 to 300 basis points on actually expirating material. I want to stop talking about expirates, and it should be noise, less than 50 basis points. That's what we want. And the normal blocking and tackling with the procurement.
So we have a world class team in India under the leadership of JAF. One of the things that they do also is to drive the cash conversion cycle for Eric. It's basically negotiating with the with, yes, with our suppliers to make sure we have competitive payment terms. So this team works on everything, price and cost. Now the next one, so we talked about 4 things here in operational excellence.
We talked about quality, we talked about customer service, we talked about price, we talked about cost. Those are all examples of operational excellence. On top of this, our business model is a scalable and profitable business model. So what does that mean? I don't need to invest a lot of CapEx to run my business, to grow my business.
I'm not going to have big factories. For example, if I want to have 300,000 more microinverters, I need to spend maybe $1,000,000 of CapEx, less than $1,000,000 of CapEx, dollars 500,000 That's like 2%. Okay. So no big factor. And then when it comes to OpEx, we are incredibly OpEx efficient right now.
When I came to the company, 80% of the headcount was in the U. S. And maybe even probably 90% of the headcount in the U. S. Now you see as of now, as of Q3 'nineteen, we have we basically still have a large fraction in the U.
S, which is 47%. That includes North America, which is basically sales, our customer experience team in Boise, which is the large team, by the way, 70 people, And our head office is in Fremont as well as Petaluma. So 47% still that, that number will continuously keep going down as the company scales. India, 0 in 2 years back, and now we are almost at 170 people in India. And it is end to end, it's not like most companies do back office work, it's not back office work.
It is your product line management team is there, your hardware teams are there, your software teams are there and your operations teams are there, so that it's they can solve problems locally in their time zone. That's what we want them to do and be incredibly efficient. So if you see, 14% of our workforce is in Australia and New Zealand, mainly New Zealand. New Zealand is our center of excellence for microinverters. All microinverters are designed in New Zealand.
India is our center of excellence for balance of system. So when I say balance of system, that means the battery, the transfer switch, the gateway and cloud. So basically between New Zealand and India, we have our core engineering teams there. And then in the U. S, it is basically customer experience team in Boise, like what I said, 70 people, not that much OpEx.
And largely management sitting in Fremont as well as Petaluma. So in the last earnings call, I talked about 2,500,000 microinverter capacity is my current capacity, which is right. I plan to grow that capacity to 3,500,000 microinverters in Q4 of 'twenty and 120 megawatt hours of storage per quarter in Q4 of 'twenty. And I have roughly half that number as of this minute on storage. So I have 60 megawatt hours of storage capacity right now per quarter, and I'm going to 120 megawatt hours of storage per quarter.
And it's not that hard for me to increase. Like what I said, since we have a scalable business model, the fraction of capital that we need to spend is minuscule. I just want to take off all supply issues off the table. I never want to disappoint customers again. And that's our philosophy.
We want to be our on time delivery must reach 100%. We are CapEx light. We are incredibly OpEx efficient. And so preparing ourselves for a good 2020 basically. All right, let's now come to Ensemble.
So we're going to talk a lot about Ensemble. I'll so I'll leave it at this that you've heard a lot, you're going to hear from him a lot, Raghu a lot. Grid farming technology manages multitude of resources, and it is going to be a common thread of almost all products we are going to be introducing. It's going to lay the financial foundation for a long time to come. So let's now get into the vectors for profitable growth.
Okay. So there are 4 vectors for profitable growth. So I'm going to be talking about the first one right now. This is residential solar. Residential solar today, we have a served available market of $2,500,000,000 Roughly, you can say 8 gigawatts of solar is our SAM.
And if you take rough numbers, dollars 0.30 a watt, that's about 2 point $4,000,000,000 That's our SAM right now. And we are forecasting based upon the data from the GTM that, that number would be roughly about $4,000,000,000 And the reason why we are forecasting is because we are adding our pricing assumptions. This is a market pricing. So we are adding market pricing assumptions. And basically that number is $4,000,000,000 of sand.
So the sand is growing at a nice clip about 17% per year. And that number is about 16 gigawatts of SAND. So what is in that number? Today, you know that we are in the U. S, we are in Europe, we are in Australia, We are in Latin America.
All of those are nicely growing, Sam. In addition, we are going to be working on Japan. So Japan is hard, Japan is going to be taking some time, but we need to be patient. So give it a couple of years, and Japan can be really nice for us because of IQ8. The grid forming technology is invoking a lot of interest from such countries.
So introducing Ensemble, entering new regions, focusing on the Tier 3 and 4 installers is the name of the game for us in solar. And if you ask, how are we doing, right? Our biggest market, North America, we're doing really well, and we expect to continue to take share. With like what I said with our top customers like Momentum and Sunpro, they have witnessed explosive growth. SunPower partnership is going exceedingly well.
We've already ramped up to the levels that I told you on the full potential of the business, it's a lot higher than that, right. The AC module partnerships are going well. We are expanding the Tier 3 and 4 installers. We also announced Sunrun as our Tier 1 customer. Sunrun relationship is not a transactional one.
It is not a one time relationship. It's going to be for a long time to come. Just because they bought $35,000,000 they will buy $35,000,000 of Safe Harbor in Q4 'nineteen, it doesn't mean that is it. So that's going to be ongoing business every quarter from SunRail, and we are very happy to have that. So that's in North America.
And then in Europe is the biggest growth in Europe is still Netherlands that the good news is our headquarters is there. In addition, yes, Germany is significant. And then new regions, we are coming up Spain. Belgium is also pretty strong. So Europe has got a lot of potential.
Our problem is we have not executed well, and we are going to change that. In terms of Australia, we have replaced the entire team there. We had a 10x meeting about 4 months ago. Yes, 4 months ago. Since then, we have hired a fantastic team in place.
We have doubled the sales team there. So 3x. So we have tripled our sales guys. We have hired the FAEs. We have hired the marketing team.
I'm really happy. I interview everybody in the company. I mean, every new hire in the company, I interview. I'm really, really happy with the quality in Australia. I have no doubt that Australia can double next year in 2020 from where they are, okay.
And India is the next for us. So we'll show you some products. I treat that more as a blue ocean because the markets need to be developed, partnerships need to be developed. But we are going to have products for India in 2020, and you're going to see those demos in action. They're not PowerPoint.
They're real. So that's on the residential folder. So Europe growth plan, I'm going to cover this quick. We are going to double sales headcount in 6 months. I interview at least last week, I interviewed 2 sales guys.
I didn't like them. But every week, there is a pipeline for me to interview, okay? So we're going to double sales headcount in 6 months. We're going to focus double down on Netherlands, double down on Belgium. I think we can take a lot more share there with proper focus.
We are focusing more on distributors than focusing on Tier 3 and 4 installers. That's a problem. We are going to fix the mindset of the team. We are transferring top talent to Europe from North America, from India. We are transferring a bunch of sales guys as well as operations guys to Europe.
So we are doing that. We are going to enter 8 countries in 2020. Our focus is on small systems. That's where we do well. So social housing, small systems, social housing, by the way, is apartment complex.
Each apartment needs about 4 to 6 panels, but you have 50 apartments, you have 400 panels or 300 panels. That one is a sweet spot for us, because we are the ones which can do small system, who can do small systems very easily. And a string guys cannot do small systems without incurring some overhead. And they love us because of our quality. So it's simply execution.
In addition, we need to we are going to increase our marketing strength so that the homeowners are aware of Enphase. We promote this as the highest quality, great customer experience, safe AC and easy to use, simple to install. All you need to do is to look at your app and call the number if you have an issue. So once again, we are confident that by putting the right talent in there, we are going to grow 2x by 2020 in 2020 compared to 2019. So let's now talk about the other vectors for profitable growth.
So we talked about residential solar. That's the SAM of $4,000,000,000 in 2022. Let's talk about residential storage, then followed by small commercial, followed by off grid. So you'll see 3 business segments, which I'll introduce. So residential storage, we have been working on storage a lot in the last few months.
We've just opened for pre orders November 20. Pre orders are actually going pretty well. We have a lot of pre orders already. What we are right now doing is, we need to up our game on training our sales force, on training our ISRs, which is the inside sales force who talk to homeowners, so we can pair them with the right installers. And we are in the process of training the installers themselves.
Our target Dave's target is to train 1,000 installers by early next year, 1,000 installers. So we are going all out. We so we are partnering with our key distribution partners, key installers, and we want to train all of them to be savvy in installing storage. And we believe we need to do that. So training sales, which is our internal sales guide to sell to installers, training the inside sales representatives who sell to homeowners and then training the installers themselves, which is technical training, a 1,000 installers.
That's our plan. And what I mean, what are we finding out, where do we differentiate ourselves It's basically one stop shop. We are the only ones who have end phase solar, end phase storage. The sale is very easy once you have a solar and storage system. Both are Enphase, one stop shop, single number to call, no questions, high quality, high customer experience.
And then safe, yes, safety is no high voltage DC. All the operation is low voltage. So safe LFP chemistry, safe again compared to NMC, right? So one number to call, one stop shop, safe, simple install, very simple install. My home, I have a 16.6 kilowatt hour system installed, it was installed on Monday.
It took only 2% install. And it took them less than a day to put it up, less than a day. And it looks really sleek. People were telling me that this should not be outside the home, this should be inside the home, right? So we are excited about storage.
The market is going to be huge. New installs, that number is $2,000,000,000 How? GTM Mackenzie estimate is Wood Mackenzie estimate is about 3.6 gigawatt hours. And if I use a conservative number of $700 that number is a little bit more than $2,000,000,000 In addition, we have an installed base, Enphase installed base. In that installed base, today we have 1,000,000 homes.
By 2022, we will have 1,500,000 homes. Imagine if 10% of them convert every year. Like over 10 years, that's the same, a $10,000,000,000 same over 10 years. Per year, it's $1,000,000,000 It's still a little bit understated, but that is the 3rd available market for us. Assuming 10% of the people want to convert, that number is $1,000,000,000 So we have so we can go after $3,000,000,000 with our products.
Right now, we have Ensemble storage for North America pretty soon. We will have storage by the end of the year. We are going to have storage for Europe. We are going to have storage for Asia. And this is going to be a nice market for us to play in.
Small commercial. Okay, why are we entering small commercial? The success of IQ 7 has gotten us thinking, okay, we have an incredible semiconductor platform, we have a great architecture, We are selling up to 10 kilowatt systems. What does it take for us to service sub-two 100 kilowatt systems? How can we build a product that is effective for that market?
So with our semiconductor architecture, power scaling is something that we didn't realize the power of it. So Raghu is going to talk about it. The product that he is going to show has got 30% more power density compared to IQ8. So what does that mean? It produces 50% more watts for the same cubic centimeter compared to IQA, incredibly efficient in terms of power production.
And what is our differentiation? We sell to the, I mean, there is a lot of overlap between the installers who sell residential and small commercial. They already know us. They want the high reliability. They want the high quality.
They want great customer experience. They want rapid shutdown. They don't want a pure string inverter. So this is a logical extension for us to enter. And Raghu will talk about the he'll show you visually on the PCB comparison between this product and our IQ8 product, so you can see it for yourself.
So again, the market is nice. Yes, the pricing is a little bit low, but I think we have our place where we again are very disciplined in following value based pricing, which is what value do we add compared to the competition, right. And I believe the values are there basically quality, reliability, customer experience. So we are excited about this market. Off grid, this one is mainly for the Indian market and each one of them is a fascinating story, solar water pumps.
Today the I mean there are lot of villages in India, lot of farmers, 30,000,000 pumps is the number of installed base of water pumps today, 30,000,000 pumps. Most of these pumps are grid tied today. But the farmers do not get electricity all the time. They only get electricity during a certain window of time. The government gives them free electricity, but at midnight, right.
So therefore, they have to go through from their home, the farmers have to go to the farm and they have to water at midnight. A lot of problems there, a lot of safety issues, right. So they hate it that they have to do that. Unreliable power and the solution currently is solar water pumps are coming up. Is, so how is that going to work?
A solar water pump, yeah, you know solar panel producing DC and then there is something called as VFD, variable frequency drive, VFD. So because the irradiance meaning the sun power keeps changing, you want the pump to be operating at a wide range of frequency, not just one frequency like the grid which is like 50 Hertz, right. So wide range of frequency, that's called variable frequency drive. So today there are solutions, which basically have which take the solar panels, run them through a device that's got variable frequency drive and the inversion function to convert into AC to drive a pump. What Enphase can do?
Well, okay, what's the problem with that? Okay, it's an elegant solution for 6 months of the year when the monsoon season is there, which is they can do farming for 6 months and then that system is idle, right. That system is idle and is being put to no use. It's expensive. So the farmers are like, okay, yes, this is good, but why am I wasting?
Why am I wasting my solar power for 6 months of the year. What Enphase can do is to combine the VFD functionality, which is the variable frequency drive along with the inversion functionality, which is converting DC into AC and can give the grid tied functionality where people can export energy back to the grid, so that their system produces money when the solar water pumps are not being used. That's a massive differentiation and all three can be done with one product, which is IQV. It's really what we call as the ensemble in a box with a few microinverters. These are typically anywhere between 0.5 HP pumps and 4 HP pumps.
Roughly, you should think about it as 0.5 HP means 500 watts, rough numbers, not exactly right, but rough numbers. So 2 panels, 0.5 HP is 2 panels. 3 HP is about 10 panels. Small systems in phase can add tremendous value there and that's a huge market. Even if you assume 30,000,000 pumps at a 10% conversion, which is 3,000,000 times reasonable price for it, that number is big, dollars 2,000,000,000 That's the market size.
Energy poverty, This one is Bloomberg issued a report last year saying that there are a 1,000,000,000 people. I mean, the world has about 8,000,000,000 people and a 1,000,000,000 people do not have electricity. Or there's a 1,000,000,000 people who do not have electricity, access to electricity, about 60% is in Africa. The remainder 30 odd percent is in Asia, most of it in India.
123,000,000
homes that do not have power. And I've seen it in person, where the people do not have power since independence. For the last 70 years, they don't have power, right. And therefore, for them, if after 6 pm, there is no activity happening in the village, 0. It's very unsafe to walk around and no shopkeeper sells.
I mean, they need expensive generators, etcetera, because they don't. A typical village may have about 50,000 homes. That's actually high, so 10,000 homes. And all of them just shut down in the evening. And the solutions today are terrible.
The solutions today are using solar, building a DC system in the house, using DC appliances, which are specially made, which is not good. So the name of the game is very simple here, ensemble in a bath, solar in storage. We are not talking very high power. We are talking 1 or 2 microinverters. We are talking 1 kilowatt hour.
A 301 panel can produce enough energy for the entire home for one day. That's what we are talking about. They want power for light, a fan and maybe a cell phone, right. So we are talking about that is what I call as a standalone system. And we are going to have a product to address that market.
Of course, it's a blue ocean, which means the ramps, etcetera, I don't have yet a good handle of it, but we are going to have product. That's the key. So mitigating extreme heat, this one is also an amazing story. This is in India, there is again a lot of regions in India where the temperature is very high, 40 to 50 degree centigrade. Extreme heat, extreme heat what happens in the summer is there are large power cuts, 8 hours a day when you need it the most, there is no power.
This is for shopkeepers again, no power for them. And if you have walked in the road without shoes, you cannot walk on the road for more than 30 seconds, your feet will burn at 40 to 50 degrees. The current solutions are basically unreliable power, which is they have a cooler. This is not an air conditioner. It's a cheap cooler.
A cheap cooler that basically reduces the temperature by 5 to 10 degree centigrade by spray, water spray, right. So cheap cooler, not that expensive, but they don't have power to operate it or they have to operate with diesel generators, which is not efficient. Again, very, very simple, ensemble in a box, solar and storage, 1 panel, 1 kilowatt hour, very cost effective, always connected. This box can always be connected to the cloud through the customer's cell phone. So we can actually monitor the status.
It can be all kinds of financial model, all kinds of options financial options come into play then. Whereas if the provider can monitor energy remotely, that's a big deal. So we are really excited about all three opportunities. And these are kind of unique applications that we picked because we really add tremendous differentiation with our software, semiconductors and Ensemble. And Ensemble is a thread that runs through all of them.
All right. So recap, I talked about residential solar $4,000,000,000 Sam. I talked about residential storage $3,000,000,000 Sam. I talked about small commercial solar, dollars 1,500,000,000 And then I talked about the Blue Ocean off grid solar and storage, that's $4,000,000,000 So bottom line, what you should take away is, we are increasing our SAM, served available market from $3,300,000,000 in 2019 to $12,500,000,000 That's the bottom line with these products. And these products are not fantasy.
You're going to be seeing demos. In fact, you're going to be seeing demos of each of these 3 products today. These are the 3 you're going to be seeing. All right. So the last slide for me.
So we talked about the 3 pillars of differentiation, which is semiconductors, software and Ensemble. These not only they give us a very strong foundation. On top of it, we are building with our operational excellence, which is basically quality, customer experience, pricing discipline and cost management. Like what I told you, Ensemble enables multiple vectors for profitable growth and our SAM expanding from $3,300,000,000 to $12,500,000 Now, I'm going to introduce Raghu, Yeah, he's our Chief Products Officer. He's going to be taken on what I said and talking to you about the products that we are building for each of these segments.
Thanks, Badri. Welcome, everybody. I'm pretty excited to be here to talk about how we're going to execute this great opportunity that lies in front of us, right. I really believe that we are at a historical moment here at Enphase. From the beginning, from when we first invented or when we first developed our 1st microinverter to what we are doing here.
Let me take a step back, right. I really believe that distributed architectures always win in the long run, and they win because of performance, cost and reliability reasons. Enough technology proof points out there that show that this is true. And what do you mean by the architectures? Let's look at in the parlance of networking, meaning more and more intelligence being pushed deeper into the network, endpoints making more autonomous and intelligent decisions, and all of these endpoints being hyper connected.
This is true, but you have to be in order to be on the right side of history here, you have to have the right architecture. The right architecture means having a digital topology built around semiconductors and software. If you do that, this distributed architecture always wins. Why is that? This is the power of semiconductor and software.
It enables technologies like Ensemble to be developed. So let's look at each one of the benefits of a fully distributed architecture. It starts with very high quality. Why do we get very high quality? It's because we are a single stage power conversion topology or architecture.
We go from low voltage DC out of a single module into grid compliant AC, 240 volts, the 24,120 volts that runs in your house. Because you're doing it in a single stage, you're not doing it in 2 stages where you have a boost and a PWM stage, since you're doing everything in a single shot, you get very high efficiency and you also get very low component count. And as I said, if you're connected, we've been IoT system from day 1, before people knew what an IoT system was. But since 2008, when we shipped our first product, we were always connected. And that means that you can do things like over the air firmware upgrades or software upgrades.
Let's say you do find something in software to improve the performance of the system or you want to fix a bug, we can come in remotely and go upgrade those systems. All of that is what we mean by very high quality. The next benefit of a truly distributed architecture is safety. In our system, right from the very get go, we have been a low voltage DC system, right? No high voltage DC anywhere in our system.
We applied that same principle when we went to storage as well. Even our storage system system. I argue that the combination of high voltage DC and high energy chemistry is not optimal, it's somewhat suboptimal. In addition to that, in our storage system, we had a choice of chemistries there as well. We were very specific and very deliberate in picking lithium iron phosphate, LFP.
There are trade offs to that decision. And the reason we did that was LFP has better thermal characteristics and arguably safer than chemistries that are typically used in transportation applications. We felt that was the right trade off given that we were going to use this for a stationary application, right. Flexibility, let's move to the next benefit, flexibility. It's a modular architecture, not just for solar.
Solar, we have said, hey, it's 1 micro anode, 1 panel to begin with, and that gives you a great deal of modularity. We applied exactly the same principles to storage as well. We made our storage solutions also modular. And the reason we made those solar both the solar and storage solution modular is because you can right size the system to your needs. You can start with a certain size solar and now you can start with a certain size storage as well and grow the system effectively and efficiently over time.
This is also enabled flexibility is also enabled by the Ensemble technology, which as Pardeep mentioned, manages a multitude of resources, whether that is your solar, your storage, your grid, you may have your loads, your generator, etcetera. And it can manage multiple use cases. For instance, there could be a use case that is only solar and a load. That load could be a pump as an example. All the way from that to a complete energy management system that includes solar storage grade load and any other energy resource.
So all done over in AC marketplace, and I'll talk a little bit more about it when we talk on Ensemble. Exceptional value, we really think about it here in the context of addressing multiple use cases. Imagine a use case where you're doing IQ8 Solar only. IQ8 Solar only can be grid independent, even without energy storage. Of course, it has the limitation that at night, it's not going to work, but why would anybody want to buy a grid type system at that point?
That's creating great amount of value. AC modules, we talk about the whole notion of an inverter going away because the module is integrated into sorry, the inverter is integrated into the module itself. So what does that mean? We have seen in some of the data that we have collected as much as 11% improvement in supply chain and about 50% reduction in install time on the roof because you don't have to install inverters anymore. That's an example of creating value.
This is one of the most important benefits of the supply chain efficiency. We have the power of the platform, we make one device, we make 1 inverter. And that inverter, that piece of hardware can be used anywhere in the world. You can do use it for 2 40 volts, 60 Hertz, you can use it for 2 30 volt, 50 Hertz, you can use it for 2 0 8 volt, you can use it for 3 phase 400 volt 3 phase system. Not only that, you can also use it in our battery for charge controller and inverter because that device is fully bidirectional.
In software, we change the behavior from charge controller to inverter. So the exact same device, the power platform gets applied to the battery as well. And Badi mentioned one application, VFD, that same exact device can now vary its frequency and also service a pump. So our supply chain team, and when Jeff has to do it, build one thing, build it phenomenally well. So you can see how it drives quality.
Combine that with the semiconductor architecture, that's very, very powerful. So even the SKUs that we configure when you talk about going from U. S. SKU to a European SKU, in software, we change it to be 2 30 watt 50 Hertz, but we do more than that. We can configure the profiles in software on how that system interacts with the grid because every utility worldwide tends to have a different requirement on how that system will interact with the grid.
We do all of that in software. And here is the powerful thing and in the event that those requirements change, more often than not, we can just push a software upgrade remotely and again change the behavior. That's the power of the software. The Resonant architecture, when you go to low cost, when think about low cost, the Resonant architecture has one fantastic characteristic is that it can power scale. So that's why we went from an IQ7, which is 250 watt to IQ7A, which is 2 49 watt with a peak of 2 66 watts sorry, 3 66 watts, I apologize, 250 watts to 366 watts.
But we can scale even beyond that. And that's what the technique we are applying for the small commercial product, which can now go from 250 watts to 366 watts to 640 watts. That's the capability of that resonant topology. And you do that very efficiently, you get 50% more power density out of a device that's not very dissimilar to what you already have, the single device. And I'll show you a comparison of an IQ8 single and an IQ8 6 40 watt, all driven by semiconductor integration.
Over the last 10 years, we have reduced our component count by more than 40%. We have doubled our power, more than doubled our power, and you can now you're going to see we've actually quadrupled our power.
We are at
97.5% average efficiency. All of this is enabled by semiconductor and silicon. And finally, as systems get more complex, as systems get more complex, which they are with the advent with the addition of energy storage, when it was solar only, all this inverter had to do was pick do DC to AC power conversion and you were done. Now that you're adding storage, now the system has to interact and it has to work as a fully closed loop system. It has to adjust its behavior to your needs.
Systems are becoming more complex. And our responsibility is to And the philosophy or the approach we take is make everything very simple and plug and play, install the systems and then let the software take over. Let the software take over, it auto discovers all of the devices that are in the home, configures up the system and then starts executing whatever you need to execute. That's the approach we take. So we want to be a one stop shop.
So the customer experience is the best. It's one company that they have to call it, one warranty and we take care of our customers. And that helps our installer partners as well, as well as of course providing a great experience for the homeowner. Okay. Moving on to Ensemble.
Ensemble is a energy management technology. I'm going to talk a little bit about vision here. It's an energy management technology that automatically manages energy resources in your home, whether that be solar, storage, grid, load, generator, etcetera. And the way it does it is by creating an AC marketplace. Your house has AC.
Think about it, every socket has AC coming out. Think about it as these resources plugging into this AC architecture. And the reason why we call it an AC marketplace is because we treat these resources as buyers and sellers, right? Solar is a seller, storage is a buyer or seller, grid is of course a buyer or seller, load is a buyer, generator is a seller. And the system is architected at what we call as primary, secondary and tertiary control.
Primary control means the system is looking for minute fluctuations in the voltage and frequency on the AC bus in making decisions on how the load is going to serviced, all the way up to tertiary control where you're making economic decisions on how to service the load. This architecture, just like when you have buyers and sellers, buyers and sellers can come and go. So what that means is when you think about it from a use case point of view, the architecture is resilient enough that you can have a use case where you have only 1 seller, which is solar and only 1 buyer, which is load. That's your off grid use case, all the way to a full energy management use case where you have multiple buyers and multiple sellers. Furthermore, this architecture is completely extensible, which means today we have a logical construct called a meter.
Someday as regulation changes, that barrier will be broken, which means now I could be trading energy between homes. There is a field of technology in this called transactive energy that this architecture is capable of supporting. Imagine this is going to happen sooner than later that there are there's a whole new development of 200 homes. Every home has ensemble. Every home has ensemble.
The homes are all sitting on a power ring, and there is no utility connection into that development. That's a very distinct possibility and it could happen sooner than we think. My neighbor's washing machine could be putting out an app saying, I'm going to run, and my solar panel bids for that job. And there's a market clearing price and it settles. That is the foundation that we have laid with Ensemble.
So when we think about all of the use cases that Badri mentioned in his section, all of those use cases can be addressed with the technology that we have already built. In fact, it can be addressed with the products that have come out of this technology, IQ8 being the most foundational element of that technology. So now let's get into some details. So we are on the cusp of Ensemble 1.0. So let me just refresh everybody what 1.0 is about.
1.0 is about it's very storage centric. Our goal, given where the storage market is, given everything that's going on, especially here in California and across the U. S, we said, let's go after the storage market first. So the use case here is we plan to release the storage system that is a retrofit for existing IQ6 and IQ7 installations and brand new IQ7 installs. So if you look at all the components that form the Ensemble 1.0, you've got IQ6 and IQ7 on the roof.
You already have a combiner, which has a gateway in it, which talks to the cloud over either your homeowner or over the homeowner broadband or independently over cellular. We come in and we add our storage system called InCharge. Now here's the key. InCharge already has IQ8 in it, and I'll talk more about details about what about InCharge in a moment. In addition to solar, the combiner and InCharge, we have a what's called a microgrid interconnect device.
The microgrid interconnect device also called nPower smart switch. And it aggregates the solar, the storage into that device. And there are 2 use cases that this device addresses. You can do whole home backup with that device. It's rated for 200 amps service entrance rated or you can do backup loads only.
You can isolate them, isolate your home, have a sub panel where you have backup loads and this device, the smart switch, which aggregates solar and storage can now protect only our backup only your backup loads. Both those use cases are addressed by the single device. My house, I have this I have the Ensemble 1.0 backing up about 16 of my circuits. I did not back up my entire house, and this is flexible enough to do that. The combination of solar and storage can be always on.
What does that mean? It means that my batteries are charged up, I have an outage at night, I manage my consumption through the night and when the sun comes up next morning, the batteries can be charged. You can almost always be perpetual in that sense that I use my storage at night, the sun comes up in the morning, it charges my battery. That's 1.0, and you guys will see a demo of that when we go back to the office. This is a game changer, right?
IQ8 residential microinverter. What we have done here is it's the world's 1st grid forming microinverter. But this was a hard problem to solve. Let me give you a little bit of background here, right. When we first identified the problem as why are all solar systems grid connected, how can we make it independent of the grid where the system can form its own grid?
We had to solve one critical problem. We didn't want to violate the sanctity of a distributed architecture. What that means is we didn't want to create a central authority or a central controller. We had to solve this problem in a fully distributed manner. And if you did that, you get better value because you produce more energy, you're much more reliable, very simple to install and of course, a very safe system.
And that was the problem that we solved with the IQ8 Micronverter. It has the latest ASIC in it, which is called Swift, and it is completely grid forming. Today, in Ensemble 1.0, that's the inverter that's embedded in the battery. And the reason why it's embedded in that battery is not only is that an inverter, in software, we can turn the power flow around and it acts like a charge controller. So the same device in hardware, in software can be a charge controller or an inverter.
That's why that's in the battery. And that's why when you look at it from a supply chain point of view, you're only making one device. And by the way, that device, that battery, when we do go to Europe, it's going to be putting out 230 volt 50 Hertz and grid forming 230 volt 50 Hertz. Today, grid forms 240 volt 60 Hertz. Energy storage.
This is not just a battery. This is a complete storage system. What that means is, it's got the cells, it's got the cell pack, it's got the BMS, it's got the charge controller inverter, the IQ8, it's got communications. It's a fully AC coupled device, but it's very, very modular. Our building block for this is 3.3 kilowatt hours and 1.28 kilowatts.
And I'll explain where the 1.28 kilowatt come came from. 3.3 kilowatt hours is a cell pack and 1.28 kilowatts because we got 4 IQ8s in it, each one putting out 3 20 watts. So making it modular meant that it is very scalable. I can start with a 3.3 kilowatt hours and I can scale that up to any size I want. So you can guess what's in the 10 kilowatt hour configuration that we have.
It's got 3.3 kilowatt hours embedded in it. So you get incredible amount of scalability and modularity by doing that taking that approach. And by also doing this approach, by making it AC coupled, you make it a very simple installation. It took them less than half a day to install my system. Most of the time, they actually spent in my case, they had to run about 30 feet of conduit.
I have solar on my roof. I have storage near my garage. My main load center is on a different part of my house. And the most of the time they took was actually running conduit. It took about 3 hours, 2.5 hours to run conduit.
There are a bunch of bench to go through. But actual installation of the storage system itself was about half an hour, because it's a 2% install. I have 10 kilowatt hours at home and did it install the mounting bracket, hang the 3.3, the next 3.3 and the next 3.3. The big advantage of this is it's right sized. Badri has 16.6 kilowatt hours, I have 10.
Not everybody has to wear size 40 pants. You can do it with whatever exact size you want. But really what's interesting is you can also grow your system over time and you're not just growing capacity. You're growing capacity, but you're also growing power. That's the advantage of an AC coupled architecture.
The other big advantage of this approach, this AC coupled approach is that you get much higher reliability. So take for example the 10 kilowatt hour solution that we have or the configuration we have, you've got 12 micros in there. If we do lose 1, you still have 11 of them going and providing the power, right? That modularity really helps in that sense. Compare that to a DC coupled architecture, we all know the challenges of where you have only 1 big giant inverter, you know the challenges of the reliability of a string inverter.
But it's worse than that, right? String inverters typically work for 8 hours a day when you are in a when you have solar. With storage now, they have to work for 24 hours a day. You just triple the duty cycle of that device. And it's a mission critical function because it has to provide backup.
That problem we address by being AC coupled and by being fully distributed, right? Moving on, Ensemble 2.0. We are gearing up for Ensemble 2.0. And what Ensemble 2.0 is, you've got in charge, you've got your Enpower smart switch, which is a microgrid interconnect device, and now we'll have IQ8 on the roof. The amazing thing here is that IQ8 being grid forming, you can have a system that can island.
You can have a system that can produce power in the absence of the grid at least during the day. So you can imagine a kitchen table sale, right? Would you like a grid tied system that goes off when the power fails versus do you want a system that can keep running at least convert all the available irradiance, all the available sunshine into power? Why would anybody want to buy a grid type system, right? So that's the power of Ensemble on the Roof.
Of course, if you add to IQ if you add energy storage to it, you get an always on system. The IQ8 ASIC that's in there has a response time that's 1,000 times faster than an IQ7. That combination and response time is a very big deal because loads are changing rapidly. The combination of IQ8 on the roof and energy storage, which has IQ8 in it, is very powerful from a response from a performance point of view as you think about being off grid or being in a microgrid situation. So we are very excited about this.
I want to talk a little bit about communication. IQ8, IQ6, IQ7, IQ6 all talk over the PowerLine communication to the to our gateway, which is embedded in our IQ combiner. With energy storage, because we wanted more flexibility on where this storage can be installed And because it's AC coupled, it's abstracted away from the solar piece, we actually communicate over wireless. And specifically, we communicate we have a ZigBee radio in there, and that radio communicates back to the gateway and Empower also communicates wirelessly. But our experience has shown that you want redundancy in wireless.
So not only do we have a ZigBee radio in there, we also added a sub gigahertz radio in there. So that gives us much greater degree of resiliency even in wireless and they are both operating simultaneously and the system is going to manage both of those. That's what make is making the system much more resilient even in wireless. And of course, the link between the gateway, which is in the IQ combiner to the cloud is over homeowners broadband or Wi Fi, and they're both available. Homeowners' Wi Fi is homeowners' broadband is prioritized higher.
And in the event that, that fails because homeowners change their passwords, etcetera, it automatically switches over to Wi Fi to cellular, sorry. Okay. Moving on, IQ8D. IQ8D, I'm going to compare the 2 of them together. That's the IQ8, that's the IQ8D.
If you look at it from a component point of view, there are these are the DC these are the DC FETs and a driver, and we have had to double up on the FETs here. This is the transformer. We had to scale up the transformer. Here's the ASIC, there's the same ASIC. Here are the AC FETs, here are the same AC FETs, here's the protection circuit, here's the protection circuit.
You can see there is not much difference between the 2. The weight went up from 1 kilogram to about 1.3 kilograms. You get huge amount of power density, 50% increase in power density. And you're now producing 6 40 watts AC as compared to 300 watts AC coming out of the IQA, the equivalent version. A 50% increase in power density and actually from an IQ8 plus you get 97 you get another 0.5% improvement in efficiency as well, which is 97.5%.
Very big deal when you think about the application here, which is small commercial. A 200 kilowatt system has about 540 modules on it on average. You only have to install half of those 2 70 micros for it. Big advantage in terms of power density, in terms of ease of installation, and you still retain most of the value of the distributed IQ8 architecture. Moving along, the off grid solar and storage, what we refer to as Ensemble in a box.
This was a use case, which is a bit of blue ocean use case that Badri mentioned, but this is something that's very, very interesting and you'll see a demo of it. This has 2 IQ8 micros embedded in it that the solar that PD connects to. It's got 1.2 kilowatt hour LFP battery in it. And you have that LFP battery being managed both charge controller inverter with an IQ8 microinverter. So you've got 3 micros in here, 1 LFP as well as a communication module.
It also has all of the load sockets in here as well. So it's as simple as plugging in the load and turning it on and then Ensemble then takes over at that point. It manages the solar part, it manages the storage part and it also drives the load appropriately. This is what we mean by ensemble in a box. And the connectivity is BLE.
The vast majority of people in India have cell phones. So we found a very cost effective solution in that, which is connect to their own cell phone and broadband rates are much, much lower there than they are here. So you have a very cost effective connectivity solution. So if you look at the use cases that it targets, so the water pump. There are 30,000,000 water pumps today that are either grid tied, grid connected or driven by a diesel generator.
Terribly unreliable, right? Or so they're moving towards solar, they're doing this using a VFD. And as Bharat mentioned, VFD is only used for certain part of the year. When you have monsoons, all the solar panels are just sitting there collecting, doing nothing because you can't connect them to anything because a VFD cannot be grid tied. So then somebody came up with a brilliant idea of brute forcing it, hey, I'll build a string inverter and add a VFD inside the same box.
So part of the time when the solar panel is not used, I'll feed it through a switch into a string inverter and utility connect it or this is a again, yet again, an unreliable brute force approach to solving the problem. And this is what we are doing. That system can easily drive the solar water pump. You will see a demo of that as well as be grid connected. And the reason why you want to be grid connected because there are a number of places where there is a grid and now there are being programs being put in place where they'll get a feed in tariff for feeding into the grid.
At the same time, if places where there is no grid today, there could be a grid coming tomorrow. So you future proof yourself by being able to have a system that's capable of ingrid connected. The next use case sorry, before I go, one thing I want to mention is the Indian environment is very harsh. It's very hot, humid, dusty. You want a very rugged system in the market.
So this is driving it's an IQ8. The Ensemble architecture is very rugged. It's very simple. And since it uses lithium, again, you want it to be very safe, very simple to use. The next use case is air cooler.
Today, they use their grid tied. What's the point of being grid tied if you don't have power? Or they use diesel generators sometimes to drive this as well, which is noisy, hot, smelly and very unreliable. Instead, so you can take a utility connector, utility grid tied air cooler or diesel generated grid cooler and just drive it
with Ensemble and a bunk.
This has the potential to save lives. People die in India because they can't it's 50 degrees Celsius. Here with 1 solar panel and one of our devices, one of our boxes, you can really make a difference. There are 20,000,000 air coolers in India, 20,000,000 air coolers in India. This is what we know here as a swamp cooler.
It's got a pump, it's got a fan, it's got a straw structure where water flows down the straw structure and the flan rotates and dumps humidity in the room and lowers the temperature by about 5 to 10 degrees C. Huge difference. It can make a huge difference. This is a great market. 20,000,000 air coolers in India.
Finally, stand alone systems. There are 1,000,000,000 people worldwide who live in energy poverty, 300,000,000 of them in Asia, mostly in India. And today, we service them with archaic DC systems. You have to buy specialized DC components. Why do we want to relegate them to some old technology when we can bring the best technology out there to them?
To bring the best technology out to people who need it the most. It can be transformational for their lives. And that's what Ensemble in a Box is capable of doing. You can charge, you can have a standalone system as it's shown there, a solar panel that charges up the batteries. And then at night, you discharge the batteries.
What are you running? You're running a light, you're running a fan, you may be running an air cooler, right, or and a TV and a computer, all possible. This is transformational. Of course, as we talked about, there's more work to be done here from a go to market point of view, but this is possible, Ensemble enables
this. So to recap,
IQ8. IQ8 brings great value because now with solar alone, I can be completely grid independent. Why would anybody want to buy a grid tied solar system? InCharge, completely modular, scalable AC coupled architecture, right? We retain the modularity of what we did with solar.
IQ80, 50% greater power density, 50% greater power density, slightly bigger than a single IQ 8. Great value for the customer, completely rapid shutdown compliant out of the gate. And finally, the off grid solution, which is solar and storage, which is Ensemble in a Box. I don't know what to say, right? So in conclusion, semiconductors, you're on the right side of history when you do your and you architect your system around semis and software.
That's when great technologies like Ensemble that can transform the world. That's what this enables. You're on the right side of history. Great efficiencies and integration, great flexibility, future proof your designs. We can do a lot over the air in software.
We can do a lot of things. We can reconfigure our systems as things change. Nothing in life is static. All dynamic. A lot of things change.
We can match those changes in software. Ensemble enables a whole new categories of products. It's not just solar market anymore. We are in a broad enables a broad set of markets, and it's a one stop shop, right? We provide that entire experience to the homeowner.
Thank you. Sorry, we'll be back at 10:50. Can give everybody a moment to get settled.
I think we still have some people probably out grabbing coffee and I don't know if we can encourage them to wander back in.
Okay. Well, let me introduce myself.
My name is Dave Ranhofer. I'm the Chief Commercial Officer at Enphase. I joined about 2 years ago to help Audrey really drive the profitable growth initiative for the company. So first started in the U. S, put a lot of energy into rebuilding the team, done the same in Australia.
We talked a bit about Europe. That will be our next target. But we're really focused to drive profitable growth and super excited about the new products coming that Badri and Raghu shared. So my job today is very simple. I'm here to introduce 2 of our top customers.
So when I first joined, I got a chance to spend a lot of time running around the United States, meeting all of our top customers. The 2 I want to introduce are really unique people and unique companies. Arthur, who is the Founder, CEO of Momentum and Mark, the Founder, CEO of Sunpro, They both had a ton in common. They started companies years ago, installer companies, built them up from the ground up. We've had a long relationship with both of these companies, and they've done really a remarkable job building and scaling a profitable installer business.
And I got to know both these gentlemen quite well. We spent a lot of time with them collaborating. We've got deep relationships throughout the entire company with both these companies. And we listen to these guys a lot. They help us learn how to be even more effective every single day when we're serving our installers and our homeowners.
And it's been a great relationship with both of them. And I'm really pleased when Badri asked me to see if I could arrange a couple of customers, I immediately thought of these 2 guys because I think you'll enjoy hearing from them. They're on the ground, they're working with homeowners, and they've built companies. They've scaled those companies into multiple states and really have done a remarkable job. So I'm really honored to introduce both of them today.
My job is simple. It gets to just introduce 2 terrific people to you. So I'm going to start by asking Arthur to come forward and share a bit about momentum, share about his story and how he works collectively within face and how we're growing the business together. So Arthur, thank you so much for joining us today. Appreciate it a lot.
My microphone on.
Distributed microphone technology. So again, my business thank you very much, Dave. Appreciate that. We are very kind
of loyal customer. I guess
we're the customer, but we really appreciate that, Faiza. I'm looking forward to telling you why. So Momentum Solar is a residential strictly residential solar development company. We operate out of 7 states and 17 offices, of which 4 new offices in one state will be added to our footprint through the end of Q1 of next year. We manage full cycle customer experience from the origination through the engineering, procurement and construction competencies.
So we have 2,300 just over 2,300 employees that help us fulfill these competencies. We'll install over 90 megawatts this year with a run rate of about 10 megawatts installed on a monthly basis currently. And of course, we have a growth rate that's attached to that. So that comfortably places us as the largest privately held residential solar company in the nation. And what's critical to understand about this is that we are independently capitalized, and operational excellence is an absolute necessity.
Is not something that we have kind of the luxury of option. We have initially transitioned to Enphase in an effort to manage rapid shutdown requirements, and that was very fortuitous in that there are a slew of other advantages. And I think another important point is to understand that up until this point, because we are de facto exclusive with Enphase, we have maintained an absolute product diagnostic approach towards all of our manufacturers. So it's exciting for me to explain to you specifically why makes sense to deviate from that platform in this instance as we work with Enphase in the spirit of partnership. So in terms of I guess, we have slides here too.
So
There we go. All right.
We've jammed this into 2 slides, so bear with me here. That's our footprint over there. You see some of the progression in headcount that we just discussed. I want to speak to the optimal performance, the durability, the importance of the 25 year warranty because I think that there's no question that Enphase, from a production standpoint, outperforms any of the competitors in the marketplace. And this is absolutely quintessential as the crux of our value is predicated on the production of the systems.
Very much the value that we're bringing to market is ultimately a discount of future cash flows, and those cash flows strictly predicated on the production of the systems. So the integrity of that production is critical. And we've used every viable residential contender out there. And we could tell you that the production has material improvements benchmarked against its peers. Some of that really translates into the O and M, and I think that O and M is so crucial.
And the industry as a whole probably very much underestimates the actual expense of lifetime ownership and maintenance of systems. So when we have the opportunity to partner let's take one great example would be just central inverter, which, of course, is going to be the only competitor, I mean, any other there is no other viable microinverter in the space in the States. And a central inverter, of course, is something that has typically inside of a 10 to 15 year shelf life with warranties that are not necessarily in accordance to that. They're typically 5 to 10 years, in some examples, 12 years. If you want to extend those warranties to be comparable to Enphase, which more accurately reflects the lifetime of the system to 25 years, it's exorbitantly expensive.
I mean, it would be well, well outside of market tolerances. So for us, it was critical, especially as we continue and increasingly are holding assets on our balance sheet, to regard the full fully burdened cost of ownership and maintenance of these systems and make sure that we're including to the extent that we elect to use a stringed solution or central solution with an optimizer in our capital budgeting thesis, we're understanding that between years 'ten to 'fifteen or 'twenty, whatever it may be, but invariably and inevitably inside of the warrant life cycle of the system, we will have to replace that equipment and the truck rolls and everything else that's affiliated with that. Installation efficiency is, of course, of critical importance for very obvious reasons, especially in that we differentiate ourselves and pride ourselves in quality and timeliness of installation and the broader customer experience. You could imagine it doesn't always lend to a great customer experience where in the event of a string inverter, you're carving out a large section of their siding to install a large piece of equipment. And then everything we talked about.
From a timeliness standpoint, 90% of our systems right now, which Ragu, I think, accurately represented for sure, are installed in one day. In fact, in Southern California and other select markets with smaller systems, very often, we have 2 installations in a day. So this efficiency that we are able to achieve through less connections, better wire management, the absence of having to mount a central inverter are far greater than the perceived value of saving an hour, hour and a half, 2 hours maybe on a per project basis. This is really offsetting that opportunity cost of us having to roll another truck and send a crew out to a project on a second day where it could have been achieved in the first occasion. And that is absolutely critical, and there are very much quantifiable and immense costs affiliated with that second truck roll.
Best in class monitoring is something I definitely want to touch on because you guys know, of course, that the monitoring is on the module level. But to truly understand the importance of that, you have to dive into the O and M competencies of a developer like ourselves. And what we're able to do is truly diagnose the issue on-site. And a lot of times, not a lot of times, we're always able to effectively do that remotely. A lot of times, we're able to even eliminate the truck roll because of the fact that we're empowered by that information.
And when we do finally roll a truck, we're much more efficient. And what we've measured with Enphase, we're about 30% more efficient in our service department because we roll that truck, and we are absolutely specific with our intent and understand what to remediate on-site. Enphase has, as you certainly know, I'm following Raghu here, and you know that product excellence and research and development step changes above their peers.
I had R and
D probably stands for RAGU in development,
actually. I think that's
because I've never seen that type of passion in the industry and probably in my entire tenure in business, which may not be that long, but still it's something that we very much appreciate and respect. And if you look up cost cutting in the dictionary, you'll find Badri, too. So but ultimately, these changes, Ensemble speaks for itself, so I'm not going to get into that. And we just briefed a pretty extensive slide and history on that and especially prospective values that, that will bring to our customer base. We're so excited for that.
But just what they've been doing on a monthly, quarterly basis to make sure they're always enhancing, every iteration of the product has the ability to accommodate more wattage on a per panel basis. That has greatly supported us in our supply chain because now we're effectively down to 1 SKU in terms of the actual inverter, whereas again, being the only viable competitors have a string or a central inverter system, we're in a position where we had to manage through dozens of warehouses having about 7 to 8 SKUs of the central inverter trying to manage effectively your supply chain, which was truly impossible because you can generally forecast what your average system is. You could break it. But to know how many 8 KW systems you're going to install in a particular month became out of idiosyncratic offices that operate independently became impossible. We just had to store way more inventory than was appropriate to manage the business efficiently, and that was a significant burden the business.
And then add on top of that, that the companies of which we were purchasing just couldn't supply us with the product we needed to make the right inventory adjustments if we had to do it on a at the last minute. So ultimately, the increase in efficiency of panels also helps us drive down our costs. Everything scales very well as efficiency goes up on the roof.
So it's been paramount for us to observe all of our kind
of tertiary costs and around the system installation, including the cost of the actual inverter, decrease as the system's wattage and efficiency increases. I think in summary here, given the fact that we are independently capitalized and we don't have a valuation that is predicated on kind of growth absent profitability. So when we decided to partner with Enphase in this exclusive capacity, it was absent the typical and maybe contractual arrangements that would coincide that type of exclusivity, right? And it's because it was a market based decision and determination. And they truly do have the best products for our customers.
And on top of that, when you do the math, it's actually brought to market at a material discount. So the markets are very efficient in this instance. We appreciate our partnership with Enphase. And of all the pricing that we do with all different manufacturers from modules to racking, we know that this is a durable partnership we don't have to worry about. And we trust in our faith of all of our volumes are committed to Enphase for good reasons.
For us, and you'll hear a little bit about Sunpro as we now go. So Arthur, thank you. Really appreciate that. And I really appreciate both these guys. They flew in just for this event.
They're both incredibly busy. They have Christmas parties they're trying to get to. So they made an effort to come here just to speak to you, and then they're on planes out of here. So just goes to show the partnership's a personal one as well as a professional one. So thank both these guys a lot.
Mark, on
to you.
Thank you very much.
Please, next time, let me go first. I was feeling really good about my 50 megawatts this year, so momentum came up here. So I appreciate that.
I was
my first install with Enphase was in 2,009. I was one of those Tier 4 installers you guys are talking about. I was doing home remodeling, didn't know anything about solar. And I called, I had a guy that wanted to do a solar project, economy was bad. And I looked into the solar thing and said, hey, this might be something.
And I sold my first job. I literally didn't know anything about solar. And I called this little company called Focus Energy in New Mexico who was distributed for Enphase. And I told
him what I wanted, I
said, I don't know anything, what should I do? He said, there's this new product we're carrying, it's an in phase microverter, it's plug and play. And I said, that's what I want right there. And I wish I was I can tell you I was smart enough to see all the other additional benefits it was going to have to our company. At that time, I didn't, but it was plug and play and I didn't know anything about electricity.
And it turned out to be a phenomenal decision for me and we've been really happy with it. I got to say, I was kind of surprised that David called and asked me to speak because to be honest with you guys, I've been one of the biggest critics of Enphase for a long time. I've been very vocal in the years past about some of my feelings about things were happening because Enphase was always incredible at making microverters. I always knew that, but they were really, really bad about talking about them and how they went to market with it. And I would go to them and
I would tease them, I'd offer to
be their marketing manager and do all kinds of stuff because I knew how good the product was. And they just and this was years ago, but I just felt like they could do something different with it. So let me just tell you a little bit about our company. Are predominantly, we are in the South. We are in 11 states.
We have 16 brick and mortar offices, 1100 employees. And this year, we'll finish with 50 megawatts of installation. That's about 170,000 micro inverters. We are 99.9 percent in phase. We really don't do anything but in phase.
We do only residential installations as well. Every year since we've started, we've doubled our revenue almost every single year. This year, we're going to actually triple it. So it's Enphase has been a great partner in that, and they're a big part of our success. And as you can see, just in the last 4 years, but if you go further back, I mean, it continued to double every year since we started, which was in 2,009 when I sold my first job.
We actually bill ourselves as the pro companies. And when we go to when we meet with our consumers or customers, we would introduce ourselves as the pro companies or Sunpro Solar, BuildPro, which does roofing and home automation and EnergyPro, which does energy management and energy efficiency. And I often think of them as a like a triangle with Sunpro on the top, Buildpro and EnergyPro and all those companies drive customers to one another. And much like the things they're talking about now, this whole home integration, Internet of Things, I believe that's what's coming. And Enphase just fits perfectly into our plan.
I often tell our employees that in 5 years, if we're going to be a successful company and still be a player in this game, that we're going to have to be totally different than we are today, because we can't just be a solar company. We're going to have to be a home energy management company, and we're going to have to evolve in home automation, energy efficiency, solar, storage, all that's going to come together and we're going to have to be able to handle all of those things. So we were really excited when we first heard about Ensemble and the InCharge system because I think it's going to be a game changer for us. So when I think about Enphase, 4 things come to mind: Simplicity, scalability, reliability, customer experience. It was funny, I was watching the slides and I'm like, did these guys like they're going to think I was coached by Enphase before I got here.
I mean, it was the same stuff they were saying, but it's really true. And one thing about our company that we've always done is, I would say we've had a relentless focus, laser focus on customer experience. And we always say that any decision we make, the first thing we say is how will this affect our customer. And if it's not a positive, we're not going to do it. And so with Enphase, every time we've asked a question, should we go in a different direction, is there another product, we've always come back to the same answer.
We could not find a better product to put in front of our customers. So when I first started selling solar, and I think this still happens today, we sold against SunPower. And SunPower had a really great panel, but they never even talked about the inverter. And how I really took a lot of market share when we first started is we really exposed a lot of companies for that were selling a great solar panel with a really bad micro inverter. And once educated homeowners were very quick to want to use the in phase microinverter.
Simplicity. Paul Nahi, I heard him speak one time. He said something really smart. He said technology the winner in technology is always simplicity. And I think that's what Enphase can deliver and offer to our customers is the most simple approach.
Customers really never quite understand how solar works. They really don't. They really don't understand it. And so they make decisions based on what they can easily understand, what do they feel good about. So the amazing interface that Enphase has created for customers to look at, the ease of knowing it's either working or it's not working.
If it doesn't work, we'll just take it off and put a new one on. So the ability to change out microverters is very easy for customers to understand. They can feel really good about it. So the simple approach has been very good. Another thing a lot of people don't think about is when we talk about simplicity is how easy the product is to install and to train people to install.
So I saw recently Sunrun missed their 3rd quarter numbers because they couldn't hire enough installers to deploy the assets that they had sold. And they predicted in the 4th quarter they'd have the same problem. I would submit to you that the reason we've been able to grow so fast is that I can take a roofer with limited experience, doesn't have to know anything about electricity and give me about a month and he'll be a very exceptional solar installer, because he doesn't have to understand strings, string sizing and all that stuff. Also, when we show up to a job, 75% of the time, we don't do a site visit. And because Enphase is so flexible, we can show up to the job.
If we have to make adjustments on the job, move stuff around, it doesn't matter. Enphase doesn't care. So it's 1 panel, 1 inverter, very easy. Safe. The all AC electric is really resonates with customers.
That's always going to be there. And any customer that I can sit down with and explain that one single thing will typically always buy Enphase. In fact, I always tell ourselves guys, we lose a job to any other competitor who's selling something other than Enphase. We haven't done our job in explaining the benefits of this product because if you put them side by side, you cannot show me a category other than possibly price that's going to beat Enphase. I firmly believe that.
Let's see here. Okay. Scalability. As I mentioned, we're growing really fast. Today, we have 13 warehouses, 40 installation crews.
We're doing about 36 installations every single day now. This month, we're going to do 8 megawatts. We're adding a new territory. Almost every 2 months, we're adding a new territory. This month alone, we'll install close to 30,000 micro motors.
So you can imagine an operation like that, how many purchasing managers, inventory managers we must have above that. But I have one purchasing manager that does the purchasing for every single thing in our company, Because we use 1 panel, 1 microinverter, 1 ragging system, it's very simple. We don't have to be perfect. I don't need 6 different string inverters with different optimizers and all this other equipment. I can't tell you guys in terms of scalability how much that means and how much that has helped our growth to be able to go to a new territory, train people quickly, All they got to do is ship a bunch of boxes of microinverters and some panels, and we're going to have the product we need to install.
It's a real game changer, and a lot of people overlook that, I think, when they think about solar.
Okay. Reliability.
I can tell you from personal experience that every generation of the Microverter that we've used from Enphase has been better than the one before in terms of how long it lasts. It's really incredible how easy these things are to diagnose and repair. Again, we have over we have somewhere north of 10,000 customers out there, all in phase. And I have 4 people in our customer service department that respond to all of their inquiries and all their claims. We in advance typically are finding microverters to go out.
We've managed the whole process with 4 people because it's so easy to diagnose it. I don't need when you think about a string of our own side of the house and all those moving parts and equipment in there, you need a really seasoned person to go out there and diagnose these things when they go bad. It's not always evident. You can't look on the Internet and tell you what the problem is. So the fact that I don't have to do that, that I can literally send a rookie installer by to switch out the microinverter is huge for us and it really enhances the customer experience.
And I'll tell you guys, this is a true story. This year, I've had 2 CEOs from major companies call me that were very interested in moving their business back to Enphase that had left Enphase years ago. So I think a lot of people in the market are seeing some of these underlying values that aren't always evident when you just look at how much these things cost. So I think
there's a lot of good
to come. And just a few words on the inCharge Ensemble. I just want to point out for us, though right now, we actually have been using for the last couple of years, we've been using Tesla. We're not crazy about and I don't think our customers are really excited about mixing and matching products on house. People feel really good about when you can go with 1 single solution, 1 single vendor.
I think that's going to be really valuable to consumers. I really like the fact that you can start small and you can build and you can add really easily later. I think that's going be huge. The fact that the whole battery is not going to go out. The fact that there's 12 different 10 kW, I think there's 12 different microverters.
So you can lose 1 and you can keep going. I mean, that's going to be really big over time. So the modularity and the monitoring platform really big. And I think if we do a good job as a company explaining this to our customers, I think we're going to do we're going to sell
a lot of them.
And so we're really excited. But we're so we're I guess in closing, I would just say that this is I'm really excited to be here. I, from day 1, have always felt really strong about Enphase. I remember when the stock was below $1 and actually it's kind of a funny story. I have a I called my broker like, I want to buy a bunch of your face stock.
I'm telling you it's going to be big. And he wouldn't do it. He actually told me no. And he made me sign a whole harmless agreement to buy it. And that whole harmless agreement is framed in office right now because I bought a bunch of stock below $1 and it's worth a whole lot now.
And I think that speaks to Audrey and the team here. So great job, and look forward to working with you guys. Thank you very much. Are you
sure it's on? Hello? Yes. Okay, great. Sometimes I think about that you did a great job there, interacting and listening the stories.
And I'm sure today was a positive day for you, right? Every day.
Yes. Well, first of all, I
want to thank each one of you for coming here today and to listening to the presentations that we prepared especially for you. Most of you, we either met, we were on phone calls and the reason you got an invite is because we believe you are very important to us. And so again, thank you for the support and for everything you do for us as a company, advocating and investing for sure. I don't know if you noticed, but you probably got a big picture and a little spyglass as part of our gift baskets or whatever we give. And I just wanted to let you know that this is fully tariff free and no fits inside, right?
So it's pretty good. And the other thing is, if you look at it is what Jeff McNeil uses to spot defects on our micro. So you need a small one though, so there's not many of those, right? So I hope you like it and this is very important. There is a story behind the picture that you will read it and tells you why it's so important for us as a company to do what we do and how much how many lives we are actually changing, right, enabling business, right?
June 2017, newly minted COO at the time was joining Enphase Badri. And when he joined the company, he did his first Analyst Day presentation in the following fashion. He put up one slide and he told an audience, very skeptical audience, I imagine, right, that the company in 2 years or 1.5 years from that date we'll be exiting with 30% gross margins. What is the next? 20% OpEx, right, and 15% operating income.
So that kind of prediction was probably received with very little, I will say credibility at the time, right? A company that was on the verge of almost bankruptcy. And many of you guys were investors at the time. Fast forward to the end of 20 18, I joined in June, but towards the end of 2018, we actually met that target. So the reason I'm bringing this up again, because Tazari brought it up casually, is that the effort and the work that went into achieving that particular target is pretty amazing while you are still grow.
So being able to say I'm going to compress myself and I'm going to become somewhat irrelevant and profitable is difficult to do, but it can be done. But saying that you're going to be able to grow or achieve a pattern of growth or sustain and at the same time perform that level of gymnastics that you've done on financials is very incredible. It's hard to believe, hard to believe and that's why the stock has been somewhat almost a story of surprise, incredulity, some people wouldn't believe it what's going on, right? And so as you can imagine, we've got a lot of interest in multiple sites about what is it that we are doing differently that others don't do. And what we do is pretty simple.
We focus on the first thing that is the most important for the company, which is quality. All the icing to making sure that whatever we put in people's roofs are not becoming ticking bombs over the long term. The second one is making sure that our customers, installers and homeowners, they love our product, and that requires incredible amount of attention on customer service. And the third one is making sure that we extract as much value as we can for them and we appropriately charge them for that, because it's fair. It's the right thing to do.
And having a semiconductor based company, which is software defined and it has the capabilities that now we are presenting on Ensemble is what makes this company unique and different. So when we get the questions about what is your market share, what is your cost per watt and so on, I always go back and say, let's talk about our platform, our technology, the management team, the effort that we go into delighting our customers. So for me, coming here and introducing a new operating financial operating framework for you that will last that will survive the test of time. That's the important part of it, right? It's very difficult, right?
Because what we are saying as a management team to you is we believe this is our baseline for our business for what we consider to be the long term. And this baseline is not an easy thing to it's very easy to execute and probably get it done in 1 quarter. It's very difficult to sustain it over the long term, especially when you don't know what's going to happen in the future, how many potential competitors may enter in the market, whether your technology will survive the test of time if we or we can execute as a management team. So someone said, well, Eric, you already crossed the bar of 35% gross margin on your midpoint of the guidance for Q4. So I said, yes, well, thank you, but this is my baseline.
This is what I can tell you as an investor, if you are thinking about our stock as a long investor, this is what you should count on. This is what we present to you as our promise that we will make all the decisions without compromising growth. That's another thing, making sure that we continue doing what we are doing and growing. Growth is as important as being profitable. As I said before, somewhat is easy to get to now that the company is what it is right now to sustain these margins.
The question is can you do it while you are growing. That's not for the faint of heart, right? Because the temptation to say, well, I'm going to prioritize growth towards financial health or well, maybe use a little bit of the pricing here and pricing there. So for us, working with our partners and making sure that everybody in the value chain that participates in partnership with us makes money is very important. So we will work very hard to sustain that.
So we can have the stories that you just heard from 2 critical customers of ours. So having said that, this is it. It's the pricing management, it's the new product introduction, it's our obsession with cost reduction that happens every single week where you have Jeff and his team literally driving down every single little thing in every product that we produce. When we are talking about the PPM, which is effective per million and we are talking about 500, that's a high level of achievement. And we are not thinking about just the micro, we are thinking about on everything, right?
That's our target for every single product that we put out there, right? No matter what the warranty is, whether it's 25 years, 10 years or whatever it is, this is our internal goal. So that continues to be our focus. And that will be uncompromising for us. The operational expenses is very important too, right?
Because people say, well, Eric, you're already at about 12% OpEx as a percentage of revenue on your midpoint of the guidance for Q4. So what are you doing here? You're telling me you're going to now going to go up, you're going to go the other way. Well, operational leverage is going to be sustained at 15%, which we believe is adequate for the type of business that we have. But the most important thing is that we are not planning to run losses to fund growth.
So a big chunk of the expenses that we're going to be incurring as part of this 15% target that we have on the model will be prioritizing to R and D, which is a form of investment. It's investment on innovation for the long term for future products that will delight every one of the customers that we serve, the markets that we penetrate and we enter and more importantly for you, for the investors. So why are we saying that? Well, we believe that R and D is important for 2 factors. We need to invest in R and D for the new products.
We need to invest on R and D just for innovation purposes. And 3rd, R and D is important for cost reduction. So sustaining the gross margins that we are proposing here as a baseline, it's not the ceiling, it's a baseline. It requires you to continue spending money to make our products more affordable, making the right decisions on cost reductions and potentially partnering with the right suppliers. Finally, the operating income is the outcome.
This model is architected on our OpEx, CapEx and other COGS company like ours, architected to generate cash and generate adequate and in many cases very important good levels of cash to continue self funding all the initiatives that we are doing. So therefore, we don't need to go to the capital markets too often and dilute the value of the shareholders, but issuing shares on an equity round or whatever we need to do. The use of debt or equity as a form of funding projects will not be taken away. As an option, we like to have it, but we like to make sure we don't abuse it. So cash generation is super important, making sure that the value of your equity that you have on the company is appropriately valued.
The weighted average cost of capital that we use for evaluation of the projects will still use the cost of equity WACC component. We may use leverage 1 and off perhaps to optimize the right balance for our capital investments. But for us, protecting your investment is as important as protecting the credibility of the company with customers and with any other of the employees, any other stakeholder of the company. So long speech on this one, because I know for sure many folks here, especially Phil probably and perhaps Brad will come to me and says, Eric, why you didn't do 40%, Los Banjo? Why you didn't do 45%?
And that's my answer. So we can you can ask me the same question again for sure, but that's my answer. So now you heard from Raghu and you heard from Badri that we have vectors of growth. I don't know if you remember, we have the original vectors of growth ACM, IQ7, international, all of those still there, they now reside within what we consider to be the residential solar sector from which basically represent as of the end of this year likely represents 98% of our revenue in the company. That's what we call it the microsystem sales.
And if you do a quick math on all the micros that we ship in 2019 and you divide that by 20, about 20 panels per home, it probably represents about $2,000 per home for as a form of revenue, with the revenue base on which we are executing our existing growth. We foresee this side of the business continue growing and sustaining the margins that I just described to you on our baseline. And the reason we see it that way is the way we project a CAGR with the sum that Valerie presented for this business, which is €4,000,000,000 in 2022, is about a 17% CAGR. And the reason is we're going to we believe we're going to grow with the market and we also believe we're going to regain market share in places like in Europe, like on the 8 countries that we are trying to enter. Plus, I believe we have quite a bit of round rate to continue gaining market share in Americas.
So the growth that you're seeing there represents both growing with the market and growing on market share. So that's what and we're going to continue supercharging that business because that also creates another opportunity on what we consider to be an hour in phase retrofit homes for potential upgrades for the next product that we already announced, right, which is Ensemble and the storage component of Ensemble. But going back to the microsystem in the first part of the slide, when you have the little house there, We're talking about $2,000 per home. We talk about the CAGR. I don't know if you remember, but we talked about something called IQ8 on the roof.
You remember that? That's super important and that's another level of growth that will be enabled in the second half of twenty twenty. And that one is so unique that nobody else have that solution. And the reason nobody else has a solution because nobody else has yet figured it out how to develop a distributor platform like ours with a quality product like IQ8 like ours that actually has the grid forming capabilities that it has. So therefore, you don't need a storage.
You may choose not to have a storage, and that's okay. So why would you have anything else other than something like this if you can afford it for a price? So there is an opportunity there to continue sustaining margins and growing in not necessarily the change in much of the dynamics of the microsystem because you still have the intermittent nature of renewables in solar in that one, right, Northern Power. But yet, we'll present a platform that has the future for potential upgrades. Continue adding to our 1,000,000 homes with the 23,000,000 micros that we shipped to date.
And so we talk about the growth in Europe, and I think that we have Japan as well. There are certain locations like Japan, Korea that they lend themselves to be perfect for us. We got a product that is high quality, is highly appreciated on a constrained rooftop plays extremely well and can be priced perfectly well as well. So I know Dave has his eye on Japan. You live in Japan for many years as well, right?
So we have the talent, we have the know how, we have the perfect product. So I 8 countries that Badri mentioned with the enablement of just IQ7 with international SKU that gets over the years upgrades updates on the firmware to be in compliance with the local utilities, statutory government regulations or the hertz, 60 hertz and 2 40 watts, right, volts, that's already embedded into the design. So for us saying we're going to win in Europe and we're going to win big, it's not a big deal in terms of because we have the product, we have the team and what we need to do is just the same thing we did in North America, focus, focus, focus. And I think, Dave, Bardo, you already said that you're going to spend most of your time in Europe, right? Yes.
So, on residential storage, the story is pretty right? Because that's what Raghu likes to call it a game changer with Ensemble. Now we are talking about a revenue base moving from $2,000 per home to more than $10,000 per home, because we are adding now a solution that makes the, I will say, intermittent nature of renewables in solar resilient to a high degree. And that will get better and better every year, right, because the cost of the storage will continue to reduce and go down. So more people will adopt hopefully our distributor platform and will subscribe to the concept.
If I spend $2,000 to put a microsystem on my roof plus the cost of the panel and so on, and why would not spend some money perhaps to buy at least a 3.3 kilowatt hour storage solution, right? And perhaps pay a little bit more and prepare myself for a potential cost reduction on storage and eventually have my own 40 kilowatt hour system, the one that Ragu says nobody have to necessarily wear 40 size pants, right? But I think that this solution is incredible. And having the shipping for revenue for me in Q1 is very special, because Valerie and I, we've always been very nervous about this one, right? Because this is not just another microsystem that we've been doing for 8 generations folks.
This is a system, a complete system. So what the homeowner needs to experience, but the installer making sure the installer can say the same thing that they said about the microsystem, they can say it for Ensemble is super important for us. So if Mark, a year from now, stand up in the podium and he says, I love your microsystem, but I hated your ensemble, we fail. Highly likely you're not going to get invited if that is the case, but just keep in mind. But I that's super important.
We just say, well, I mean, what is your cost per watt, Eric? What is your cost per watt? What is your ASP per watt? And I'm like, do you understand how important it is for an installer have a simple solution that you can install it and do many styles per day, the opportunity cost of you picking a much more complicated topography, right? So this one is a winning platform.
This is a winning product and I'm really excited about it. The other one is the retrofit. If you think about the potential of $80,000,000 a year, they're just being able to upgrade 1% of our base. And that base will continue growing, right? So the math is pretty simple.
You take 1,000,000 homes at the end of 2019, you do the math of how many new homes you're going to have at the end of 2020, you deduct what is the attach rate of storage for that and the ones without the attach rate, it will be your new pool of new and phased homes that can be then growing and growing and growing. So for us, as the attach rate continues to go up, you continue adding homes in a lower pace, but they continue to sell more direct rather than through upgrades. So it's an incredible compounding effect on the financials. So growing the top line from a $2,000 per home to a $10,000 per home give you the comfort that these guys they're going to grow on the top line just because they got a product that allows them to do that. But these guys are not staying there.
On the $2,000 per home, they think they're going to grow with the market and beyond with market share. And the third one is my very favorite, and I don't think we do justice. We're getting low with Ensemble and now we all understand that one. But now we are saying, you know how many times most of you come to me and you tell me when are you guys going to do commercial? When are you guys going to do commercial?
Here we go. Now we got a commercial product. It's phenomenal. Think about the cost associated with this product in relationship with the power generation. What does it do to our ability to introduce a product like this one and sustain the baseline margin that I just described to you, super important.
And entering on a competitive product with a higher reliability compliant with rapid shutdown with all the things already out of the box with the simplicity of Ensemble or the microsystem. And we didn't talk about what that could bring in the future if you add storage to that, right? But they will be telling me why did you say that? Why did you say that? But I have to say, there is an opportunity there as well, which we are not going to bring today.
And finally, on that one, we're going to launch the product in 2020, right? So next year it's going to happen. We're going to have revenue in 2020. That's my view my belief based on what I've seen. And we also believe that the by 2022, looking at our price and the cost and the math that we did on the TAM on the sum of about this is a 1,500,000,000 sum by 2022, based on that price point, you can probably say that we're going to have a very competitive product that we're going to have about the same market share that we enjoyed in North America for residential now in a small commercial.
I don't know if you know, but most of you don't know, but we do some commercial projects with IQ7. IQ7 already achieving a cost parity that many installers are saying, hey, you know what, your reliability is so important and your simplicity is so important that we can make it work with IQ7. Now we give them a product to say, you know what, you can use IQ7 is more convenient for you. Now we got this other product for you, right? So that's an incredible vector of growth for us.
And finally, the life changing products that comes from what we consider to be the off grid applications. We told you that we have IQ8 off grid already in the market. We are shipping those for revenue based on a master supply agreement with an existing partner. That master supply agreement on our system partner is already having revenue represented in our financials. We just don't disclose them, but we have it.
So the product is viable. It's a specific application And that product now can be the same product is basically about the same as the IQ8. We have specific application configuration through software. All of these products that you're going to be seeing on the demo are the same. There are configurations of IQ8 and variations of IQ8 that presents opportunities to change people's life around the world, while we are continue growing as a company in introducing our distributor platform around the world and on markets that almost have no presence for any other competitors with a product like ours.
Think about same cost reduction roadmap, same management team that deliver to you the growth that you experienced on the micro systems in 2019 are going to be the same team that delivers your storage solution with Ensemble in 2020 for revenue in January in Q1. The same team that can deliver the commercial product is the same team that takes care of the quality, reliability and all the benefits of simplicity associated with the design out of the box available. You got Ensemble in a box on off grid and you have the ensemble out of the box, which is my favorite, the second, right? But that's kind of what we like you to leave the room with. We are software.
We are a software company, we are semiconductors and we got Ensemble. And everything is built on that kind of platform or that technology. I love to talk about cash, because the number one job of the CFO is never run out of cash. So when I joined the company, we did a couple of transactions, 1 in both of them in 2018 actually. And I will have to say in 2019, our $80,000,000 of adjusted free cash flow is very comforting.
And now if you include the prepayment amount that we have for safe harbor on shipments in Q1 received at the end of Q4, we are using the midpoint of the guidance for Q4 as well as an analysis. Here you can see that we can probably finish the year with $250,000,000 of cash. Isn't that a relief? Battery took it over. We have how much on cash, Battery, when you took it over, dollars $44,000,000 right?
We know we can run the company with less cash. And most of you, especially long investors, they come to me and say, Eric, what are you going to do with all that cash? My comment is, well, first of all, it's great to grow and have more cash on your balance sheet when you start negotiating with suppliers, especially new suppliers like the sub battery pack ones that they are entering the space that we are right now in renewables and they are saying, hey, are you big enough? Do you have enough on your balance sheet? Can you give me a little credit?
And so on. He said, no, listen, I already have 12 months of GAAP profitability and I got $250,000,000 in the bank, and I have very little debt that is not due until 2024. So I'm in pretty good shape. So can we talk about price now? So that's what Jeff does.
Thank you, Jeff. He's very patient, by the way, because Jeff helps me a lot by working with his vendors to make sure we get the longest payment terms that we can, because working capital is very important to us. Inventory management too, the way you generated $1,000,000 of adjusted free cash flow is not only working with your customers that pay on time, thank you very much, Mark. Also our vendors working with us on payment terms that allow us to optimize our working path. But more importantly, the way we run the company on the way we right?
And the cost of capital is actually fairly decent.
So this is kind of
what we have right now. Now in terms of the future, the year is now is a comforting level going forward to potentially explore some inorganic growth through acquisitions or the right talent. Acquiring the right talent in the form of acquiring companies that have the right talent or acquiring the right technologies that will accelerate our roadmaps. We are not sitting there on the basis on that front. Well, actually, we spend a lot of time and a lot of effort trying to identify the right opportunity.
Some of these companies are pretty expensive and we are very conscious. We want to make good deals on M and A if we do them that there are at least as good as the one we did with SunPower, remember? Very short payback, great fit. Pretty much if you look at the IQ8D is the product of the leadership of some of the talent that we receive from SunPower, right, working under the right leadership in the CTO group. So those are the kinds of acquisitions that we are looking for, but we are not going to jump into something rushing when prices are not where we think are the right prices.
And finally, we truly think that is preserving the value of the equity investors is super important. So we will look at opportunities in which we perceive that the intrinsic value of the company is higher than the market value. We may engage with the Board Authority, if the Board permits that to do some share buybacks, right? And potentially have some anti dilutive effect on the stock to compensate for some of the use of the stock that we allocate for employee compensation and things like that, right? So that's kind of where we are, capital allocation, cash generation, great products generated with great margin and finally wrapping it up.
We got a new baseline, again, it's a base, it's not a ceiling. We believe very strongly that we can sustain it in long term. So if you're a long investor, stick with us. We put our right, Jeff, on the margins, Dave? Badri, we are all in, right, Raghu?
No adventures there, right? And revenue growth, we show you how we're going to grow. We show you what products we're going to launch, when we're going to launch them, how much margin share we think we may be able to attain on some of them, especially on the commercial products that I think is a nice add to your portfolio and the models. And finally, we got a company with a great balance sheet and prepared to take on the next level of growth going forward. Thank you for
your time.
So we got 40 minutes' worth of questions. So we'll break at 12:30 for lunch. So are the microphones on? So Eric, yes, come on here. Raghu, come on here.
Jeff and Dave, please come as well. Are we ready? Go ahead. So Dave, why don't you take that one?
Sure, sure. Our growth in international has been slow. There's no question about it. We focused primarily on North America. We focused primarily on getting ready for Ensemble.
We've rebuilt our team, as broadly mentioned, in Australia. So I'm very confident you're going to see Australia numbers come up. And we're in the process of rebuilding our team in Europe to bring those numbers up. Europe grew last year 22% year over year, so we are seeing growth
in Europe. And North and Australia hung about in about equal.
What happened is North America grew so fast that the numbers start getting swamped. And it looks like our business is more and more in North America, driven by, a, our success and gaining share in North America and secondly, the SunPower business, which is all today North America. We expect that we will be able to grow our international business faster on many fronts. But to answer your question specifically in Q1 and Q2, I don't think you're going to see excuse me, Q4 and Q1, I don't think you're going to see substantial international growth in terms of relative to North America growth. We're shipping some safe harbor product, as you know.
That adds a lot more to North America than we would normally see. And the way we think about that Safe Harbor business is that take all that Safe Harbor, it's going to be coming into the market over 4 to 6 quarters. Unfortunately, we're never going to be able to reflect that to you and show you that our business is $10,000,000 to $15,000,000 a quarter higher than reporting because of the safe harbor. We won't get it in revenue, but actually, we're capturing in the market share. So I ask you, as you think about your numbers, think about our safe harbor business that's going to actually ship in 4 to 6 quarters, okay?
So that will add about $10,000,000 to $15,000,000 a quarter over those quarters, but again, North America. So in terms of ratios, North America will stay strong. Europe and international business will remain relatively small. But that's the piece we see huge opportunity to grow. I don't think you'll see in Q4, Q1, you'll start to see it more substantially in Q2, Q3 and Q4 next year.
We believe we are learning on the pricing, and we are going to basically look at the true value that we create. So what customers are telling us is that when they want a solar and storage system, the one stop shop solution is worth a lot for them because it's not a $10,000 $20,000 at that time, it's a $50,000 investment. So at that time, when you have $50,000 solution, you really want somebody to take total care of you. Then the other thing that is important is when you're putting a system like that in your home, you really do not want high voltage, neither on
the roof,
neither in your garage, neither on your walls. You do not want high voltage. You want safe AC. You want low voltage DC. So really, what we have figured out is homeowners, they care about that a lot.
And third one, in addition, we have a huge loyal base of Enphase, installed homes, solar home, solar base is what we're talking about. So yes, our price is a little bit higher. You're absolutely right. And what we think is, it's an initial point, but eventually it will come down to the value that we add. And we believe we add a lot of value.
And after 3 months, we'll learn more and we'll course correct, and we'll gain a lot of share.
I'd like to add one more thing, rightsizing, right? You have a monetization problem. Whether you like it or not, you're going to get 13 kilowatt hours, whereas you can rightsize it to the to your needs. You got about 13 or 26, forget about trying to get a 20 kilowatt hour system going. So that also plays a big role
in pricing.
How much time it takes for an installer to put together an ensemble versus any other competitor choice. How much time they need to spend dealing with issues and coming back and fixing this, fixing that. And that plays an important role on the decision for an installer whether they're going to pick one solution versus the other one, independent of branding and all the other collaterals, right? But I will say that all things in equal, what we have been seeing is a superior savings on just following our platform, similar to you can experience on the micros, right? So those three things, right?
The first one is what Badri said, very clear. We are cost correcting, coming back and forth. What Ragu says on the modularity, some of the options that we have, nobody has, right? Because this is not a modular approach. For the home, you don't want to put more kilowatt hours that you really need for the home, right?
So you may end up buying a little bit bigger size than what you need, right? So those are the kind of things we are looking at in a lot of detail. Dave, you
want to add something to that?
I could. This is coming right down the line. I don't know, Jeff,
if you want to add. No, let me just add
one other thing. I spend all my time with customers. That's what I enjoy most about my job. And Eric's right, I think I have the best job in the company. I get to work with people like Mark, like with Arthur and others.
So we're listening. We're out there. We have a starting point. We put that point out there. We're listening.
We're learning. We're trying to figure it out. We're going to be working with our most important customers about what we need to do to win their share. And that's the approach we've taken. So we're very open to getting started.
We're open to listening. We want to solve problems. We bring value. We have an entire sales force that really can understand that, knows how to work with customers on that. So most importantly, we're going to get feedback.
We'll listen. All right? That's the other thing I'd add.
If we could get back to Europe and the opportunities there. And Quadrant, you talked a little bit about kind of identifying root causes of problems being kind of critical before you can go about fixing them. Europe, 22% growth for most businesses is pretty good. But relative to what Europe grew at, you probably lost a fair amount of share, I would think, in Europe this year. So I guess my question is, why was that?
What are the root causes of losing share? And what are you specifically going to do about it?
Yes. Let me try to
answer the question for you. Today, we're in 4 countries in Europe out of 26. 4: Netherlands, Belgium, France and a little bit the U. K, albeit it's a little difficult in the U. K.
Right now with Brexit. We're very dominant in France. We have very strong share in France. We're okay in Netherlands, but not great, maybe 15, 16 share points. We're weaker in Belgium.
We're nonexistent elsewhere. So the first thing we're doing, priority number 1, focus on containing ourselves in France, which we will do. First important priority, win big in the Netherlands. It's a great market for us. Social housing alone drives
200,000 new homes a year, each with 6
to 8 panels, huge market for us. New roofs drives another major portion of the market force. So the first thing we're going to do is triple down in the Netherlands. I have 1 sales guy in the Netherlands trying to do it all. It's irrational.
So we're going to add sales talent. We're going
to focus on the Netherlands.
We're going to grow share in the Netherlands. 2nd piece, we're going to come into Belgium, another great market for us close by. It's a big string market today, and we're going to dominate the share there. So first thing is stabilize and grow the share in the core markets we're in, adding sales talent, doing much like we did in the U. S, the same methodology we put in place in the U.
S, we then went to Australia, put that same methodology in Australia. Now we're going to go to Europe with the same methodology in Europe. So that's number 1. Secondly, we're going to enter 8 new countries: Spain, Portugal, Hungary, Poland, Scandinavia, to name a few. And we're going to put a sales and marketing person, sales and field apps engineer in each of those markets, and that we're going to focus on gaining some share.
These are emerging markets, Spain most interesting to us in many regards. Poland actually, believe it or not, growth market for us. We're not even there. We don't even show up today. So a lot of our problem in Europe is we have a small sales force that's been very focused.
We have our first German sales manager starting January 1. We've had nobody in Germany. So the issue for us is, number 1, where we are, do a better job, hire better talent, grow number 2, expand in 8 new countries and start growing. I think you're going to see, as I said, probably mid next year, you're going to see Europe starting to really take off. It will take us a bit to get going, then you're going to see it take off.
So I'll
interpret what you were saying. So it's committing resources, people primarily, to it. But getting back to the kind of the root causes of why share was lost, what why do you think share was lost this year?
I think it's my fault. I didn't focus there. I take full responsibility. It I got completely focused on recovering North America, getting Ensemble launched and fixing Australia, getting a foothold to begin in Japan and Korea. I think those are amazing market for us.
Japan is a very difficult market to enter, especially being an American company. So you need a completely different strategy. We got that strategy. We're starting to deploy that. And I didn't make enough trips to Europe.
I didn't focus enough there in helping For the North American market, do you have how many salespeople? Today, we have about 20. So 20. For Europe, you had?
About 4. Maybe more than 25, probably 30 when I add. 30. 30, we have 4 in Europe.
And so ultimately, we have a lot of issues to fix in the company, as you know, going from 2017 to 2018 to 2019. We focused on the right markets, we think. Yes, Europe, we could have done in hindsight, we could have done a little bit better. But I think it's behind us right now. We know exactly what to do.
We're going to hire the right team in place. And we know that whenever we put our mind to a task, we are going to make it happen. So that's what David is going to do. He's going to personally spend time there. And I think it's only a matter of time until he see results, a few months.
The product fit is great. So the product is really good. So we don't have a
product challenge there as part
of the diagnostic, right? Right.
When you ask the customers, the installers, they love the product. They want the product. And it's just that the reach ain't there right now, and we need to fix it. Okay, next question? From H.
C. Wainwright. As you grow your off grid market or introduce and grow into that, especially in countries like India, how do you see pricing management and gross margin impact on that?
Like what I told you,
I mean, we are going to be disciplined always on pricing. You can expect that from the management team. We're not going to be rational. We have that's why we gave you a model, 35% gross margin, 15% operational expenses, 20% operating income. That 35% is what you should assume for any product that we actually introduce.
And here, what we are actually doing is, once again, we are not a commodity player competing after the a me too product. Here, what we are doing is to solve a problem. Like the solar water pump, you integrate the VFD, you integrate the inversion functionality and you basically tie it to the grid. So farmers can make money during the 6 months when it is idle. That's value.
So therefore, we like everything. We will price things on value. And we believe that even in this market, we can generate gross margin at the model. Just one more question. It relates to the 5% attach rate that you have assumed for Enphase storage.
What is that based on? And is it a little bit conservative or too aggressive? If you look at it, that is based upon, let us say, for example, we sell a certain number of solar systems. We are talking about the attach rate with respect to those solar systems. And if you see various players, for example, I'll quote Sunrun.
Sunrun has reported very high attach rate in California, but low attach rate in other states. We are in the process of ramping. We are going to introduce a product in Q1 of 'twenty. And it's going to take its time to ramp. We'll learn something.
We'll course correct. What I therefore have we have given you a revenue framework where we say we will get up to 5% of our solar attach by Q4 of 2020. That's an indication of how fast we can grow in storage. And of course, we'll continue to increase the attach as you go further in 2021. But that's something that we gave you, so you can put it in your models for storage revenue.
Okay, Brad?
Thanks. Brad Mikael, Williams Trading. So could you just add a little more color on how the alpha installs of the storage have gone? And I guess the betas are rolling out and like how well it's working and what the potential ramp of the product could be next year? Is it super gradual?
Or how long would it take until it could be more accelerated? Right.
We have started taking preorders. Alpha units are actually running in his house and it is not running yet at my house. It's going to run starting Saturday. It's also going to run his house starting Saturday. And in addition, we expect 2 more alpha sites of Jeff as well as Dave sometime in December, in early January.
And then we are going to turn on the beta installations with installers. And we have already signed up with 20 installers. Almost the 28. Okay, 28 installers, who already signed up, who already paid the pre orders in. They are going to be the 1st ones to get the systems on their in their homes, and they are going to give us a lot of feedback.
In addition, Dave, I jumped on Dave a little bit to get our training accelerated a lot. We are planning to train 1,000 installers, which means we are partnering with distributors like CED to hold installer workshops at their locations West Coast, East Coast, Central. He has already got in place 2 vans, which will travel throughout the country to train installers. So we believe the we believe our bottleneck is going to be training at the end of the day. And I think we have jumped on it at the right time.
We are confident we will get the training done. Yes.
To add a little color to Bhaju, we're going to have 10 locations around the country for fixed training with our partners and 2 vans driving around the country that you open the back of the van, you pull the van into an installer, you open the back, you slide out 2 slide outs. It's got an ensemble on side facing out. You can train 2 sets of people at the same time in one day, slide it back in, close the van up, go to the next site. So we're taking training on the road and launching 10 training sites to hit the 1200 trained people target. So I'm pretty excited about that.
And going on a road trip is not a bad thing. So we'll all experience that. Go ahead.
Yes. Hey, guys. Bryan Lee Goldman Sachs. Maybe just on the preorder activity, I know it's only been a few weeks, but can you give us any kind of quantification of what you're seeing and the traction here in the 1st few weeks? And you have a couple of peers out in the market, similar kind of time frames in terms of launching new product, getting into battery storage.
So Generac has said $100,000,000 target for 2020. They're launching in Q1 as well. I think SolarEdge is maybe a little bit behind, but they said $300,000,000 in that segment by 2022. You've given us a little bit of a framework to think about the numbers. And I guess if I back into it, you're sort of inferring maybe 3000, 4000 homes by Q4 this year, assuming the $600,000 or $800 of KWH, you're going to be annualizing to over $100,000,000 in that one segment or product category exiting the year.
So just kind of give us a framework in the context of what you're seeing in terms of preorder activity, what some of your peers have said. Are those sort of the ballpark ranges we should be thinking about? Right.
You got the right framework on the storage revenue. That's exactly how I want you guys to think about it. That's right. In terms of preorders, we are not going to break out numbers. But what we are going to do is to give color.
So Dave, talk about who are the preorders from, what kind of questions they're asking, talk about everything, both the positives and negatives.
Sure. So let me share the way we're approaching it. We have 2 teams in the U. S. Sales force.
Number 1 is a team that focus on distributors, CED, Sonapar, Soligen, they're on the list, 8 or 10 different distributors. Team A is out with them, working with them. Team B calls on all the installers. And the installers and the distribution account managers work together to pull installers into distributors. So we've now got preorders from all the major distributors and significant number, significant number.
And I think they're under ordering because if you think about the attach rates and do the math, some of them are ordering a reasonable amount, others aren't close. So we're going to put more energy to get more of those preorders in, mostly so that we don't have anybody unprepared for the ramp. So bottom line is I'm happy with where we are with preorders. Barger wants more. That's natural.
And I recognize that, and we're going to get more. But we're doing 2 parallel paths: the distributor, where we're going to do some of the training and get their sales forces trained on how do they sell batteries to their installers and most importantly, how do you sell this at the kitchen table for the installer? That is the most important thing. So we
have a little index card. I gave mine
to T. J. When I walk in. It's got the value prop for the homeowner on one side. You flip it over.
It's got the value prop for the installer. Why does the installer want to go with Ensemble, flip it over? Why does the homeowner want to go with Ensemble? And we're ramping up training. We've ramped the website.
We've got we've trained all our ISRs that answer telephone calls. We did training Friday Saturday last week. We're going to do more training with the ISRs and the entire sales force. So we are really ramping this up right now. And I can't answer your question on
a number, but it's not
a bad number. You'd be likely pretty happy.
So Jeff, talk about how we are dealing with homeowners who call us directly.
So when we opened up for preorders, we have a direct to homeowner page and a call line that come directly into us. We have homeowners, a lot of these are existing customers within PACE and some are new and looking at it. Have a team set up in Boise, David Pertriman's ISRs, inside sales reps. They call on, call us. We walk them through the entire process of first making sure that they understand what their needs are and we help give them an idea of what that size is.
Then it's very important to get them hooked up
with an installer. So we have a network of installers that are already signed up to get trained that we hook them up with that installer and we make that personal connection with the homeowner. And then we stay with them through the entire process as the installer We'll end up quoting them and working on the install with them. And so we kind of have a concierge service where we work with homeowners to make sure they get all their answers met and get the information they need and hook them up with an installer that will service them perfectly and will take them all through the entire process.
Right. And to just add some more color, when we started the process, it wasn't perfect. Homeowners hung up calls with us not very satisfied. They basically said, okay, I'm not going to place preorder. But we once again, we basically he runs a daily meeting for that on how to role play, role play like a homeowner and train the ISRs, train the inside sales representatives to take calls from the homeowners.
The team has rapidly learned. And in the last meeting, I heard that on one particular day, we had 100% conversion. Whoever whichever homeowner calls and they were able to get an appointment secured with an installer to go to the next step. So I think we are thinking about it the right way. And so there is 3 things, right, which I told you in my presentation.
Bottom line is 3 things. Train our sales people to sell to the installers, number 1. Train the inside sales representatives to sell to homeowner and secure the appointment. Number 2, train over 1,000 installers in the next 3 to 4 months so that they can install our product. If we do these well, we are going to rock and roll in storage.
Okay. That's super helpful color. Then maybe a question for Eric since this does seem like it's going to be a pretty big opportunity, especially if you can hit on all those factors to make it successful. How are you thinking about breakout of the product category? And what sort of disclosures do you think you could envision giving the financial community?
So we can track the progress, but also you get appropriate credit for a new growth vertical here.
So Vasily, you talked about our ramp, right? And the training and all the requirements associated. So there is the supply ramp that Jeff is forecasting. And there is the training ramp from Dave from so all of these factors take into account into that 5% that we just talked about, right? So we think that probably in terms of disclosure of a separate segment or a separate line for you guys to model will not happen in the first half of the year, and we need to see how things go.
So in the meantime, we will try to handhold you through the follow-up calls to make sure that everybody gets an understanding on how this kind of information that we share with you can be adequately modeled. This is a complicated year because we also have the IQ8D commercial project too, right? So we need to figure that one out as well. But we are thinking about it. We had ideas.
I don't expect anything until probably starting in Q3.
Hi, Eric Stine with Craig Hallum. You talked about your deployments being part of an AC marketplace, obviously, enabled by your systems. Do you envision that potentially you could participate in that revenue stream on a recurring basis going forward? And then also, how much of that opportunity is dependent on utilities embracing this? Because obviously, some may if they're forward thinking, but others might push back on this pretty hard.
Do you want to take that, Raghu? Sure, sure. From an architectural point of view, we actually think about it in a very unique way. I think there is an opportunity clearly. There are a lot of pilots being run right now to provide what are called grid services or ancillary services, no question.
I think we have something very unique architecturally, and I want to highlight that. Again, keeping in theme with a distributed architecture, we don't want central authority. Right now, the way the what everybody talks about the virtual power plant. It's a central authority. There's a virtual power plant that's sitting in the cloud, and it directly controls specific elements like the storage element of your that's behind the meter, right, in your system.
Central authorities don't scale very well, are expensive and are prone to attacks, right? Somebody can get into the central authority and imagine 40,000 storage systems all dumping bars into the network. That will be very bad. We take a different approach architecturally in that rather than a central authority sending information down and asking a particular battery to discharge or store existing discharge, we're actually saying we are architected as areas and you send an objective. And then let the intelligence that's in the system actually make the decision on whether it should discharge your battery, 1st, agree that you want to participate 2nd, discharge the battery 3rd, maybe curtail your load as an example, you get effectively the same thing.
Or 4th, make some changes on your production out of your solar system as well. So I think these are still early days, but we definitely have the APIs in place. Even with Ensemble 1.0, you'll have the APIs available to communicate with the Ensemble 1.0 system. And I think, like I said, the utilities love to do pilots and it takes them a long time, but we are ready to participate. That is we are architected slightly differently.
I think we are architected more efficiently. And I think there's an opportunity clearly. There is an opportunity. I think this is how DER can actually help the utility. This is a good win win for both DER provider as well as the utility.
Right.
Mike Schuck, yes. Eric Lee Bank of America. I just have a quick question. Can you discuss the repowering opportunity or rather upsell opportunity with existing customers around both your grid forming, islanding capabilities for your microinverters as well as your strategy around storage retrofits? And a follow-up question afterwards.
Right. So we have an installed base of 1,000,000 homes as of now. And that's the modeling that we gave you. Even if 1% of that installed base converts, we are talking that is equal to 10,000 homes. And if you assume an average price of $800 per kilowatt hour, which is market price, I'm talking about not in face price, that's about $80,000,000 of revenue.
Now, what is the conversion going to be? Your guess is as good as mine right now. We've just introduced the product. We would need a few more months. We would need to basically work on the training.
And we need to make sure we get them all set. I think I mean, I am optimistic that number can be in the low single digits. So we'll see.
So we do have experience on the upgrades. And so you know the legacy upgrade program that we have, right? So that is an interesting data point that we use internally, right?
Yes. That one to just that will answer the question that you asked on solar. From the solar side, we basically did an upgrade for our legacy products we introduced almost about 8 years ago. And that product was called as the M190 product. And they're basically customers, nearly 20% of the customers said they were willing to throw away that system and buy a new system from us.
And some people said they only want micros. They're going to keep their current modules, in which case we could power down the microinverter to match their modules. Some people said, hey, we are happy to buy an IQ7 based AC module from you. So that and then a bunch of people said we are interested in Ensemble. And that number we are talking about we are talking about this went to about 30,000 homes.
And nearly 1,000 homes, 1,000 homeowners said they want to wait for ransom. Right? So we have some experience there. The percentage obviously is very nice. 20% is a beautiful number.
And but we need to see. This one is different economics. At the end of the day, if I have to if the question is whether someone will pull out their credit card and pay us a lot more money in this case. For a storage sale, it's going to be more. So we'll see.
And secondly, could you talk about just go to market progress, especially on the storage front with Tier 1 installers such as, as you mentioned, you guys have the new safe harboring partnership with Sunrun. Seems like a key opportunity to pursue storage as well. And then secondly, with your partnership with SunPower, how do you think about pursuing storage there given that they're intending to roll out their own product with Schneider Electric?
Thank you.
Great questions. And we have a very good relationship with both companies. We talk all the time with both companies. We did not want to go to a price point that would earn the SunPower the Sunrun business, let me take them 1 at a time, day 1. So we said, listen, we're not willing to go to a price point you're looking for.
Let's take a pause. We're going to go off and get started. We're going to learn a lot. We're going to grow this business, and we're going to focus on the Tier 3, Tier 4s to get started. A couple of Tier 2s that are both in this room.
We're working both with Arthur and Mark on strategies. So we want to get started there, get some experience and then come back at a later point and see where they are, see what they because they're starting some new things. They have their Brightbox. They have different suppliers. They were mainly a DC product with paired with SolarEdge with LG, they did a lot of that kind of work, they bought their own Brightbox.
They're learning and growing too, right? So I said, okay, we're going to take a little bit of time, but we will come back. We'll come back when we're both ready. They called us the other week, you're ready? We're not ready yet.
We're still getting going. We'll take some more time. So there is an opportunity there, no question for us. Number 2, SunPower, very similar story. They had to make a decision last year to do something.
We weren't ready. We have an outstanding relationship with them, starting from their former Chairman down, which T. J. Was their former Chairman. So we've got really strong relations to the SunPower.
We met with the SunPower international team yesterday. We spent 4 hours on what can we do in international markets So SunPower was a little surprised to see how much international business they're doing. I think the SunPower, you normally think about U. S. Let me not say anymore there, but we have an opportunity to expand both in PV internationally with SunPower and with storage as a Phase II with SunPower as well.
We're taking that as a Phase 2. It's an obvious fit on SunPower. They have their IQ, IQ7 product. It's there. And it's an AC.
Our product is directly compatible right now. And now they're getting used to the quality that we are good at. So I think it's a matter of time.
I just had a quick follow-up on the previous question, which was so when you talk to your the distributors who are placing preorders right now, how does the opportunity that they see split across retrofit versus an attach on new installed? Is it split fifty-fifty? Or is it skewed one way or
the other in one direction?
It's a great question. They're all a little different, and they're all trying to figure it out, to be perfectly honest with you. They don't have they don't come with us with precision. They come with us with, listen, we want to get started. We're not exactly sure which vector is going to hit 1st.
They know California, the attach rate here, if you talk to installers up and down the coast, is as high as 30%. Particularly Southern California last year had a 26% to 30% attach rate. Think it's going to be higher. Look at Northern California with the blackouts. I imagine that's going to be Brad can talk to that.
That's going to be, I think, an amazing opportunity for us. So we see a much larger attach in California. Arthur do business. Arthur also does business in California. We're going to see a nice attach rate there.
Texas is another market. So we're looking market by market. We're trying to make sure in each of their subs, in each of their operating centers, we have enough storage to get started. And we're both going to feel it out. We're going to learn.
Next thing, as Bob said, get the installers trained because you have to win at the kitchen table ultimately or nothing matters. So we got to work with the installers, get at the kitchen table, get the sales done with the installer to the homeowner, and that's going to drive more demand into the distribution and the ramp up. But they've all said, let's get started. We want to go with you guys. We're going to put some number in each hub and make sure we're ready.
And that's kind of where we are. So we're doing pilots that start in Q1, start growing out into Q1 and Q2 to full ramp, and then we'll see the business start to grow from there. That's the honest answer.
Gus Varshard with Northland. Badri, you talked a little bit about GaN. Are you how far down the road are you in looking at GaN? And are you using it for energy efficiency or for cost down or both?
Both. So T. J, you want to talk about that a little bit? Right. So short answer is sometime in 2021, we will have samples.
And then we are looking at it specifically for our output stage, AC output stage and replacing the 600 volt transistor is what
we are looking at.
And then just as a follow-up, in terms of software, how much beta testing do you need to get to feel the software stable when you're ready to release to production?
Well, we have really, really tight requirements on software. So by the time what we call as SG2, Stage Gate 2. Stage Gate 2 stands for develop design verification test. And that Stage Gate 2 needs to be complete. That stage gate 2 is nearly done right now.
It's like all done. And now what's going to happen is we are going to put the parts the compliance is going on right now, reliability is going on. If there are any issues that come up there, then we will go back and tweak the software. Also, we will tweak the software based upon beta installations, experience from alpha as well
as beta installation. So I
think we are right now, we are in a the execution is by and large done. Now we are in a feedback mode, and we'll quickly course correct.
And if I could add a little bit to that in another intermediate step. We do very extensive internal testing before even alpha. And so we do call system integrated tests. So we go through a very detailed suite of tests. Then we have alpha.
By the time we get to beta, it's unlikely that we're going to find anything there. That has a lot to do with the beta will be the installation experience and other things. But by the time it's in beta, and we're telling you there, that part is very well proven and high confidence, no interest.
The other thing I'd add to that is if you think about it from the advantage of the homeowner, things are going to change over time. We talk about an Ensemble investment as a 10, 15 year investment. The utilities are changing. The requirements are changing. Things are changing.
The value of this software architecture is that we can download over the cloud. So if we learn something, the chances of a hardware or a truck roll are very, very low. We may have to do something we will learn and we'll do firmware upgrades over the cloud, and that's a huge advantage of the cost that we don't have that hits many companies in terms of rolling trucks, doing recalls, etcetera. We don't expect any of that.
Go ahead. No, we are not yet in beta. We will be starting beta sometime in January. That's the 28 installers. They've all signed up for it.
And it will take us roughly 4 weeks.
Maheep here from Credit Suisse. One question on the storage supply. So some of the companies in the industry have talked about shortage of batteries for residential solar. So if you could talk about your commitments or your suppliers for the 120 kilowatt hour per quarter exiting next year?
Yes. So on supply, it's one of the things that we work on day and night to make sure that no customer is going to be short. We have approaches that we take with that to ensure supply. One of the things that we have, it starts with the forecast. Dave's team has a great forward looking process throughout talking to our distributors, our installers, and that rolls up.
So my team has a very good visibility of what's needed. We then put in place the capacity to not only meet that, but to have significant supply above that. To make sure that we have that supply, we go and we put in place strategic agreements with suppliers. We have that with the supplier of ourselves as well as other key components. And that agreement is significantly in excess of what our forecast is.
As we look at what we're seeing with the forecast, my group is working hard and has goals to have factors above the forecasted capacity to make sure there's no supply issues. Right now, we are highly confident that we'll be able to deliver without any supply constraints for the forecast we see and even with significant upside to that.
So you know we don't have a purchase firm purchase commitment. They could pay on any of those, right? So we have a the agreements are very clean, very simple, but yet it has enough teeth in terms of the way we manage the demand to the supplier.
Got it. That's
helpful. You spoke about a 5% share in the U. S. Market. And probably growing beyond that, we can take the 120 kilowatt per quarter, and that gets to a number for 2021.
But how should we think about the international markets? Like what are you seeing in European markets as you expand the need for batteries in those markets?
Yes. In the European markets, we are seeing a need for batteries in Germany. So Germany is extremely forward. We are also going to see a spurt of storage growth in Belgium, where there is incentives that are being given for storage. I don't yet know about Netherlands because net metering is pretty strong there.
I think there storage may not be a big deal. But there are also a lot of island countries there too, where storage is starting to become popular. So Germany, Belgium, yes, Ireland countries. The other one I'd add
is Australia. There's a lot of incentives in Australia that we can benefit from. We're not rolling out the next generation storage in international markets as the first phase. We're focused on North America to get it right and make sure it executes. International will be Phase 2.
Yes. And the international products will be introduced in late 2020.
Got it. One last question from me. Just on the safe harbor, your prior guidance was having that $35,000,000 or similar revenue in Q1 as well. Now we're almost towards the end of the year. Could you just probably give an update of what you're seeing on that order or any other orders from your customers?
Yes. Q4 'nineteen, it's exactly what I said yes, what I told you, dollars 35,000,000 Q1, I told you that safe harbor will be very similar to Q4.
I'd like to say thank you to the team for phenomenal execution over
the past 3 years as a shareholder. It's been phenomenal to see what you guys have accomplished.
Secondly,
Secondly, I'd like to ask about the small commercial product. I apologize if
I missed this earlier, but can you just compare the cost structure of that relative to STRING and relative to your existing resi solar product, Right. And then 2, what's the ramp timeline for that product? How big a market could this be?
We don't give you cost per watt. We gave a proxy for that. The proxy is basically it produces 50% more power for the same volume. So gave you that. And then it's going to be available in early Q4 of 2020.
All right. I think we are done. Yes, thanks a lot for coming. We have a lot of interesting demos for you. So the bus here leaves at what time?
The bus will leave at 1:30 to our Fremont office. And so I'll see you there. Okay, thank you.
Wait for lunch, Bhajra, do
you know? Yes. In this room? Yes. Okay.
No, no, no.
You're outside. Yes. Please enjoy a nice lunch. Thank you.