Good morning. So welcome to the Enphase Energy Analyst Day. Our theme of the presentation today is profitable top line growth. So let's get started. Can I have a clicker?
Where is that?
Okay, here it is.
So standard safe harbor disclosure. Okay. So the agenda for today, I'll get started with an overview and how we are going to grow profitably. And then we have a special topic. I'd like to introduce the CEO of Sunnova.
He's at the back of the room. Yes, his name is John Berger. He's going to talk about the partnership with Enphase. And then, Raghu, our Chief Products Officer is going to cover Ensemble Solar and Storage. We'll have a small break.
Jeff McNeil is our VP of Customer Experience. He's going to talk about the initiatives in quality and customer service. And then Eric Branderes, our CFO, is going to talk about how we are building a solid financial foundation. On schedule, we will end at 12 and then you guys will get lunch here outside from 12 to 12:30. Then we have 2 lab tools for you.
1 is you're going to see Ensemble both solar and storage, real products in action. That's the first lab. And the second one is the 2 of our reliability and quality laboratories. Okay. So those will take roughly 30 to 45 minutes each.
And then if those go on plan, which they should, we should all get on the bus to go to the winery. Okay, sounds good. All right. So let's get started. Okay.
So Enphase, you guys know we are the number 1 microinverter company in the world. Our mission is to deliver technology solutions making clean energy affordable, reliable and accessible to all. So who are we? So we are a power electronics company. We are a semiconductor company.
We are a software company and we bring everything together with connectivity. So in short, we are an Internet of Things systems company. The reason I came to Enphase about 18 months ago, I was fascinated how such a complex system comprising of more than 300 components had the ability to be software controlled and connected to the Internet. When there were buzzwords called IoT being used at that point in time and Enphase was actually doing it. And I was running the IoT division at Cypress Semiconductor.
It was a chip company, but this is much more complicated, right?
And that's why I came here.
And if you see here, we have shipped about 17,000,000 units till date. And every one of those units can be accessed. Me sitting at my desk, I can roll out updates to the performance of those microinverters just sitting in my office. That's the power of Enphase. The software platform that we have, the connectivity that we have going from the home through Wi Fi to our solar communication system.
So in fact, communication happens through the power line, through the AC power line, growing to the microinverter. And our market share is number 2 today. We ended 2017 roughly at about 25% to 28% market share and that was prior to the SunPower microinverter business acquisition. And with that one, if I were to do a pro form a market share, that would be 35% to 38% in the U. S.
Okay. And the way you should think about it is these 17,000,000 homes, I mean 17,000,000 units are on 7,190,000 homes. So each home, we have about roughly 21 microinverters on the average. Yes, that's the way we think about it. And of course, 838 megawatts shipped and $286,000,000 in 2017.
The total number of employees is 385 and our employee demographics are changing. I'll explain to you more in the next few sections. So now that I told you on we are a software company, we are a semiconductor company, we are connectivity company, we are a solar company. So management has deep semiconductor and solar expertise. So I've been in the semiconductor industry for 21 years.
I came from Cyprus. Eric Danderas, yes, Eric stand up. So he joined us from Tesla. And then prior to that, he was at SunPower, prior to that he was expansion. So energy company, solar company, semiconductor company.
And he's just been here a couple of months and it feels like a long time already. Raghu is our Chief Products Officer. You guys all know him well. He's the face of the company. Both Raghu and Martin are the pillars of the company.
Dave Reinhofer, Dave Standup. So Dave is our Chief Commercial Officer. He joined us in December of last year. So again, he has got a rich experience of solar plus semiconductors. Then the last one is Jeff McNeil.
I got him in February of 2018, Jeff stand up. So he comes with 35 years of experience in the disk drive Semiconductor Industry and now Solar. And we were in trouble on customer service and I got him on board and he'll talk to you on the transformation that he's making there. Okay. So let's jump right in.
What is Enphase's strategy? Four components of our strategy, 30, 2010, which you guys all know because I keep beating it a lot, right. So everybody should be familiar with 30, 20, 10. 30 stands for 30% gross margin, 20 is 20% operating expenses and 10% is 10% operating income. And the company that's the company's operating model.
10. And when I came to the company, I came in April and then we went to the Analyst Day last year, June of 2017. I met many of you there. At that time, we introduced the concept of 30, 20, 10. And I said we will get to 30, 20, 10 in Q4 of 2018.
And I think we are well on our way there. We have made a lot of progress as a company. I'll show you that we are well on our way there. But this is something that we will always follow. No matter what business we enter, If we enter this, we are going to enter the storage business as we as you can see, that business will follow this model.
Okay. So this is ingrained in our DNA. And this is how we manage the company operationally. The next one is profitable top line growth. Yes, we have spent a lot of time in 2017 managing things operationally, fixing the ship and we had to do that at that time.
Beginning of 2018 onwards, we are starting to shift our balance towards growth. What are the business processes for growth? I'm spending a lot more time there with the sales force, with customers, with partners like Sonova. And so I'll talk a lot more there. So that's number 2.
Then number 3 is build world class customer experience. In a blog to all my employees at the beginning of the year, I said we have 3 priorities as a company. We have to improve customer service. We got to get better at it. That's ease of doing business is what I call.
Then the second one is get the IQ7 transition done. The third one is get Ensemble out. Those are the 3 simple priorities I outlined to the company and customer service is directly on my goals. In fact, I take at least 20 points out of 100 points on customer service to improve the way customers perceive us. And that's why I bought Jeff McNealy.
Then solid financial foundation. We all have lots of ideas for growth. And as a management team, both Eric and me are a little bit conservative. We therefore want
to take cash off the table.
We want plenty of cash to run the company. We don't want to worry about cash. And so whatever we do, our job is to create a real solid financial foundation. So we have a lot of options on whatever we want to do. That's how we want to run the company.
So let's talk about 30, 2010. So again, these numbers A, B, C, D corresponds to each of the components. So let's talk about component A. Component A is basically financial turnaround, is a financial turnaround. As you can see, we have done a decent job in the last 18 months.
Our gross margin has gone up from 13% to 30% from Q1 of 2017 is the blue bar, Q2 of 2018 is the orange bar. So gross margin has improved, operating expenses have come down, operating income has improved, cash has improved due to the $20,000,000 equity investment plus we have started generating free cash flow in the last two quarters. Okay. So we are starting to do better and we are well positioned to make our numbers. So marching towards operational excellence.
So if I talk about gross margin, how did our gross margins get better? Three things, supply chain optimization, new product transition and pricing management. When I came to the company in supply for supply chain optimization, for example, when I came to the company, we didn't have a business process for managing costs. And all I did was to create powerful cross functional teams, which has involved the engineering team, the architects, the procurement guys and strong program management. We started hammering on costs.
Then we in a lot of areas, we did not have multiple sourcing. So we went to multi sourcing in those areas. We didn't understand our suppliers really well. So we had a strategic supplier selection process. We did not understand the grounds of stack up cost of each component.
So we went to what
is called a physics based costing.
And then we were focused a lot on the microinverters and their neglected accessories, which is a significant part of our revenue. So we started focusing on that. And the last one is overhead. A lot of the companies don't pay enough attention to overhead. The overhead can be as high as 10% of your revenue.
And it comes from not managing inventory properly, having too much of scrap, having a lot of warranty expenses, having your returns that actually come back. They are very expensive. Freight, logistics, many companies neglect these. So we started bringing all of these into one place in the P and L and started managing those. So it's really a transformation on how we started managing costs.
And that's what I call a supply chain optimization. On the new product transition, all of you know it, IQ6. Last year was about IQ6. This year is about IQ7. As of today or as of Q2, we were about 22%.
22% of our shipments in Q2 were IQ7. And I expect at least 65% in Q3, if not more. And we expect to complete the transition in Q4. Okay? So I talked about supply chain optimization to improve gross margin.
I talked about new product transition to improve gross margin. The next obviously is pricing management. So pricing has evolved from transactional based pricing to value based pricing. What does it mean? This graph shows our system ASP, system pricing.
And here you have the number of quarters. And when I talk about system pricing, I mean microinverter system pricing. Microinverter system pricing means the microinverter plus the cable plus the communication system plus a bunch of miscellaneous accessories there. And that all amortized with respect to the number of microinverters that we ship. So that is the system pricing there.
And what are we doing on the pricing side? We started with transactional control. What does that mean? Pricing is complicated. Some customers are large, Tier 1 customers, some are long tail customers.
The number of long tail customers is a lot and therefore each transaction needs to be optimized there. And very often, we were not able to service some valued customers because our costs on IQ 6 were not good enough. So we had to walk away from some businesses and that required a lot of discipline for us. And we managed to do that. The segmentation is another one, which is a product like AC module, products like a high power product, like the ones that we created for SunPower and Panasonic, those intrinsically have a good cost structure because the nice thing about the microinverter is I can you know, the value that I create in increasing the power from 300 to 3 30 watts of AC is much more than the incremental cost I spend to creating that.
So for us, our architecture is amenable and is advantageous as we go to higher and higher power products. And I'll show you what our future looks like there. And of course, AC module, mean, when somebody goes to AC module, the advantages are obvious for the installer. And so segmentation in terms of higher power and AC module products, these have intrinsically higher gross margin for us. So services and software, this is an area where we are just scratching the surface.
But things like we are licensing we have started licensing some APIs. We have started introducing enhanced version of Enlighten Manager for homeowners to have more control on their core panel views. And we have started introducing the legacy upgrade program that I talked about. That's for the future. So we are starting to see promising results.
Although our service and software revenue is not significant to break out right now, I'm confident it will be soon. And that revenue has tripled to date compared to last year and will triple again in 2019. And we like that because that's nice gross margin. And the last one is, of course, products like Ensemble. As we get sophisticated in doing transactional pricing, then doing segmentation, then going to services and software, Ensemble is the right platform for that because Ensemble, the amount of software in that platform, the amount of control in that platform is amazing.
And that's the right business model with Ensemble. So we'll start to see more and more of that, these two overlap with each other. Investing and reducing our expenses. We have dropped our OpEx from in the 2016 timeframe, we were about $27,000,000 $28,000,000 a quarter. Now we are at about $18,000,000 to $19,000,000 a quarter.
And we had to make some difficult decisions about 18 months ago where we had to do a lot of restructuring. That's long behind us. Now the way we'll run the company is we will not sacrifice or we'll not compromise on innovation. Our differentiation are our products that we do, our value drivers of our software and semiconductors. We will not compromise on anything we have to invest in order to make that happen.
In order for us to, at the same time, meet what I promised, which is 30, 20, 10, operating expenses need to be at 20% of revenue. So what we are doing is to have the right people at the right places. For example, in India, I have all my execution teams in India. Last year, this time, India had 0 people. Now I have 100 people there.
So I'm starting there, yet my OpEx is under control and I can get high quality talent at the same time it's cost effective. Okay. So I can do everything I need while I can go and add people in the U. S. In targeted skills, which is what I'd like to do.
So 2016 bottom line was about fixing operations. The company was not in a healthy state at that time. And we focused on gross margins, we focused on operational excellence and we studied the boat. And that has changed now and we have started to focus on top line. And the problems in general, if I were to categorize these problems, right, we didn't service valued customers because of high costs.
So we didn't do that well in the last couple of years. We missed out on storage because we didn't have the right product. The product too small, too small a capacity, high cost structure, did not have backup. So we didn't do that well in the storage market. That's not a secret.
I've told this publicly. The regional gaps, with IQ6, we could only stay in the U. S. And IQ6 was, in hindsight, we should have done a better job there and we didn't. So IQ6 enabled us to only be in the U.
S. It was difficult for us to expand outside and we didn't have the platform to expand outside. Every product we had to create a lot of SKUs if we had to expand, which is not the right thing to do. And we never had a product comparable to Panasonic or Santor. These were the mistakes the company made.
Not having a good strategy for regional expansion, not having the right storage product, not having 9 to 6 cell product for 9 to 6 cell panels and having high costs. Those are the problems. And we've addressed a lot of these problems and I'm going to show you how we are going to address a few more. But again, what we believe is product innovation, differentiation, creating value, that's FinFas. So with that, let's jump into profitable top line growth.
Before we go right in, let us understand the market. The residential solar market is an attractive market. As you can see, it is stable. It is growing at a 10% CAGR from 2016 to 2022. And the growth is expected in all regions, North America growing, Europe growing, India growing.
Everything is growing. Our addressable market today is about roughly about 40%. In our 12 gigawatts, roughly 40% is about 5 gigawatts. That's our addressable market. And with IQ7, we have improved we have more addressable market now in the Europe.
I mean, now in Europe with Germany and Austria. And then we have a little bit more in Latin America, Brazil. We have a product that is cost competitive for India with IQ7. And going forward, 2019 will be about, of course, growing in the regions where we are present. In addition, enter into more regions in Southeast Asia.
And 2020 onwards, we are looking at Japan, okay? So again, the way to do this is regional expansion, I talked about it. If we were to design a SKU for each region, we are going to go out of business. We just can't do that. The way to doing it is to have 1 hardware platform and a completely software configurable platform that will enable me to crank out solutions for every region to be compliant.
That's how we are going there. That's what I call as the regional expansion. Then with AC modules, we are partnering with more module partners across various regions. That will actually help us. With Ensemble, we are going to be addressing a huge untapped market in India for weak grids and in Africa for no grids.
In addition, with the help of partners like Sunnova, we are going to target the island countries here, which will be an obvious choice. So bottom line is we have the right products to address this market and we'll talk more about those products. So storage, I mean, here it's pretty simple. We made some mistakes in storage. We didn't have the right product, too small, too high cost, didn't have the right features and that has changed.
You will see today in your lab demos that we have a high capacity storage product. And I don't want to steal Raghu's thunder, but you're going to see that. And that can be controlled by home automation. Okay. And just to briefly talk a little bit about the market, the market is growing really nicely, 34% CAGR.
And most of the systems today are based on lithium ion chemistry. And the key requirements are cost, safety, reliability and self consumption. People want to all basically control their energy consumption and solar plus storage is an ideal combination for that, especially with Ensemble, which can produce solar in the absence of a grid. I mean, you have solar during the day and storage at night and you can be grid independent. That's the vision.
So again, we are well positioned to capitalize on the storage market growth with Ensemble. So now let me talk about software. Software is a big value driver for Enphase. So we talked about the market and now I mean we talked about solar and storage market. Now what is unique about Enphase that we are well positioned to capture this?
It is our software skill, our semiconductor skill. Sitting in my office, like what I said, I can improve the performance of the microinverter. How can I do that? I can roll out software that goes to the cloud, that goes to the solar communication system through the homeowners' Wi Fi. From the communication system goes through the power line, AC power line into the microinverter, update the flash memory inside the microinverter, set the flash memory to a new configuration.
And that configuration is taken by our ASIC. I mean, the ASIC is application specific integrated circuit. That is the brain of the microinverter. So the ASIC takes that setting, the new setting and each can transform power control. It can be a totally different beast than what it was before.
And all I did was to with a simple click of a button from the cloud, I can make a change that can transform the behavior of my microinverter. That's the power of the software platform. And that's why it's a huge differentiator for Enphase. So for example, if we learn something on a better way to do a better way to update the firmware or to fix the firmware to account for a quality issue, we can immediately roll that out to all of the microinverters in the world. In a sense that the state, I mean the learning from the factory is instantly transferred to the field.
And that's not easy. And it's easy because all our systems are IoT systems, Internet of Things connected system. So software is a huge deal for us. And it is this software defined architecture that enables us to enter into new regions with a single hardware platform for IQ7 for example. And all of the advanced grid functions for example are all configured in software.
Now the next is the ASIC. ASIC is again stands for Application Specific Integrated Circuit. And I come from the chip industry, so this is obvious to me, but it may not be to others is, Gordon Moore, he founded Intel, along with Robert Noyce and Andy Grove. Moore, he invented Moore's Law. What does Moore's Law say?
The number of transistors in a chip doubles every 18 months. And what does that mean? Is the chips are going to get smaller and smaller, more functionality is going to get packed into it and everything is going to get small. So right now we are like our ASIC right now for IQ7 or IQ8 is in 55 nanometer technology. And we are not going to stop there.
It's going to go to 40 nanometer. It's going to go to 28 nanometer. So 5 years down the line, this will look smaller. It will have a lot more functionality. And it will be it will help us it will help us to reduce the microinverters from having 300 components today to 50 components.
But it's going to happen over time. Over the next 5 to 10 years, that's our vision. We want to make the microinverter smaller, lighter, more power and that's possible because of advances in semiconductors. There are lots of new technologies coming like Gallium Nitride for example. That will enable the current carrying capacity to be a lot higher with the area a lot lower.
That's why our architecture is I mean, our technology is completely different from others. And that's why it's difficult for others to copy us. So ours is a chip based architecture. Every generation, we try to reduce the number of components by 6% to 10%. And the way we do that is to integrate those components into this chip.
Eventually, like what I said, when I said my vision of 50 components, it might have 3 or 4 ASICs in there, 1 for digital, like here, 1 for analog, 1 for power. But that's our architecture. It is semiconductor based. Once it is semiconductor based, miniaturization is the name of the game. That's what we do.
And if you can see here, I mean, we already told you this. In Q1 of 2018, we told you that this chip was working. Typically, we start working on the ASIC 12 to 18 months. I mean, the ASIC is actually 12 to 18 months before the microinverter. So for example here in IQ 9, we aren't talking about IQ 9 yet, but the chip team is already working on IQ, meaning the ASIC for IQ9.
That's the power of our platform. It's software plus semiconductors. And so the power electronics, which is the rest of the component, that's what I call power electronics in the microinverter. The ASIC is a digital chip that controls that power electronics. So power electronics is controlled by digital architecture.
The digital architecture is implemented by semiconductor integration in the ASIC. That's the brain of the microinverter. That's the control. And because it is a digital architecture, nanosecond control enables fast reaction to grid faults or grid problems. That's key.
Component integration into the ASIC improves quality and cost. If I after 5 years, if I have less number of components, that is good for quality as well. Not only it is low cost, not only it is low weight, not only it is higher power, but it's got higher quality because less number of components, better quality. Everything gets better with miniaturization. Today, our microinverter is a little bit bigger than the iPhone 8 Plus or the iPhone 10 Plus.
We'd like to shrink it a lot in the next 5 years. And it's not simple to do. It requires architectural changes. It requires new technology innovation in semiconductors, which is happening. It requires us to invent new methods of thermal conductivity.
Like for example, today we have a different case. It's a polymer case. We may have to go to something else. But the semiconductor is the driver of miniaturization and it will help us to basically continuously reduce the form factor down. That's the name of the game.
So tomorrow, like what I said, fewer number of components, more ASIC integration, new materials that can withstand higher current, provide good independence. And then we can start to think about machine learning, which is again the software platform, the power of our software platform There. All right. So let's jump into the 4 vectors for profitable top line growth. One is blocking and tackling.
Now that IQ7 platform, IQ7 is out, enter new regions with IQ7. That's the first one. The second one is along the lines of what we did for high power products, which is the 3 20 watt AC product for SunPower and Panasonic, which basically gives us an outstanding cost structure and creates more value. Along the lines of that, create higher and higher performance microinverters. AC modules, you guys all know that, know this.
The SunPower transaction basically puts us a lot forward in this area. Because now a lot of our business will be in AC modules and more and more partners, especially in Asia and Europe are coming to us, asking us to do these modules for them. And again, the name of the game here is not you can't think about this as reducing the cost of the component, but it reduces the installers' costs. So we'll talk about that as well. And the biggest of this all is on fumbled solar and storage.
Like what I said, high capacity storage with grid independent solar is going to be a huge vector for us to grow. And Ensemble is going to be available. The entire energy management system is going to be available in the first half of twenty nineteen with the off grid version available in Q4 of 2018 like what I said before. So let's get into regional expansion with IQ7. So we have penetrated Europe a little bit and then into Brazil.
Now we are well positioned to attack the India market and we have added basically a gigawatt of addressable market with IQ7. With IQ7 starting to ramp, 22% going to 65% going to 100% in Q4, we should start seeing the benefit from Q4
of this.
Again, I can't overemphasize this enough. The software defined architecture allows us to enter new regions rapidly. And like what I said, it's the same hardware and just a different software profile and it adds whatever we have done this year, we have added roughly a gigawatt of addressable market. And of course, now it is we need to make sure that we have the right sales guys there, the right partners to start growing revenue. The next one is high power, high performance.
You know this, we had IQ7 and IQ7 plus and then we introduced IQ7X, which was the 320 watt AC product for SunPower and Panasonic for both the U. S. I mean, we've introduced already for the U. S. We are going to introduce for the rest of the world shortly.
And now we are planning for by the end of 2019, we will have a 425 watt AC product. And a little bit beyond that, 2020 and beyond, we are going to have a 500 watt product there. Again, here again, I wanted to make sure you guys get the point is our distributed architecture means that if I increase the wattage a little bit, if I increase the wattage here by 10%, I provide a lot more value to the installer than the cost I spent, than the incremental cost I spent. So my gross margin is and I would prefer more mix of higher power products any day. And that's why the transaction with SunPower is very interesting.
AC modules are the future of residential solar, nothing new here. This is the result of our installer survey. The installers have some have 20%, some have 40%, so 20% to 40% reduction in installation time versus an Enphase discrete solution. The logistics and supply chain getting better by 10% to 12%. High quality of installation.
See very often these fixing the micro to the module needs to be done. I mean, yeah, today it is done in the field and it is error prone and it takes time. And now that's completely taken out of the equation. So we are absorbing activities in the field into the factory, and which is why we are saving time and money for the installer. And then easy training, the lesser things installers have to do, the better it is for them.
If something is plug and play for them, that's the easiest. And that's how we are going here with AC modules. And we have some great module partners, which I'll talk about on the next page. So the acquisition of SunPower's microinverter business, that advances AC module as future of residential solar. We closed the acquisition last week.
We expect volume shipments in Q4 of 2018 and we expect an acceleration of ramp through 2019. The full potential of business is still $60,000,000 to $70,000,000 per year in the short term with a non GAAP gross margin of 33% to 35%. Okay. And that is the SunPower product with our Enphase microinverter. Okay.
And together it's the name of the game is high quality, high performance, high quality, easy to use Equinox home solar system. Now let's talk about all of our AC module relationships. We talked about SunPower. Panasonic is still in progress. The AC module will only be released in early Q1 of 2019.
But what we have done today is since we have released the IQ7X product as a discrete microinverter, that's getting held up in the channel along with Panasonic modules in the channel. And we have an excellent relationship with Panasonic and both of us are working furiously to make sure that gets done fast. This product Solaria is already out and along with Soligent, who is a distribution partner, this product is actually selling today. And it's a 3 55 watt black on black aesthetic module. It will serve the long tail well.
And of
course LG and Jinko, we engaged earlier with them and we do have a few stumbling blocks there because primarily because of the tariff. And the tariff is being imposed on the entire AC module and we are trying to solve it. Many of our module partners have invented their own way out of it. Some of them actually doing the assembly in the U. S.
And so this is proving to be less of an issue, but it is still nevertheless we are waiting for a ruling on the waiver that we asked. But the bottom line is this, I mean, we have we will have so many AC modules that we can serve Tier 1, we can serve long tail. And we are working in India as we speak with 2 or 3 guys, which we'll announce shortly. We are working in Europe as well with a few guys there. And we'll announce when we are ready there.
But this is how I see our solution evolving in the future and SunPower is going to provide a much needed boost here. Because all of SunPower's shipments will be for AC modules.
Okay.
Let me come to the last topic in profitable top line growth is Ensemble. B4 is B is the profitable top line growth and 4th is the 4th initiative there. And that is the path to energy independence. And Raghu is going to spend a whole section on Ensemble. He's going to talk about the solar and storage.
But the key driver for Ensemble, Martin and Raghu came up with their original idea for Ensemble is, how can we enable solar energy when the grid is not present, when the grid goes down. And that is a major problem. For example, John Berger will tell his stories in Puerto Rico, where because of the floods there were several 100,000 homes which didn't have a grid connection. Even though they had solar, that was not very useful. So they had no power.
And with IQ8, with Enphase Ensemble, we can change that. Okay. So that provides something that has never been there before in the industry, a completely differentiated solution. And Ensemble gets this gets accentuated with high capacity and flexible storage with backup, just ideal for the residential market. The concept of Ensemble is the following that it is a platform which treats everything as a resource and creates an AC marketplace.
Like for example, solar, your solar is a resource, load is a resource, storage is a resource, grid as well as generator. And all transactions happen in the AC marketplace, which is why we think the AC coupled architecture for storage is the right architecture because it enables flexibility, scalability, whether it's 1 house or 100 houses, community solar plus storage is easy. And that is possible because everything is transacting in the AC marketplace.
All right.
So let me introduce Sunnova right now. So Sunnova has been a strategic partner at 10 phase. Their mission is power energy independent. John will talk a lot more about it. They are privately held leading residential solar and storage service provider in the U.
S. They raised over $2,500,000,000 in private funding. And they've been a really strong Enphase partner and customer over 5 years. During the times when we had a lot of difficulty, a couple of years back, they supported us during our toughest times. So they are more than just a partner or customer.
They're more than us. I mean, yes, more than that to us. And we have a great strategic relationship across all levels, highest to lowest level. The nice thing is we have very strong collaboration on the new products. So because of their extensive experience, they are able to advise the do's and don'ts for us.
So with that, I'm going to introduce John Berger, the CEO of Sunnova. John?
All right. Is this on?
Okay. Good morning. I know some of you are disappointed in the rumor there was a special guest from Texas and you thought it was going to be Secretary Perry. But anyways, I appreciate the invitation that Baudry and the rest of the Enphase family gave me to come up talk to you a little bit about what our relationship is with Enphase and what we see in the industry. First, I think we need to talk about exactly who we are.
Cinnova is a service provider. So we're a residential only solar and storage service provider. Way to think about it is and where we're moving to and what you're going to see, it's very interesting off the charts, I would say interesting. So I'm going to build Raghu up. He's a fellow Aggie.
I love that. He's a smart guy in the room, right, Badri? But what you're going to see is basically wireless power. And what we are doing here, we're one of the largest out there. We're actually the largest, if you have the top 4 of the service providers in the United States, we're the only one that's private.
So I guess I can say a lot of different things to you guys that, and ladies that, others can't. But we operate in other areas that others have not. And it's not just the fad of the moment, Puerto Rico. We've been in Puerto Rico for 5 years. Got the scars to prove it and can tell you all the stories.
But we also operate in the Pacific Islands, Guam, Saipan, we just opened that went over to Tinian. I'll let you all find on a map where all those are. And we intend on going into many other islands. We intend on going into many other markets. But not just the islands, there is the coast.
California has a great program with storage, but Houston, our headquarters, that's another thing is we are the we're headquartered out of Houston, Texas of all places, not California, not the East Coast. The energy capital of the world and we're trying to keep it that way is Houston. But Houston was hit by a very big hurricane or really a big storm that dumped a lot of water there and that was another thing we had to deal with. Florida got hit by Irma and the Northeast is constantly was getting pounded and especially Massachusetts and upstate New York with winter storms that collapsed power lines and so forth. The idea that the system currently as Edison put it together and really he wanted to go more distributed as I think most of you know, that started to be formed and really took off in the early part of last century, a lot of folks like to say is good enough, it's not good including for those of you, anybody who flew through Reagan National last night, you know that's not good enough.
And what we can do is we can provide different services to the customers that are not available currently. And that's what I want to talk about here as we move forward is power energy independence. This is what Sunnova does across its territories and moving on a global in a global fashion. What we are doing is we are turning not just putting some equipment on a rooftop saying to the customer whether it's a lease, a power purchase agreement or a loan, you've got a cheaper price of power. Those are the old days.
Those are fragmented. That's a product driven approach. That is, I got to pound the cost out of Enphase and everybody else because I'm just selling a commodity. I founded the company to deliver a better service at a better price And truth be told, as an industry, the only thing we've been doing is delivering a better, a cheaper commodity. And there's nothing wrong with that, but it's not as exciting from an investor standpoint for the industry and it doesn't bring about the real transformation of the energy business on a global basis at delivering a better service.
And all those different services, think about it this way, the current system is everybody gets the same service. You pay the same price, you get the same level of reliability, you get the same features and you're going to like it, whether you do or not. And by the way, you don't get a choice to what you price either. What we can do together and change the industry, and I want you to understand that, the industry is changing, not going to change the future and all that, although I do want that IQ8 as out as fast as possible. I think Raghu, I've told you that a couple of times, right.
It has changed where we can come in and provide different services for our customers. 2 of my colleagues back there, Kelsey Smith, Director of Communications, Public Relations, Michael Grasso, my Chief Marketing Officer, he actually does a lot more than that. They're very busy right now, especially Michael
launching out new products as we take
these technologies like Enphase, like about how we can craft new service contracts, how we can sell different services to different customers, because there is customer segmentation out there. And most importantly, the days when the monopolies can come in and say, uh-huh, if you don't have net metering, net metering, if I take it away from you, Enphase, Sunnova, Sunrun, all of you, you are dead. Those days are over. We are already having customers run off grid in Puerto Rico. It's already there.
You are going to see a lot more transform, including my house in Houston, you will see it, where we will not need the grid whatsoever. And it's not just batteries, they're a big catalyst here. They're a huge catalyst, But it's all the technology that's being developed like Enphase on the leading end of it that comes together that enables the technology of the solar and the batteries, the inverters and everything to work together, not just on the supply side, but on the demand side. So what we call at Cinnova is a nano grid for each customer's home. I come out of the conventional power business.
I run a utility from the control room and basically what we're doing is we're creating a mini utility for each and every home. It will be for millions of homes. Then we can aggregate those together and then move in and out of the grid as the market demands, as soon as there is a lot more regulatory openness, which will happen. The market will be driven more by consumers and technology than it has been in decades and indeed over a century. And you want to live as our customer a life of choice and a life of freedom to have the quality of power, the reliability of power, the cleanness of power, the cost, the lowest cost of power that you want and you can live your life free and uninterrupted with this new technology.
All of this is coming together where we're being able to provide service contracts, like I said, working with our technology partners. Now I'm going to point out something here that I know it's going to be music ears and I don't want Bhadri to get read this any wrongly in any way, but before it's all been about cost pounding it down. Now, what I'm looking for, as he mentioned, I'll pay a little bit more, just a little bit, just a little bit, little bit more for those features. Why? Because our customers will pay more for those features.
If we craft the service contracts together and a go to market strategy with our dealers, we're a dealer only model by the way, always been, always will be. I believe in the power of the entrepreneur. I believe that everybody who's in a local area knows more about what's going on there than I will trying to run things out of Houston. And so we believe in the power of partnerships. Enphase is one of those very, very strategic and core and long term partners for us.
We're taking these service contracts, like I said, and we're able to go up and upsell customers, not only the new customers coming in the door, but the old customers. We're upselling batteries now, but there's all sorts of different levels services on the demand side and the supply side that we can upsell our customers. But you know what we need? We need technology. And now we're getting the price points down and have gotten them down, wish there were no tariffs, you know, Bhadri spoke about that earlier, but no tariffs.
But practically, solar is as cheap as we need it to be. Now, we can come in and look to see how we can add more value to the customer and some of that value will be transferred back into the technology providers. Way to think about it is, I am the Army, I am the service provider, we own the customer, the contract and the system, they are the arms dealer and they are a very good one And we are going to pay the most for the best technology. So this is no longer focused exclusively on just pounding the cost out. It is focused on technology and what does that technology open to us as far as services that we can sell to our customers.
That is value. That's a real business. That's a game changer. On the partnership, and I'll finish with this and maybe answer a couple of questions just for me, just because I have to leave later. But I think that we've had a long partnership with Enphase, as I mentioned earlier and as Badri mentioned earlier.
We talked a lot about where we see the market going, but I want to emphasize that without the technology partners, we couldn't make these new services happen. And we have gone, including me personally over the last few months, we've gone globally, have literally hopped from country to country to country and there's a lot going on. If you think that I told my board in a board meeting last month, I said, if it feels like a lot's happened since we last met 90 days ago, you're not imagining things, a lot has happened. And I think what's not fully appreciated yet is the speed of technological change. Again, what you're about to hear, what you'll see later on with Enphase leading a charge is accelerating.
The change in technology and the capabilities are accelerating and they are accelerating at a fast rate. When I started the year, full disclosure, I missed that. I missed the fact that I thought storage was something that people in California, yes, Puerto Rico, we got that. Yes, some Pacific Island markets, Hawaii, Guam, Saipan, got that, that would be it. And I was dead wrong.
Every area of the country wants storage. And what's happening is, the way to think about it, we've gone from a dumb solar market, where we're just swinging off the utility system, using the utility as a battery, utility is still providing the service to moving in the last probably we will have 2 years of this with a year already under our belts of dumb solar and storage, can't really have 2 way operability, not a lot of features, nothing on the demand side, to moving to smart solar and storage, the complete grid independence. Now I hope it doesn't come to that in terms of cutting the cord, but if the utilities don't figure out how to cut costs like the rest of us and figure out how to make sure that consumers can choose who they want to provide them power and at what level of service, we will have that technological capability and what you'll hear is, we have it now. Huge, huge value. Take a big question mark of the industry, throw it off the table, it's over.
That's what this technology does. That's why I am here. And what I will tell you is, we believe that there is so much pent up demand for what we're about to what you're about to see again here and then see is that we're lining up to give orders and trying to pull it in. I'm not going to talk numbers and everything else, but at the end of the day, what I'll tell you is we're at the verge of really huge growth in the industry driven by technology like what Enphase has and we're going to experience a significant shift in the business from being a commodity business, all driven by cost and price and so forth to one that's being driven by service and providing value, I. E.
Higher margins, I. E. Better business. And we're going to take out the existing infrastructure in much more rapid fashion than anybody understands today, possibly even including me. It's an exciting future, but that future is here now, and change is here.
So thank you, Badri. I really appreciate. Is there any questions I can answer real fast before I turn it back over? I don't think I can use my tell you my numbers, but I will tell you that, what can I say that we said publicly? We've been we are the only ones who have been EBITDA positive.
We've been EBITDA positive for over 2 years. We do have, I would say, over $100,000,000 of revenue. We have long term contracts. We do loans, leases, PPAs on balance sheet. We have near 60,000 customers in the footprint.
So we've been a very, very good steward of capital, and we have a different view of the world in terms of we love cash, let's put it that way. We love cash. So in terms of the other partners, I can't remember their names, but yes, we do have other partners in terms of providing technology to us. I will say this that I think that what you'll see is that the service provider model, so this idea again, that's product driven, I just come up to the customer and I sell the customer a bunch of panels and inverter and then I go away and I don't even have a service contract associated with that in terms of operation, maintenance, monitoring, things go wrong, that is over. Those days are numbered, if not over.
And what we will see is, is that there's going to be a small number of service providers like you see in cellular, like you see in satellite cable television and even home security has a fairly big concentration of small, large number of service providers because there's inherent high operating leverage in that. The flip side of that is what I will see is that once the whole storage and control electronics and so forth kind of passes through here, I do feel like you'll have a handful of winners. And obviously, I think you know which one that I think will be one of the winners here because I'm here today. Yes, sir. We do.
Hi, Brad Meakle, William Strady. Can you, I guess there's dozens of other storage solutions out there in the market already today. So why would you be particularly excited about the Enphase IQ8 and storage as opposed to what's out there currently?
Well, it's a fast moving field. And so I'm not going to talk more anymore about, or I can't really comment on what others may have. I don't think that would be fair to them. But what I would say is that what the approach that Enphase has taken is much more thinking about what we're doing is we're putting the smarts and intelligence and controls and we're pushing them to the endpoints of the power system. And so what that enables you to do is think about the world in a distributed fashion.
So instead of thinking about how you can make the grid somehow better, you can't. It's a wire in the air. No matter what you do, no matter how much money you throw at it, it's a wire in the air. And that is your biggest failure point. This whole talk about resiliency and swapping gas for coal and all that nonsense, it's a wire in the air.
You know those plants in Puerto Rico, they went down, but the U. S. Army Corps of Engineers had those things up and running in a few days. Guess what took months? The wires.
That's your problem. And so when Enphase came at this and looked at that from the edge point as Badri mentioned earlier, that is a different way of viewing the world. That's the way we view the world, is how can we look at that home as an independent system and be able to automatically balance both demand and supply. So we can run on and off the grid as economics dictate or as physical availability dictates. That kind of flexibility, that vision, what's already built into the technology and then you have a future product roadmap is unique, is unique.
And then I will tell you, it will drive more value in terms of thinking of that way and having that vision more value than anybody else over time. Yes, sir?
Yes.
Yes. And I think what you'll see later today is when you want to be able to provide the customer, I've been in the power business for 22 years, and this idea that you can come in and change behavior doesn't really fly. People want to do whatever they want to do. They don't want people to tell them what they can and cannot do. And so what you need is technology like this that basically does things without the customer even knowing.
You'll see some cool stuff. It's really neat. And that is something where I think that it's a game changer and it's completely different than the way the monopolies have thought about demand side management. It's a great question. Again, what I've said, I want to deliver a better service at a better price, and I've just been delivering a better price.
And so you look at different obviously a different sunshine amounts, fuel, if you will, from different regions. But you would typically need to see something kind of in the low teens per kilowatt hour. Yes. If you live in California, you don't have solar by now, I don't and you're here, I don't know I mean, sorry, call me, we'll take care of that. But
Yes.
Yes. Yes.
Yes. You should have storage. Here's the other thing is, in Houston, for instance, we'll see people and in the islands, we see people paying a premium above grid. Why? Because they already pay a premium, it's not new.
Mr. Kohler, all these other engine manufacturers, they've been selling, if you go look that's been one of the best businesses to be in for the last 15, 20 years. And if you look at the price per kilowatt hour, it ranges anywhere from $0.025 at or on top to as much as 0 point dollars But you can't use that very often, right? And then you have to worry about whether it really comes on and everything else. And so there's a lot of issues and you've got more maintenance and so forth.
Think about this as a, in terms of, this is a solid state disruption of the global energy business. That's what's happening. And so now I can you Will you pay me for that? Just a little bit more. And see, you see it's a mindset change.
It's talking about selling service. Michael and I talk to me on the phone, I'm like always, we need to sell value, sell value, not cheaper commodity, sell value and people see it. They not only see it in terms of getting value for the higher reliability and better services that we can provide, but the other thing is what's interesting as soon as you add a battery people are like, woah, wait a minute, this is not do it yourself anymore. I need a service provider to come in and do all these different things and I'm willing to listen to what other services I can be provided for and that I should pay for. It's a game changer.
Yes, sir. We power energy independence. We are going to see, and I started to tell members of Congress on both sides of the aisle in January of 'seventeen, January of last year, you need to address the regulatory structure. Remember, I don't know in my background, I spent some time with the Federal Energy Regulatory Commission under Chairman Wood. What we saw and what I've lived through in the 1990s and the deregulation movement, we now have a technology driven deregulation movement.
It's all going to be around consumer choice and the idea that a government agency, either literally or practically with the IOUs has a monopoly right to sell power is over. We have to change that. That's where the fight is going to be. We need to have allow consumers to be able to choose and if they don't choose Cinnova, they can choose somebody else. They should have that right to choose whatever power provider they want.
You're right. We can address that. Give me the credit wrap that you gave the monopoly. It's not hard. They're using old technology, centralized technology.
I will go put solar on any neighborhood you want me to if you credit wrap me just as you do PG and E, SoCal Ed. And there's some PUCs that are like in Hawaii playing around with this and so forth. That's what needs to happen. You give me a credit wrap, we'll get it get that done, but that's a legitimate point. They should be allowed to, but they need to have a market based cost of capital.
There should not be a monopoly right to sell power. The old line history, the reason why we got into this monopoly system is that it was deemed a social good to have one wire to go to one home. You don't need a monopoly. In fact, it is not in the best interest of any consumer in any part of the world to have a monopoly provide solar and batteries to their home. They should be able to have a competitive choice.
It's a good thing about who's married? Who's married here? Anybody? Okay. All right.
I would say the best marriage is balanced, right? It's balanced. And so some days, I'll win. Some days, Badri will win. But at the end of the day, the consumer wins.
The consumer gets a different service that they're willing to pay more for. And so that increase in margin will iner to the equipment providers, the arms dealers, but also it will iner to us, the service providers. So I think there is going to be more than enough money to go around. That sounds a little like, yes, no, I do see that happening. And for instance, when we can pay just a little bit more for equipment, what Vadrou showed you on the gross margin, it will pop nicely.
At the same time, I am doing it for a reason on my side because my margins are going up. So I think it's like everything will be a balance here. Yes. I'll speak for Cinnova. I'll let Madri speak for Enphase.
But yes, that's what I'm saying. That's what I don't feel is fully appreciated at all by the investment community is that we are moving from a cost focused and you just had to go up against swing a cheaper commodity to the services and how we can provide a better quality of service to the customer and those should lead to and we already see it enhanced margins. Thank you. Thanks for having me. Thank you, John.
Thank you.
All right. Thank you very much.
Thank you very much, John. Really appreciate it. Thanks for the partnership and thanks for pushing us to be better. I think that's what great partners do. And John's been pushing me saying he wants the Ensemble system sooner than later, of course.
And I heard that even yesterday when he came and toured the lab with us. But thank you for being really, really great partners of course. So my name is Raghu Balore. I'm the Chief Product Officer for Enphase. We are here today and I think at the cusp of some major technology and market transformations.
I think what you're going to see is that we've invented and Martin, our CTO is in the room, it's his brainchild and we have invented a technology that really can transform in terms of taking us from what's predominantly a grid tied solar system to being completely grid independent. So what is Ensemble? It's actually an energy management technology that does economic optimization of multitude of resources. Resources such as solar, storage, load, the grid, generators, etcetera, all of them on an AC marketplace or on an AC bus, which effectively is an AC marketplace, right? So if you look at what the channel what does great independence means?
And if you look at the challenges of solar today and both Badri and John also spoke about that was that if the solar systems today are predominantly dependent at grid tied, they depend on the presence of the grid. So if the grid were to fail, the solar system shuts down even though the sun is perfectly shiny. With Ensemble, you change that. If the grid is present, great. If the grid is not present, great.
As long as there is enough sunshine, we're going to convert as much of that energy as possible and start driving the loads. You add storage to this, now you have an always on system, solar during the day and storage at night. So with that, let's jump into the details. So this is an Ensemble system. You've got IQ8 based microinverters on the roof, preferably with an AC module, you've got a storage solution, you've got communications and control and you've got the Enlighten cloud.
So the core elements of it are generation, storage, communications and gateway and the cloud. But it is a complete solution, solar storage, communications and control and the cloud. The key here for us is to make sure that these systems are becoming more complex, right. But our key what we're doubling down is to making sure that everything is very plug and play. So from an installation point of view, it should not be complex.
Our job with technology, particularly with software is to abstract away the complexity from both our installer partners as well as the homeowner. So the installer partners just plugs things in, you install solar on the roof, you bring it into a power combiner, you install your storage, it's AC couple, bring it into a power combiner, install the automatic transfer switch, let the software take over from there. So the experience for our home or for our installation partners is very efficient and then let the software manage the system over time as well, so the experience for the homeowner is also very seamless. So when that person goes over, the homeowner goes over and flips that light switch on, The light always turns on, right, it's the most reliable form of energy, it's the most economical form of energy, it's the safest form of energy, and of course it has to be the cleanest form of energy. That's our goal and that's what Ensemble tries to do.
So it's an energy management solution that does economic optimization of all the available resources. So this is your bus, those are those resources, Baldi showed that picture with all of those resources plugged in to that bus. It's a truly distributed architecture in that sense.
Sure. Sure.
So this is on the roof that can be in the garage or outside. This is a combiner that's aggregating the power from these 2 and that's a little device that we have one outside that sits next to your main panel. This is an automatic transfer switch, but we have a specific take on it. We have invented a micro ATS that allows you to isolate yourself from the load from the grid, sorry, in the event of a grid failure or you make an economic decision to isolate yourself from the grid, allows you to transfer loads that you deem important and critical over to the micro grid in the event of the grid disappearing. And all of that is managed by software, both locally as well as in the cloud.
You can send new objectives, new economic optimization goals from the cloud into the system that's here.
So how so how
Correct, per house. So how sophisticated is the transfer switch? So in other words, Correct. The transfer switch is pretty it's sophisticated enough that you have to identify it at the time of installation and the installer identifies it. They identify and they also associate a priority to what they want to transfer.
And then the system determines how much available capacity there is and then determines which one of those loads it is going to service. And because by priority it will reject the lower priority loads and service the highest priority loads. If you hold on for a moment, I'll come to a slide on that, okay? Coming back here, one of the things that when Martin first came up with the idea, he said look, we have to maintain the sanctity of a distributed architecture. If we did this and created a we had to do a masterless system, because when you create a masterless system, you get all the benefits of what a microinverter does today, which means you get all the efficiency benefits, the reliability benefits, the scalability benefits, the modularity and safety and ease of design installation and management.
So with the Ensemble, this is exactly that as well. It's completely masterless, right? There is no central authority. There is no central controller that's deeming that the system needs to operate in this way. Every resource is independently making decisions on how it should participate in that marketplace.
There's incredible amount of intelligence in each one of those devices and I'll talk about that. So because of that, it's very scalable. So I can have a system where I install this, I come in and add more AC modules. I keep growing my solar system. I have no limits.
I can keep adding more resources, meaning I can add more solar. Same thing, I can keep adding more storage to this system as well. It's also extremely flexible, which means I can have any configuration of systems. I can have a solar only configuration. I can have a configuration with solar and storage.
I can have a storage only configuration. Solar only configuration is a great place for retrofit markets as an example, right. There's already an existing solar system, I can come in and add storage. Or I can have a system with a generator as well. Generator can participate in that marketplace, right?
We also do very robust load management. We have some technology like what we call intelligent brownout and black start. One of the key things with technology is you want to make sure that the homeowner doesn't have to drastically, dramatically change their behavior. We want the technology to adapt to their lifestyle. And so we've done a lot in order to achieve that goal, which is make sure that they are not thinking there's no app running that's constantly telling them what their system is doing or anything.
Of course we can give them the information, but it should not drive their behavior. Can this system adapt to their behavior? And I think we can do that to a great extent. And we'll show both of those when you come to the lab. We also do some advanced features, right.
We've got some new things like fine grain load control like you were asking. Instead of just doing a whole transfer switch where you transfer everything on to the micro grid, we actually can do it in a much, much more intelligent manner. And we can do it with greater degree of granularity and you can also inform the homeowner how they are doing, how their systems are doing. We also do things like electronic current limiting. I'll talk about that.
That's one way where you can avoid things like panel upgrade. National Electrical Code has a number of limitations and especially as storage starts coming into the picture, it puts pressure on how the National Electrical Code has been written, but we can do things in software to manage and avoid panel upgrades, which can be cost as much as $1500 to $2,000 especially when you come in and add storage to the system. And of course, the core of this is the IQ8 microinverter. So it inherits the reliability and all the work that we have done to make that microinverter incredibly reliable, incredibly reliable for it to operate for 25 years even in a very corrosive environment. So with that, let's jump into before we get there, just as a summary, it's a complete solution, right?
We want to be the one stop shop for your energy needs. So we provide you the solar solution, we provide you the storage solution, we provide you load control, fine grain load control and the whole energy management system wrapped around it. And there's real value in being that one stop shop provider because all the systems now are fully optimized to work with each other. However, I do want to say the platform is still extensible. We've never been in the generator business.
So if we want to bring another resource onto the network,
we can do that as well.
Energy Management, we talked about economic optimization. It's a fully distributed architecture and this was probably one of the hardest problems to solve is now the whole solar system and the solar system has to form its own grid. It has to be it's a grid forming technology. How do you coordinate every single microinverter to form a single grid, so you could still maintain the sanctity of the distributed architecture? And that was extremely vital.
And I think that's the code we have cracked arguably one of the hardest but the most important things to solve. And that allows you to be very scalable and flexible, as well as being very robust and resilient as well. Resiliency, we add new techniques and technologies in order to make sure ensure that the homeowners' experience is unchanged. They don't have to change their behavior, right. We'll talk about some advanced features and of course it inherits the system will inherit the reliability of the microinverter.
Okay. Let's talk about each one of those components. Let's start with the IQ8 microinverter. The heart of this and this is where silicon it's all about the silicon that's in there. The heart of this is what we call the Swift ASIC.
The Swift ASIC is a 55 nanometer, 5,000,000 gates mixed signal device. It's got a ARM processor embedded inside the ASIC itself. Imagine a roof with 20 of these, that is one intelligent roof with 20 ARM cores embedded in it. Somebody was joking that we should be mining bitcoins. We've got so much computational capability on the roof.
Very high speed digital control, we calculate control vectors every 20 nanoseconds. So what that translates to really from a homeowner's point of view is when a fast changing load comes on, let's say you turn on the compressor on your refrigerator comes on or now you're running in micro grid or your air conditioning system comes on, the grid doesn't collapse, the system is very fast in reacting to it. So the experience of that, you all experience this right when sometimes your
air conditioner happens at my
house, an air conditioner comes on, you can see the lights dim, it's because it's still the grid, while the grid has the capacity, it doesn't have necessarily the speed to react to it. We have to do it even faster because we don't we are in a much smaller environment. And what control when I say control vectors updated every 20 nanosecond, it really translates to microsecond response time and very, very fast and very, very seamless. Badri talked a lot about this. Even more software defined, which means the functionality of being grid tied or grid independent is also software defined.
And one thing I want to point out, this is not just an inverter. This is actually a fully bidirectional device. So in software, which means that I can draw power from DC to AC or AC to DC as well. In software it acts like an inverter and a charge controller. So when you talk about SKU management, you're not just talking about SKUs by region where we can go to a common platform.
We're also talking about the hardware that's in our storage system that's on the exact same platform, exact same hardware. In fact, if you peeked inside our battery, you'll find a bunch of these. That's how we are optimizing or getting efficient on our supply chain and development as well because we only have to develop one thing for both our solar solution as well as our storage solution as well. The next, let's talk about our storage solution. This is our AC coupled storage solution.
So we have been shipping our storage solution now for the last 7 quarters. And we have shipped about 25 megawatt hours to date. And it's this device which is the ACP 1.0, we have a sample of that outside. It's about a 1.2 kilowatt hour building block. Okay.
We are going to release in Q4 a cost reduced version of the CB 1.0 and what we have done and this should improve the goal of improving margins is what we have done is we have gone to a new battery supplier. One of the advantages of our for us architecturally is the inverter charge controller that sits on the front end of it doesn't change. So for us going to a new battery vendor, yes, there is work, certification, etcetera, but most of it from an engineering point of view is a software change for us. So it's efficient from that point of view. This is not just a battery, right?
It's a complete solution. It's a complete system. What that means is it's got the cells, it's got the cell modules in it, it's got the BMS in it, it's got the charge controller, inverter software, everything built in its AC and ACR. As Badri pointed out, we did a lot of things right, but we also did a lot of things wrong. So let me explain the things that we did right and the things that we need to change, right.
We made it into a complete solution. I think that we got right, okay. Made it AC coupled. I think we absolutely did the right thing there, right. We used lithium LFP, lithium iron phosphate.
I think that was the right choice, right? The things that we didn't do right in this, the capacity is only 1.2 kilowatt hour. So it's okay when you are in EMEA, APAC where you're doing things like rate arbitrage and TOU optimization. It's not right for the U. S.
Market where you're expecting the sweet spot is going to be 10 +Kilowatt hours, right? So the capacity is too low. The power that it has is CO4, which is at the 4 hour charge discharge, That's too low. It's indoor only product. I think the market really needs both the optionality of indoor and outdoor.
And probably the biggest weakness of this is that it doesn't provide backup. So I'd like to introduce today what we are working on, which is coming in the first half of twenty nineteen is this product called InCharge. Okay. It's a 3rd generation of a product based on Ensemble. It's a 3.3 kilowatt hour building block.
C over 2.5 with surges or C over 2, which means 2.5 hour charge discharge with surges of 2 hour to address any more load changes as they come on. It's indooroutdoor, right? And it does backup because it's got Ensemble. And we do 10 kilowatt hour version because we use the 3.3 kilowatt hour building block to build the 10 kilowatt hour as well. So we took all of the learnings, the good things about what we had done with 1.0 and 1.5 and we have now come up with what we call inCharge 3 and inCharge 10.
So specifically what it is, is this inCharge 3 has got LFP here, the cells at the bottom and it's got 4 IQ8Xs embedded in there. So you get 3.3 kilowatt hours and 1.28 kilowatts of power. It's a 2.5 hour charge discharge. It weighs about it weighs 40 kilos. The dimensions are it's about 700 millimeters tall, 300 millimeters, 2 65 millimeters deep and about 300 millimeters wide.
Okay. Both it can be wall and floor mount. It's a 2% install at 40 kilograms OSHA requirements are that it needs to be a 2% install, but you hang it on the wall, it's got a mounting bracket and you can hang it on the wall. For me, for sure it's a 2% install, but I've seen Martin lift it and hang it himself. It's fully flexible and scalable.
It's fully flexible and scalable. Like I said, we retain all the benefits of what we had done learnings from the previous architecture. It's single phase and of course it's fully distributed. For example, if that one micro were to fail, the other three keep running, right? We can go in and hot swap that other micro as well.
It uses LFP. LFP has some great advantages. LFP is arguably the safest chemistry. It's got great performance, everything from thermal performance to DoD to cycle life, etcetera. So that's why because it's LFP, it's passively cooled.
It's passively cooled, outdoor rated and the communications in it is ZigBee. So from an installation point of view, again this is as I was mentioning about making everything plug and play, you hang this on the wall and you plug this straight into that combiner box that I was talking about. And the way we do the 10 kilowatt hour version of this is you have stacked 3 of them right next to each other. And that's our 10 kilowatt hour version. And 10 kilowatt hour version, while it weighs 120 kilogram because there
are 3 of them in there,
it's still a 2% install and you don't you install them in 3 chunks and in software you configure them as a single unit, right. It's going to be about it's a 1,000 millimeters wide, 700 millimeters tall and about 2 65 millimeters deep. And again, it's wall and floor mount. It's very flexible and scalable and it also does 3 phase. And 3 phase is required because we've got 3 systems we can make it 3 phase.
3 phase is required in a number of residential applications in Europe in particular Europe and Australia both. So again, we are going to make this as a single piece of hardware with software changes to support the worldwide market. It's 10 kilowatt hours and 3.8 kilowatts. There's actually something unique about 3.8 kilowatts in that it meets the national electrical core of a 20 amp circuit. Of course, you can keep adding as many as you want.
There's no limitation for a system to
have 10 kilowatt hours.
You can have 20 kilowatt hours, you can have 30. In fact, we think that the sweet spot in places like Hawaii will be closer to 20 kilowatt hours, right, as opposed to 10. You can imagine we spend time with our partners like Cinnober to discuss how this should be, what are the things that we need to do to make this the optimal product. I think I want to point out, these are not just nice engineering renderings. You will actually see this device in the lab today.
I think our expectation is that it's about a 10 year, there are calendar life and cycle life, right. I think it's going to be off the order of 10 years and not limited by the micro power electronics, not limited by the microinverter because that's a 25 year microinverter that's inside the device. It's going to be limited by the cell and cell chemistry itself, right? Yes, we have. So we are going to a new supplier with both the 1.5 as well as in charge.
And battery is just there's so much work, so much technology development taking place in batteries that now we actually have a dedicated supply chain person only looking at cell chemistry and vendors worldwide because that's how important we think that whole it's a big element of the storage system and that's why there's so much amount of focus and importance on that. No, we can't get into the details of that. But suffice it to say, every product that we do, as Bhadhi mentioned, we have the 30, 20, 10 target. We don't want things to be off of that, right. 1.28 kilowatts.
1.28 kilowatts. 1.28 kilowatts, which is about it will take about 2.5 hours for the battery to completely discharge and charge. We do get really important to note is that we get bursts of much higher than that in order to start to deal with motor starts etcetera. That's the beauty of storage, right? So it's going to be a third of the order of about 6 amps or so.
So about 4.5, 5 amps or so. Yes. So we yes, especially air conditioner, you're not running with 1.28 kilowatts. Even though we can do some smart things like intelligent brownouts, very unlikely, you'll need a bigger system for that. That is what was one of the challenges with the older system as well.
It just didn't have enough power. And now we have gone out there and put a lot more power on it. Very likely you'll need a 10 kilowatt hour box would be 3.28 kilowatt. If you're running a full air conditioner for expect that you're going to run an air conditioner for a long time, you're very likely not going to be able to do 10 kilowatt hours. You probably need 20 kilowatt hours and then that doubles.
You get now 7.6 kilowatts of power. They're both going to independent 20 amp circuits. You've got a
lot of power and you've got
a lot of capacity as well, right. That's the beauty of the AC coupled architecture is you can add, I mean in Hawaii there are homes that today are doing 30 kilowatt hours, right? And the cost of these just cell chemistry is getting better and better, costs are coming down. So I think everything becomes economically viable over time as well. Okay.
The last but not least is what we call as the communications and control. Communications and control consists of 2 elements, what's the AC combiner and the automatic transfer switch, right. Let's talk about AC combiner to begin with. It's a power aggregation device. So you can bring in your solar, it's got 4 circuits of power.
We sell this product today for grid type applications. You bring in your power, you bring in your solar 1 or 2 circuits of solar and you land it on this device. You bring in 2 more circuits of storage, 1 or 2 circuits of storage, again land it on this device. It does. So it's got the protection built in, it's got a gateway, the gateway communicates over WiFi, over the homeowners broadband as well as over solar.
So you get high availability in the event the homeowners broadband goes down, which happens often, they change their password, what have you, it falls back onto Wi Fi. And so you get a high availability connection. And this is key as we think about Ensemble is we want all our systems to be connected all the time. So we are adding more connectivity to these devices into the cloud. We do full metering in it, including revenue grade and CC12 revenue grade for some of our partners who required metering of their generation systems.
And we are introducing this thing called the electronic current limiting. As I mentioned earlier on, when systems are coming on with more and more storage, you're hitting the limits of what your main panel can handle in a house. And more often than not what you're finding is installer partners have to go out there and replace that main load center, the main panel, they have to upgrade it. That upgrade can cost as much as $1500 to $2,000 This electronic current limiting is all done in software. We can manage the system in a manner that we don't trigger the requirement for a main panel upgrade.
And this is again thinking about it from the standpoint of savings and making it making it easy for our installers, this is what we do. Again, you're looking at another plug and play device. Literally, I don't I'm not trying to overuse that word, but that's literally what it is. You land 4 circuits at any combination of solar and storage on here and let the software take over from there. Now let's talk about the ATS.
So a lot of people do ATS. The problem we were trying to solve, again we were thinking about what problem you're trying to solve is we wanted to make sure that we provided whole house backup. That was 1. And the second thing we wanted to make sure was we didn't need to add a critical loads panel because that would be cost and a lot of work as well. And the third thing we needed to do was we needed to make sure that you didn't have to call the utility, because when you do a whole house backup and you go on the utility side of the meter, which is where you'll have to go, that's a phone call to the utility, which is going to be very expensive.
It's going to take a lot of time. So we came up with this idea of the micro ATS, right. The theme of micros. Yes, that's the micro ATS where you do 8 individual circuits. Okay.
By doing 8 individual circuits, you're monitoring in real time all 8 individual circuits and you can transfer over to the micro grid all of those 8 circuits. It's expandable. So it's not just you're just not limited to 8, you can go 16 or even 24 depending on what your choice is. At some point you reach a point of diminishing returns. And what that allows you to do is a whole house backup with no utility disruption because you're on the load side of your main load center.
You don't have to add a critical loads panel. Protection circuitry is all built in and the really cool thing is you can do load prioritization. And in real time all 8 circuits are monitored. So now I get exactly what my consumption is by circuit and the system is monitoring that in real time and making a decision, hey, I have enough resources right now available to service all 8 or I have to reject the bottom 2. So very likely your kitchen is going to be the highest priority, priority number 1 and your hot tub hopefully the lowest priority, which is number 8, right.
And that prioritization is going to get set in the beginning, but the software will allow you to reprioritize if needed, right. You can do load rejection as well as load enablement and of course that's completely expandable. So now just let's address the quick use cases, right, and this is important. The first use case is a very traditional grid type system. There may be people who may choose, hey, great, thank you, but I just want to be a grid type solar system.
That's their choice. What IQ8 will allow us to do is Ensemble can be turned on and off in software. If somebody wants a very traditional IQ7 replacement as an example, there they go. They install a very traditional grid tied product, okay. The second and I think this is my favorite is the whole grid independent solar system.
Of course grid energy, I mean our independent energy system is obvious, but this is going to be really interesting as well where you have an IQ8 system on the roof and you have the combiner as well as the transfer switch. The combiner allows you to future proof because you can come in and add more solar or add more storage if needed and turn it into an energy system, but you can start with solar only as a grid independent system. So if the grid goes away, the automatic transfer switch will isolate you, will manage all 8 loads for you, reject loads as needed and allow you to convert all the available fuel, which is all the available sunshine into production to service your loads. And you may make an economic decision. Here's an interesting thing, right?
And I think there's a cost now to be connected to the grid. There's real cost, especially as new and new advanced grid functions and IEEE 1547 requirements are coming online where inverters have to provide a number of advanced features, those features are not free. They come at the for us or the homeowner for that matter, right, because you steal power from for us or the homeowner for that matter, right, because you steal power from real power, which is what drives their appliances. The system may choose, this is what the economic optimization Ensemble does, the system may choose that every day in the middle of the afternoon for economic reasons, the system may choose to isolate itself from the grid. If you're isolated from the grid, now we don't, we are not forced by standard to comply with VAR injection into the grid for voltage support as an example.
Or of course, if the grade were to fail for if there was a grade failure, same thing, the system isolates itself, isolates itself and then Ensemble manages it. Of course, this is the whole Enflara, which is the full grid independent system with solar storage, load management and tertiary control or economic optimization. And then and then a full this bouncing thing always catches me off. But this is the and then of course the smart home interconnection as well and you'll interface as well, which you will see. And finally, you can unplug from the grid as well.
So in unplugging from the grid, the use case here while I show multiple AC modules, solar and micros and storage, etcetera, This could be 1 solar panel, 1 IQ8 microinverter, point it to the sun and you get about 300 watts of production. Can do a lot with it. A village in India, right? Now I can fans and small refrigerator, everything I can run just with 1, maybe 2, and I can keep adding as I go. I can add 1 of this and one storage element.
Maybe the 1.2 kilowatt hour is sufficient for one small system, but it's all moving in the direction of AC and there is no grid. Someday if the grid shows up, great, it can now be grid connected with a software upgrade. But it has the capability of servicing so many different use cases and opening up a market segment that we have not had access to. And it's because it's a microinverter based system, it's AC, it's scalable and it's completely masterless. Imagine if this was a big system, you had to
have minimum 5 kilowatts, you had to have
a central controller that tries to arbitrate and manage everything, that doesn't work. It's got to be like this. So the question is, how soon can this be offered in the U. S. For it to be economically viable, right.
It's a great question. I think you have to think about it in terms of the corner cases really, right. If you had, for example, the use case that we showed where you had what happens if you have 3 weeks of really bad weather, There is no solar, the battery doesn't charge. There's a solution for that. Think about putting a generator on there, whether that's fossil fuel based or any other technology, fuel cell based, whatever, it plugs into the Ensemble platform.
That's the power of that platform. And then the system gets managed because as I said, it's about managing resources, right? And the flexibility of that is you can have any combination of resources. Ensemble is capable of that. In that particular situation, you'll have a solar resource and storage resource and a 3rd generation resource.
You just don't have the grid as a resource available. The system has to adapt to that and that's what it does. It will manage it based on whatever are the available resources. So if there's any takeaway, think about that AC bus, AC marketplace architecture, you have the ability to add many things to that bus or to that architecture, to that marketplace. And then the economic optimization engine then says, hey, what's the most economical way to do it?
Obviously, the marginal cost of electricity from solar is arguably 0, while the goal is to reduce the marginal cost across the board, you'll start with solar, you'll always lead with solar. And then you can program in what are called Drew curves etcetera to decide which one charges and discharges, which one comes into the picture next. So that happens at the next level of intelligence. Okay. All right.
We have a lot of advantages. We do a lot of things right here, right. I'm going to talk more about what are the advantages of ours, right? If you break it down into solar, storage and the system, from a solar point of view, again, as we had said, we maintain the sanctity of the distributed architecture. And this is really, really, really key because all the benefits that we have had as a micro, the efficiency, the reliability, the ease of design installation and management, the safety, the complete plug and play appliance as an IoT appliance, we inherit that with IQ8 as well.
So you're very reliable, design is really simple. We have NEMA 6, you'll see when you go on the reliability tool, testing. It's designed for 25 years life and there is no high voltage DC anywhere in our solar system, right? With storage, it's very scalable. It's an AC coupled system.
As I said, I think so, can you add can you get to 20 kilowatt hours? Someday you want to be 30 kilowatt hours. I don't need to do a forklift upgrade of my system. I just simply go in and add. And it's very likely to happen because chemistry will keep getting better.
So over time, you come in and add new storage solutions, the system just gets more efficient and much better, right? We use LFP. Again, there is no high voltage DC. The cell pack talks to 4 microinverters. So DC voltage is very low compared to other solutions.
From an installation point of view, of course, LFP has less energy density than others. So you can see we are worse on our energy density. If you look at that, the total solution we had about 12 kilograms per kilowatt hour compared to 8.9 and 9.3 when you have NCA or NMC, right. But we try to mitigate that by building out a very modular solution. So even though the energy density of LFP itself is worse, we have architected it with micros, so it can be modular, so it can still be a 2% install without the need for a big lift or anything else, right.
But of course, the LFP also has other benefits as I mentioned about safety as well as performance. But clearly, from a weight per kilowatt hour point of view, it's definitely more than all the others. From a system, it's a one stop shop. It's absolutely plug and play one stop shop system. That's the goal, right?
And the system is fully optimized to interact with each of the components. We think we are very competitive on cost, although our goal is always to sell value. But from a cost point of view, our solution is very cost competitive. I think we do over the year firmware upgrade. I'm assuming that others do it as well.
It's just a matter of degree. I think we just we have been doing it for a very long time and we think it's important. I think as an industry we should be thinking about you can't be putting dumb boxes out there. We should be thinking about, hey, how do you make sure that systems are intelligent that's out there. Of course, expandability because nothing is static.
Lifestyles change, people buy and sell their homes, new people come in, their lifestyles are different. So you want a system that's very flexible that can adapt to the new the homeowners lifestyle, so which means you want to have flexibility and expandability in the system. We will have Ensemble Solar Plus Storage available in the first half of twenty nineteen, the whole system. So in conclusion, we are transforming access to energy. This is about moving the world.
I think John said it very nicely. It's this transformation is not going to happen. It's happening. And I think we have the capability, the technology and the product set to do that, to move the world from being completely grid tied to grid independent. I think there's a lot of options, a lot of capabilities.
Thank you.
So we'll stop now for a break for about 15 minutes.
Hi, good morning. As I was introduced earlier, I'm Jeff McNeil and I'm responsible for the customer experience, which covers both quality and the service aspects of what we do. I'm relatively new to the company. I joined in January and I'll first talk about quality and then I'm going to talk about what we're doing on other aspects of the customer experience. So our objective here is to have a world class customer experience.
As we as I came into the company, we weren't there. I was hired because Badri as well as members of our Board view that this was a way that we could differentiate ourselves from our competitors and add more value to our customers. When you look at the cost of ownership of having a system, especially with our installers, being able to have a system that is extraordinarily reliable, quality and that if there is an issue, issues could be they just have a question, or they actually have a service need that those get handled quickly, first time, makes it so we are their preferred supplier and we worked hard on doing that. We're not done, but we're well on the path for that. So I'm first going to talk about how reliability and quality is the bedrock of Enphase and what we do.
Now one thing I want to talk about first is when you look at our systems have no single point of failure. So if you look at and if any of you are solar owners and you have a unfortunately, if you have a string inverter, if that fails, your power production is 0. It's gone. You are no longer going to be able to produce power. With a microinverter, if you have a typical system, let's say that has 20 microinverters on your roof, that if unfortunately, and we hope it doesn't happen to you, but if it did, you had 1 microinverter went out, you're still producing 95% of the power that you bought your system for.
Most consumers don't even notice the difference at that. So it's one where by how our systems are set up and it's the inherent advantage of being in a microinverter versus a string is there's no single point of failure. One thing that Badri highlighted was the value of an ASIC and I'm going to repeat that. This ASIC is the brain of our microinverter that you have an integrated circuit that operates very fast, when you look at the challenge of having a reliable microinverter, we're a part of a grid that has a lot of excursions on it, a lot of changes in it, that if you're not reacting to that quickly, you have the risk of damaging your micro converter because we have this very fast operating ASIC, we can react to that and take care of any of those conditions before it damages our system and it keeps operating correctly. There's another very important part about this ASIC.
Bobry also talked about this. We used to have inverters that had 300 plus components in those. We worked very hard and you'll see our reliability lab to make sure every one of those components that goes into our systems is very reliable. But if you add up all the failure rates of 300 components versus what Badri talked about where we're heading, which is 50 components, you have an inherently, by design, much more reliable product. And we are well on that path.
We're halfway on that path of what Bhavrin talked about of eliminating components, integrating them into the ASIC, which is ALB. So by design, a very inherently reliable product to by design have a very reliable system. Fabry also talked about the power of having over the air software. He took you through what can happen. We have a system that failed.
We bring it back here. We do failure analysis. We look at why that failure occurred. We learned that perhaps a grid condition occurred that stressed our system. We can then, without ever interfering with the homeowner, update our software to protect the system from that type of a grid condition, roll it out to our customers and their system from the time it was installed to after yet have has now improved reliability and resilience to different types of defects.
As someone who is responsible for quality, I'd tell you, this is my friend that a lot of people when you like for example, when you buy a car, the reliability of your car is set when you drive off that lot. We can't really change it. For us, as we learn and since we're software controlled, we are able to continually improve the reliability of our products after the sale, very key differentiator. Then we design for reliability. With Martin and his team starting with the initial concept, we know that we want our product never to fail in the field.
And so from the way it's architected to the way it is then designed, and I'll talk a little bit later and you'll see it in the tour this afternoon and how we've done tests, we make sure that these products exceed not only our competition, but standards for our industry. So when you put these 4 components together, we then have an inverter that is extraordinarily reliable by design out of the gate. We then test the system heavily. There are industry standards, if you go out and read them on how a micro inverter or an inverter is to be tested. We exceed those standards, both in several ways.
1 in the sample size that we monitor. When we go compare how many units we are testing in our qualifications and others, they typically exceed what would be minimum in the standard by 4 to 8 times more. Why do we make more measurements? You collect more data, you're able to find lower failure rates of problems when you sample higher amounts. We also stress the units for longer.
There's certain types of tests that we put in that for at an elevated temperature and elevated humidity, industry standard is 1,000 hours. We go to 1500. Why do we do that? We want to make sure that our product is known to survive for a warranty or longer of 25 years. The other thing that we do is somewhat unique is if you read these standards, they're passive tests.
You put, for example, you take your inverter, it's not plugged in, you put it in your stress condition after the duration, you take it out, you measure it, and it is still working. If it's still working, it passes. For us, we run them fully powered and exercise them while they're in the test. So that's a more stringent condition because temperature matters and that when these are powered up, they generate their own heat. And so it more accurately simulates what goes on in that use condition.
And our objective is to reduce the failure rate that our customers see by a factor of 10. DPPM sends defects parts per million. So a DPPM of 1 means 1 out of 1,000,000 failed. We're not at 1 yet, but that's where we're heading. So all that sounds good.
What does that translate into what we've actually accomplished? So we have an objective and we've been successful at every subsequent generation is better than the previous for reliability. So M215 is a product that came out about 6 years ago. This is a reliable product. Customers are very happy with how this product performs.
Most customers view that better than what our competitors are at. M250, which was a follow on generation, dramatic improvement from those corrections that we talked about and those improvements that we made. IQ6, IQ7, those have continued the trend of improvement. Now percentage wise, they don't look as large because of this, but each of those is an improvement and we view these as a key differentiator from us, from our competitors. You look at this and I talked about an improvement of 10x, you look at that and you go, you're not quite there.
That's right, that we are seeing over the next few years by a factor of 3, this coming down further, both by future generations that we put out as well as what I talked about as improvements we're able to make through our software over the air as we learn how to make our products more reliable. Now I want to talk about customer experience as a priority. One of the primary reasons I was brought into Enphase is we had a challenge in our customer experience and how customers being serviced. When you look at as our volumes increase of units in the field, call volumes go up with installers and we had not reacted that right. We hadn't put the right people in place to be able to quickly and accurately react to customers' needs.
My background is manufacturing, where I as an engineer when I started and I worked my way up in through the semiconductor surgery and was running fabs for that. So I approach most problems as a manufacturing mentality. This was pretty simple. We didn't have the right tools. I didn't have the right equipment, the right people, the right tools for them.
And I was at a capacity. I had more demand than I had capacity. And that meant things like wait time and other things expanded. The people we had were talented and trying hard, but they didn't have the right tools. So we've worked on very hard in the last 6 months and you'll see how that's paid off.
We've added a few people to make sure we have the capacity. We made sure they're trained right. So when somebody calls and you want to make sure that their problem is addressed the first time. As somebody that ran factories, and if any of you have been in them and watch them, those people like myself that are an ex factory manager are very metric driven. You look at numbers, you make sure you measure what is important that reflects what will as it improves, get better results.
And then you drive that in a very systematic and process oriented way. That's what we've done. A number of customers we've shared our suite of metrics that we have. We have roughly 15 that represent how we're servicing customers. We've made aggressive goals for ourselves.
We share them with customers. They look at those metrics and they go, you do those things and we're going to be very, very happy. We approach it in a very systematic way. We go into the root cause of why something has happened and eliminate that. So that's where we're at and how we're going to continue to improve.
Again, what I'm going to show you is we've made good improvements. We're not satisfied with where we're at. We have a lot of runway to go. Service is going to start with best in class quality. When we all buy something, we want it just to work.
Now just to work from our customer standpoint,
you can think about it
in 2 ways. One is you certainly don't want it ever to fail and you have to replace it. And that's one that when we talked about DPPM defects is that and we're working to make that go away. There's another aspect of Jeff's work, which is the documentation we give, how easy it is for our systems to be installed. When they're doing what they think is the right work and they powered up, it just works.
They don't have to call us and go, wait, I'm not having communication or this one measurement doesn't quite look right. We've worked very hard on improving that. And then also giving our installers and our homeowners tools, so they themselves can quickly recognize it and take care of themselves and recognize, oh yes, I now understand. I didn't set that up right. I set up this way and it works and don't have to contact us.
We value our homeowners and our installers that partner with us and trusted us with their business. We treat them with respect and part of that respect is when they call, we quickly answer a call and we have people that are trained that the first time they call after a 10 minute conversation or however long it takes and they hang up the phone, they have got their problem resolved. That is a way to have somebody feel treated with respect as their problem was recognized, they were helped and it went away. Putting the right people and processes, we have a fairly sophisticated product. So we need to have technical support that are well educated and well trained to be able to help these primary electricians who call us and be able to understand their problems and resolve those quickly.
We have those people in place now and we make sure it's the case that it going forward. And then for them, we give them processes, data that they're able to quickly identify a customer problem and resolve it. One thing that I was extremely impressed when I started is our online data and analysis tools that we call Enlighten. Our technicians, myself can look the day we're able to extract from that and know what's going on with a home basically instantaneously is phenomenal. We can tell by looking at the data, yes, you're having production problem.
We can tell whether it's the module, whether it's our inverter, whether it's just a communication problem, literally within seconds of pulling up their system and therefore quickly get them on to a solution. And as part of that,
we
have expanded self-service. When you look at what I just articulated on the power of the data we have, and somebody calls now or used to and say, I think I have a failed inverter, having a person then go look at our data and say, yes, you're right, and then do an RMA and ship it to them, doesn't have to happen. It was very routine. We've automated that. Our customers have on their phones, what we call the installer toolkit, whether an Android phone or a Ios phone that they are able to take that on their toolkit and if they suspect that they have a failed inverter, they're able to select that inverter on their phone.
It automatically checks our data and says, you're right, it's bad in our format form literally in less than 60 seconds. They only have to call us. Now, the other thing we've done to make life easy for them is we do what's called a seed stock program that for our installers that have a reasonable amount of business with us, we pre ship RMAs to them, inverters. So when they drive out to this home that they suspect might have had a problem, they take an inverter with them. They have their toolkit on their phone.
They get there. Yes, it's bad. They replace it. Then one thing that they used to have to call us for is after it's replaced, they had to have that new device registered on our system. So it's communicating.
They're already in there. This also registers for automatically. So one truck roll, which we hope doesn't happen very often, it doesn't happen all that often, they're able to take care of this without having to call us and saving 2 phone calls where even if we answer right away and with the chitchat on a phone call and taking care of it, saves them about 10 minutes a phone call. So every installer is saving 20 minutes on one of these, not an addition to that, the fact they're able to do it in a single truck roll is a huge savings for them. When you look at, as I have both quality and a customer experience responsibility, as I go out and visit with installers, they really appreciate that.
And that with that being low cost of ownership by working with us, we're then who they're then preferred inverter for their customers. So what does all this translate into? So these 4 turn into an extraordinarily good service experience for our customers, homeowners and installers. We work and we're successful. I'll show you on the metrics, I'll show you, getting the issue resolved first time in minutes.
And then what we look for is making sure our customers are promoters. So I'm going to take a moment because I'm going to talk about this metric a little bit more later and explain Net Promoter Score. I already warned you that I'm a metric guy and I like data. And so a way of measuring customer satisfaction is a well known metric called NPS or Net Promoter Score. This is something that was published about 20 years ago in a Harvard Business Review where what you do and we've all taken these surveys.
If you ever gotten a survey that had a score from 0 to 10 that you selected and that we all do those multiple a year, that data is going into that company for what's called a net promoter score. And there's a little bit of math to it. If you score a 9 or a 10 on that, you're deemed a promoter. If you score 7 or 8, and some of you may think, well, they're pretty good, I gave them an 8, that's actually called passive, because you think they're pretty good, you're passive. If you're 6 or lower, you're an attractor.
And it's the question that you're asked in one of these, again, the phraseology of it, is that given your recent experience, would you recommend Enphase to a friend or colleague? If you read a question like that, that is a Net Promoter Score. And what has been found is this correlates very well, a very good way of quantifying really your customer satisfaction. So we're working this year to get greater than 60% on that metric. You may go, well, that's not all that great of a number.
That means on average you're getting a score of 0.6. That's not how the or 6. That's not how the math is done. For an answer to broader score, your promoters, you get a one for that. So if you they score as you add to your number.
Your detractors, so those 6 or less subtract from your promoters and you divide by the total number. You get no credit in your numerator for a passive. So for example, let's say we did 3 surveys and I got a 9, a 7 and a 6, Okay. So I got 1 promoter, I got 1 detractor, 1 minus 1 is 0, divided by 3 is 0. So if you got on a survey of a 9, a 7 and a 6, your NPS is 0.
So how do you get to 60? You got to have a lot of promoters and you have to have very few detractors. So what have we done to drive more promoters? So next couple of pages are some data. So we've really worked on the operation of how we service customers to make the experience much, much better.
So first graph on the left is wait time. So as our business was growing and as some other challenges, our wait time was over 10 minutes. So you had an installer that was out trying to resolve a problem and that they were put on hold for over 10 minutes. They weren't very happy about that. With what I described as far as processes and people upgrade that we drove that down to right around 2 minutes.
We've gotten a lot of very positive feedback on that one. As you can expect, an installer use that as thank you, you're treating my time with respect. In addition to that, when you look at the number of cases that we had open, these have been driven down by over a factor of 10. So this is at any given time, how many cases that people still have where we haven't resolved their problem. And so what we've done here is we've made sure that when they call, the first time they call, that when they're on the phone, we resolve their problem.
And we hover right around 90% on that metric where sometimes problems we have to get back to them. But again, that's one they appreciate. They didn't have to wait very long on the phone. When they called, it was taken care of. So how does that relate to what I just talked about as far as this metric Net Promoter Score?
So I'm first going to talk about the graph on the right. So this is the Enphase NPS. We've been measuring it for a while. And that this is something we send out a survey after we've helped somebody. So if you look back here, we were bouncing around 0 and we had some pretty bad quarters where it was negative.
Now if you look at our market and our other competitors, in general, the solar industry isn't of service and this actually was around average for our industry. We have stepped up We've at 40% last quarter and quarter to date, we're at 47%. We're not at 60%. We're not where we want to be. And I'm not necessarily proud of where that number is, but I'm proud of the rate of improvement, and we're going to keep doing that.
Now we're here and we care about, okay, so what, customers are happy. How does this equate to something that will move the company forward? If you go and you read the Harvest Business Review, it talks about companies that move up Net Promoter Score are more successful. And if I collected a few companies, airline, in computer, consumer electronics and automotive and how they have done as far as their Net Promoter Score. So first, United, I think a lot of us fly United because we have to.
But if you had a better choice and somebody went to the same direct flights and others you pick somebody else, right? I'm guilty of the same thing. And I think if you look at kind of rate that and how would you rate United, saying that they have an NPS score of around 10% probably maybe you think that's generous, but that's about where they are. A lot of us have also flown Southwest. And even though, you know what, they don't have assigned seatings and sometimes they're viewed as low cost, but you come up and they're helpful and the customer service people are there.
They try to make an effort to make you have a positive experience. So if you've flown them, you're probably not surprised that you see that. And I have a lot of people that I know that exclusively travel them for that. And you look at how the stock has grown over the last 5 years, it correlates. Dell and Apple, a lot of us have Dell's, a lot of Apple here.
Typically, if you were to pull people, they're a lot more passionate about an Apple product than a Dell product. A lot of that has also as we've had customer service experiences, you go, you call them, you need a purchase, the ease of use of firing up a computer. Typically, if you take an apple out of your box, you're up and running a few minutes, other products, not so much. Again, you see the growth there. I'll pause for a second.
I recognize that there are other factors in how companies perform other than MPS, but it's a factor that I think tells about how a customer experiences, the loyalty they'll give and how a company focuses on solving problems that get in the way of their business growing. GM and Tesla. So again, when you look at U. S. Automakers, they're in the 20s.
Some of the German automakers for NPS are in the 40s. Tesla is really off the chart. You have an early adopter that has people that are passionate about it. But with that makes it so their value is much, much higher than others. And that is what we see in our future as well.
As we focus on the problems that get in the way of a customer experience, they will drive customer loyalty. They also will take cost out of what it takes our customers to use our product. And therefore, we have an inherent advantage of how they work with us. And then on many of these, they also help our cost structure. I talked about something that our customers are ecstatic about as far as a automated way of interacting with us, self-service.
I don't have to have somebody answer a phone. It helps our cost structure, it's much better for them and helps them. And as we talk more, as we go on, as I said, this is only up. 60 is not where it ends. It's where we plan on getting this year and a very positive impact for us as well as our customers.
Thanks.
Eric?
All right. Well, and right before lunch. Great time. Which one is the key? This one.
Okay. Well, thank you for coming. And the other day, I was talking to my wife and she was telling me, I just learned something new. And he says, there was this guy that we into a conference and this person kind of described to the group the difference between being curious and being interested, right? I don't know if you heard that before, right?
And it's interesting how that person presented the concept of curiosity versus interest, right? And basically, his conclusion on that presentation was people that are curious are just curious, right? They browse. They don't have any type of involvement whatsoever, right? But someone that is actually interested is someone that actually is has somewhat of a personal connection or involvement, right, in some form, right?
So when we look at the list of people coming here to attend, we have a lot of interest and a few curious people. And we it was very hard for us to narrow down to the list of people that we felt their interest matches their commitment, right? And they were more interested than curious in reality. So I just want to tell you thank you for being with us. Thank you for your interest.
And going forward, I will hold you on to that commitment and involvement, okay? Thank you. So I think after listening to the rest of the presentations from the various folks, I think it's going to be a hard beat to at least beat Ragu's part of the presentation, right? It has that grade showing there that looks like the path to heaven, right, in some way. And I would read it the other way.
I will say that distributed down from heaven to us, right? That's the way I will look at it. I couldn't get him to remove that cross from there, right? But we'll look at we'll save it for the next time. What is Soli's financial foundation?
And why do we want to approach it that way? I'm getting a lot of questions about the convert. Why, why now? Why are you doing this? What is the motivation?
Why don't you wait? Should we tell why did the company just make that decision, right? And when we made the decision with Badri, it was kind of very conflicting, right? We look ahead and we look at the company, and we are really motivated. But you saw it's just a little bit of the tip of all the stuff that we have lined up, right?
And unfortunately, we don't have the capability or perhaps the desire to commit to show you everything that we are working on, to make this company an incredible, fantastic company that you will be proud to be part of, to be interested on and be involved with. And so and it was very hard also to hold back, right, and use the finance presentation as a way of pumping everybody up and getting them all excited and go out there and start revising your models and getting better reports and so on. But the energy level, the commitment of the management team, which as you can see, all of them are pretty much new, right? I mean, except for Valerie, who's been here, what is, 18 months. Jeff just joined, I will say.
Dave recently joined in January. I joined 2 months 2.5 months ago. And most of the management team is kind of coming in, and we see the opportunity. We are coming from big companies or companies that were somewhat successful or larger, and we are here to make a difference and scale and make this one an incredible place to work and an incredible place to invest. So the reason I'm saying all of that is most of the folks that you're going to meet today that are part of the new management team are fairly conservative people.
We don't like to over commit. We come from working for companies. Some of us come from working for companies that are margin challenged, and we've seen pretty much all the cycles, especially in the solar industry. In my case, I have a lot of experience in semiconductor and memory, flash memory, NOR and then moving into solar, right? It's not for the faint of heart.
And then working for Tesla, which is also not for the faint of heart. And so you learn a lot, right? I've been doing this for many, many years, right? And I'm not the deal type of CFO. I'm more of the data, accounting, get it right, build the right foundation.
So the first thing that I did when I joined the company is I grabbed the balance sheet and I did a diagnostic. What do I have? What is how is my balance sheet compared with the promise of the business? And even to the performance of the company over the last 18 months since Padre joined. And the first thing that came to my mind is we have a balance sheet that doesn't match the work chest that we need in order to address the challenges and the opportunities of the future.
And I'm going to emphasize the challenges because I'm by nature very conservative. So the challenges are you never know what the behavior of the market will be. We never know when the competitor can come in and create distortions in the marketplace. It's temporary enough to cover a company like ours, which are we are small but very, very creative, very powerful, and we survive probably the worst already. And be prepared with a world shift that we feel we have the adequate level of capital structure to address that competitive challenge, right?
Competitive challenge, tariffs, trade wars, potentially softening or a correction of the stock, right, the stock market, right? So all of these things are always in play when we talk about it, right? And we always think about the plan to be exempt to those things, including act of goals, believe it or not. But those things may or may not materialize. And when they materialize, you look back and you say, you make a decision, and you decision and people will be happy with the decisions that they made, right?
So that's the way we approach this transaction in particular. And I'm going to address questions after the presentation. The other thing I'm going to tell you is that joining Enphase was a pretty interesting experience. Actually, Valerie was pretty good at opening the books and I actually got to perform an almost forensic due diligence on a company that mysteriously moved from almost being bankrupt to the position that the company is right now. And I was very happy.
I'm an accountant by trade, and I've been doing this for many, many years. I have a record of cleaner opinions and clean source compliance. And I've done that with no amendments of any of my public filings on these complicated companies that I've been the Chief Accounting Officer for. And I have a massive amount of experience in operations as well. So by joining a smaller company, I use the highest possible bar that you can use to address the financial foundation of the company.
And so the one thing that can call my attention is the existing debt structure and cap structure, and I wanted to deal with it and they wanted to deal with it quickly. And that was a decision that we made. The other thing is I asset test the capability of the management team to be able to follow leadership on keeping this solid financial foundation alive at all times without taking away the capability for them to be created beyond the playground, exploring ideas like Silicon Valley deserves, but within the boundaries of making sure that we don't go bankrupt or we almost run out of cash. My number one role is never run out of cash. And my number 2 role is make the company extremely profitable and shareholder value.
But if you don't have cash, you don't have the right cap structure, there is no way you can find all the great ideas that we have in plan. So with that being said as a foundation, I'm going to move into the core of the presentation. So Badri told me you need to do graphics. And I'm a finance guy. And he's a data guy and pretty much all of us we are data guy.
So this was a challenge. And so he came up with this little kind of band diagram, right, and trying to make sense out of it. Let me give you an example. You got finance organizations in Silicon Valley that they are scorekeepers. What they do is they close the books, they get the data and they react, practically address the issues with the business and then they come back again, score keep the next month, react and so on.
In this company, one example is the way we manage our cash conversion cycle and the process of cash. Every Friday, we meet for 1 entire hour, Dave, basically Badri, myself and the Head of Operations who is not here, Mike. And we literally micromanage to a strategy, to a cash conversion cycle, which we desire internally to be 0. That means that the days of inventory is not an after the fact issue. It's a planned supply demand, architected outcome that we manage from the bottoms up that gets monitored and redirected every single Friday.
That's an example. So if you look at my days of inventory being 30, it's not just we got lucky or we run out of parts or with the shortages or this or that. There is probably a very small element of chance that plays on that one, but it's architected from the bottoms up. Same way with receivables. The way we manage our receivable with our customers and our vendors is all architected from the bottoms up.
For me, coming in as a new guy, I'm working with Mike and with Jeff and with all the rest of the team on managing my vendor terms and relationships, the vendor qualification process, the ability to establish the longest possible payment terms without compromising pricing, all of these things are done at the vendor by vendor level. We are a small company, so we can do that. I can spend time doing that. I don't particularly find this the most enjoyable part of my job, but it's part of the keeping the company on a solid foundation, it's part of the architecture in which everything sits on top. And we do that every week.
With customers, Dave, David was a CEO before, so he understands. I don't need to go and Dave and convince him to try to see if we can get our customers to sign up for better shipping terms, better payment terms and so on. He architects that from the bottoms up on the customer master, We have conversations every day. Now Sunnova is not here, so I can say we need to continue working with Sunnova to get the best time in terms that we can, right? And so the idea, folks, is that when we are talking about this Venn diagram on the people process technology, this is a business process that became a finance process, not just a whole bunch of finance guys getting together on Friday reacting on how we are on cash.
We get every week an e mail from Treasury saying this is how much cash we have, And we are on metrics on time. And on Friday, we meet. And we revise the plan and we adjust accordingly. So those things will continue. Now that we have the convert, we'll continue even stronger because cash management, cash conversion cycle, internal target to 0.
We are at 46 right now, right? Our target is 0. 0 means you basically fund all your cash flow from operations, you fund it with basically your vendors and your customers, managing the lowest possible inventory level. We also have a very simple company. We are fabless.
We use our contract manufacturers from which we are looking for multi sourcing, and that's actually a simpler, easier way to manage cash. So if we do the right level of alignments with our contra manufacturers and we establish the best terms that we can, including the shipping terms and warehousing terms, we can actually produce a lot of volume and manage our cash and cash conservation much better, right? So you don't need to consider large CapEx seen on work in progress or whatever, right? So all of these things, the tie out of the capital is associated with purely inventory that we own, which is very minimal, and we manage again through the detail, right? So that gives you the comfort that we have the ability to retract and contract and expand very quickly, right?
So that capability is embedded into the business model that we have. And we use a lot of system and automation to create the right reports and real time reporting as well. The 30, 2010 plan is a P and L look of the world, right? Most of the operations people, they look at the P and L, But I'm obsessed with the balance sheet. And actually, Dave, Mike and I, we are obsessed with the balance sheet.
We want to make sure the P and L fuels the cash flow from operations that we need in order to continue generating cash to self use the money to invest. That's our model, right? So this 30, 2010 is working, and you can see. And you will see the numbers because I couldn't afford not to have numbers as a final presentation, right? But we just generated cash flow free cash flow 2 quarters in a row.
And you will see going forward, you will see a pattern of prediction associated with cash flow generation that ties into the commitment exiting 2018 on the 30, 2010 model. Now I'd like to invite you to extend that model into 2019. That's one thing that I'd like to tell you. This framework is something that we are committed also into the next year. That's one thing that we can commit because this is part of what we do, is embedded into our business processes.
And this, based on the 4 factors of growth that you saw from battery, will not get compromised because those factors of growth are already tied into the 2019 strategy. And that's how we're going to grow, but we're going to grow fast and profitable. That's the idea. So we talk about free cash flow and we talk about the 2 quarters in a row and the business process embedded into that decision. The balance sheet transformation is the one thing that I wanted to make sure that we set up and we get it up and running as soon as possible, right?
Finishing Q3 with a word chest where we have options. Think about we did a convert. On the convert, we got a lower coupon. Is it a perfect convert? Could it have been a better convert?
Could it have been a worse convert? Only time will tell. And you can always look back and pass judgment when the stock goes up or you can pass judgment if the stock goes down, right? The reality is that at this time, the doing an overnight deal that the way we did it, with the terms that we did it, with the demand that we solicited. And the behavior of the bond the day after and the stock price reaction the day after is way beyond our expectation.
In my opinion, based on these transactions and considering that converts normally require one day of at least public marketing, this transaction we did probably about 8 or 9 out of 10 in terms of the way the stock behaved after the fact and in the way the stock traded. There was only one trade, folks, and most of the people are holding it, and the stock was trading at premium. The bond was trading at a premium. So that's a good sign to the transaction in terms of the stability. And now we have access to potential investors to stay longer.
So it's a good decision and we love the dilution. We wanted to maximize the amount minimize the amount of risk associated with the day after impact on the stock. And with that decision, we lost a dilution that we felt it was appropriate considering what we wanted to achieve and the conservative values that we have as a company, right? So that's on the convert. Why the convert?
Well, they give you the financial flexibility. We don't need to pay with cash. We settle physically, meaning we issue the shares. The conversion premium was adequate. The coupon was good considering there was a pre marketed arrangement.
And the demand that we got is actually fantastic from what I can tell, right, based on the I actually read in detail the script of the trading desk to figure it out, even the strategy of these investors, right, on how they are approaching this. So I feel very confident that was a good decision. The 30, 2010 model, the operating model that basically Vale put in place 18 months ago, it started to now show signs of being credible in a way that is actually showing the numbers, right? We have we are getting closer to year end. In 2 quarters earlier, if you exclude the one transaction, the $2,000,000 transaction that we actually reported as a unique transaction, the $2,000,000 in Q2, we still are getting is 28.8% of the gross margin targets, So we are very close to get to that particular exit in 2018 on this 30, 20, 10 model.
I think the challenge will remain on OpEx and but we do have a strategy. And the strategy is actually very clear, very it's not particularly unique. But let me tell you one thing that why the OpEx strategy, the way we are approaching is going to be a little bit unique. It's not unique because everybody offshores or at least they used to offshore. But it used to be more like, well, okay, we're going to look for the labor arbitrage on the long term.
And you continue hiring and hiring and hiring and hiring people on lower cost locations. And then that arbitrage eventually gets diluted over time because the salaries increase and or the cost of doing business outside and the time zone difference is clear, complexity and so on. The way we are approaching it is a little bit of a mix. We are offshoring quite a bit of our capabilities to be able to scale pretty quickly and take advantage of delivery trash. However, we also have a technology roadmap associated to potentially accelerating some of the people process technology requirements, specifically the technology piece to address automation and ultimately scale with this offshoring methodology by not growing the headcount as much as we originally would have planned if that technology was not in place.
And that means taking advantage of better features, better algorithms on our existing ERP systems or even the rollout of new applications over the time of the future as we may be able to afford cloud based solutions. So we are looking at these not just hiring a whole bunch of guys or gals somewhere else and then take advantage of the labor arbitrage, but actually looking at technology as a way of differentiating factors. We also decided that many of the functions required to have a strong presence here in the U. S. And we remain a strong R and D presence here as well in New Zealand.
Those are 2 critical areas that we want to make sure that we don't compromise at any cost. And India itself, Bangalore area is known for having incredible capabilities on technology, for software development and other capabilities as well, right? So you can have the greatest talents at the lowest possible cost with the idea of some automation for scalability of transactional activities and still having adequate brainpower as well in the U. S. And in New Zealand.
So that's our model for the 20% OpEx. And finally, the operating income will be the result of all the efforts associated with the detailed price management process that we are using that Badri explained a little bit how we are approaching, the way we manage our tiering customer, the long tail and everything and the value proposition associated with the go to market strategies that we're going to be developing over time as the new technology IQ8 Ensemble will provide. So the potential of Ensemble in terms of new ways of approaching pricing and selling value is what exactly you heard from Sunnova. And what I'd like to keep your attention is that the only thing I would change that I hear from Sunnova is that we continue working really, really, really, really hard on cost reduction roadmaps. This is part of our DNA.
We just can't help it. We are a semiconductor company basically participating in the solar industry. And we know that removing the moving parts out of our micro and eventually moving those capabilities into the chip is the solution for us to be able to remain cost competitive as we continue value pricing up. That strategy is actually embedded in the company. We have a VP of cost reduction, the same way that we have a VP of pricing, right?
So I feel very confident that this framework has the management team in place, the business process in place and the experience and commitment to deliver on a going forward basis. These are the numbers. I just need to show you the right? And you saw it from Baldi as well. I just wanted to point out on the free cash flow generation 2 quarters in a row, right?
Q3, we have the big investment. So when you look at free cash flow, probably you will see an adjusted free cash flow number because of the onetime investment. And again, we are not going to do I don't envision doing SunPower transaction every quarter, right? One thing I know for sure is me, I've been here for 2.5 months and we did that transaction, which started a week before I joined the company. So I wasn't even on the payroll and I was working on this one on an NDA.
And then we did a convert in 2.5 months. Think about what we can do in the future, right? If we can do so much. And so I'm not going to dwell too much on this other than pointing out that we finished with $58,500,000 of cash. Now you can add the $65,000,000 minus the fees, and then you take out the $25,000,000 And if we generate cash flow through the end of the year, you can do the math on a pro form a basis.
We are well suited. We also have 2 choices. We can actually rework our relationship with existing lender on a better deal if we decide to continue borrowing or we can actually move on and repay that loan and potentially have a nice and secure balance sheet available when we need it, right? So those are things that now are available as of now, as of Friday actually when the transaction settles, right? So that's something that I'm proud to report.
And this is something that Badri I think Badri presented some of these elements, but this tells you a little bit about the history of the company and where we are and this dramatic increase. Now there are a few people out there that when they look at this, they see troubles. They see accounting problems. They see or alternatively, you can see a competent organization finding its way with a great technology to deliver value and ultimately On the balance sheet transformation, we talked about it, about the base business, the thirty-twenty-ten generating cash flows. We talk about the acquisition of SunPower.
It kind of I think there is plenty of information out there, including some guidelines that we provided in terms of the size of the business for you to do your analysis and conclude it was this an accretive transaction or not. And time will tell. And Badri mentioned about the ramp closing 45 days earlier or 45, about 45 days earlier. And now thinking about shipping, you mentioned that, right? Yes.
Okay. So I think that's a success and the reaction and the reports and everything on this decision was pretty good. We talk about the reduction on the meaning targeting a very low or internal target of 0 cash conversion cycle with rigorous management. And then we talked about the convert a little bit, giving you a little bit of a highlight how we feel about the transaction. So this is the process that we follow, I just described to you, right, having optimized receivables, optimized your payables with longer.
So this is super simple model, right? The lowest possible number here, the longest possible numbers here and the minimum number the lowest number that you can unless you strategically build ahead. Like for example, you build ahead components because of shortages, that number should be very low. We had a target in total of 30. I think Valerie is more aggressive.
He wants 25. And with the model that we have right now, the company is a simple asset light business model, right? Fabulous, scalable. So I don't see a problem getting better, right? It will be that number will change.
Right now, it's 46. It will change. You can do your own math. But eventually, it will hopefully move towards a neutral number over time. That's my goal.
This is the kind of the converter that we just done. Is going to settle on Friday, tomorrow. I think that the terms are very good. I said we got a 4% coupon, which is pretty good. The conversion price was okay, it was adequate, I guess.
There was physical sentiment, so we don't need to pay cash for the on maturity on on converts, so that's good. And it's trading well so far, the bond. This is one slide that I want to take a little bit more time because this slide, I think, is important. You heard the presentation of our of one of our key customers, right? And you saw the passion and commitment on our relationship.
You also saw Raghu doing a somewhat passionate presentation. I say somewhat because there's a lot of pressure on Raghu right now, right, and the team, about our new storage solution, complete solution, which includes our micro inside a complete solution. And it's a as a portion of Ensemble. So if you remember the buildup of the Ensemble, what he called the Ensemble marketplace, supply demand of energy marketplace on the AC bus, one of them was the storage solution. And he mentioned about the sweet spot between 10% to 15% this is a 10% for a kilowatt hour, sorry.
So I would say that's probably pretty common in America, right? Probably in Europe and Asia Pacific, a smaller size, we are getting good success with the existing solution, which just doesn't have a backpack capability, right? So I look at the opportunity and I'm a finance guy, I couldn't help, right? And I say, well, how about how many micros we ship per year, right? And you look at 2017, you can look at first half of twenty eighteen and roughly you can do a simple math of 21 panels per home on the average home, just for simple math.
And you can probably average about between 130,000 to 180,000 homes can be served in a given year, right, for as a range, as some kind of ballpark. And then if you assume an attach rate of 3% to 5% for that, And if you think about the pricing that is out there right now for solutions that there are perhaps inferior in some cases because they don't have the ensemble solution or in some cases, they can be probably a little bit better on the degradation front. And time will tell, right? But one thing for sure is that there is a market out there. There is a customer willing to take orders actually issue orders, and we take the orders, right?
And so with the right pricing negotiated and if we stay on the model that most of the investment associated with the R and D for the development of our 10 kilowatt hour solution, right, the modular approach that we have for storage for as part of Ensemble is already is going to be spent already for the most part, already spent in 2018. And then if you believe, like I said before, that our 30, 20, 10 model will be rolled forward into a 2019 way of life, you can do your own you can arrange your own conclusions. We feel this is a good opportunity for us, and we're going to focus on that area of the on a go to market strategy with lining up customers, and I think the demand will be there. And that's how we see the world. Just to give you a sense of dimension on what you just heard about the storage solution.
Now Ensemble is more than that. Ensemble has value it created value and its value to be monetized and shared with the partners that we do business with and ultimately on the total cost of ownership for the residential homeowner, right? And all of those things will be explored and it will be continued to be studied a go to market strategy as part of our Ensemble go to market for the second half of this year. You probably will hear more about it, right? But just one piece, just the storage solution piece and there are framework like this one and think about the opportunities, right?
So You mean gross margin of the corporate average?
I think that I'm not going to comment on the merchants for storage. I'm saying the framework that we're going to keep as a corporate level, it will be following the framework, meaning all our business will deliver that, at least that. That's our commitment. Yes? Well, I'm not going to comment on pricing and I think that we can probably take it you could probably research that out, right?
Yes. I need to repeat the questions. I'm being told, so I apologize. You're talking about for this quarter, Q3? Q3.
Q3. Q7 or IQ8? Because IQ8 I just want to see if I understand your question, Brad. Your question is about second half of twenty eighteen and IQ8 or next year? For 2019, I mean.
Why I'm not guiding up? Correct. Well, I mean, I think the guidance reflect what we understand should be an adequate belief on how the business will perform. Remember that these numbers were given 18 months ago, And we are at 28.5% if you exclude the one time transaction that we disclosed for the analysts to do their own margin analysis. So we committed on a 30, 20, 10 model exiting 2018, and now we are going forward in that another year into 2019.
Now there are all sorts of elements that goes into what how we do pricing, the market risk and so on. And those are already incorporated, including tariffs and so on. They're incorporated into the framework, right? That's how we felt comfortable that, that model was adequate for us right now. Sure.
I think we are committed to the existing model and we are not resetting the model right now, right? And I don't I'm not going to comment I mean, the reality is IQ7 has the benefit that we open new markets, right? We also committed to profitable top line growth. So there are trade offs there that we are evaluating. So at the end of the day, we talked about extensively whether we want to go ahead and commit to a bigger gross margin and all of those.
And when we look at the dynamics of the market, we look at the risks. The risks associated with ramping a new product, incorporation of IQ8, additional expenses that we may incur, tariffs, trade wars and all these things. And guys, we are in solar. This is a solar industry, right? So those things are in tune.
So for me, this commitment at this point is the right commitment for the company. And I think it's a cash generating commitment, which is I'm very satisfied with that at this point. And we are a very cautious management group, right? Yes.
Okay. So the question from Brad was you are already at 28.7% or 30.5% gross margin in Q2 of 2018. Given your low IQ7 conversion rate. So therefore, if your conversion rate increases in Q3 and Q4, would you be at a higher gross margin? That's the question, Brad.
Right. We are obviously doing very well. It's clear. And yes, the IQ7 will be at 65% of shipments in Q3. And for example, Australia and Europe for the first time will be having a 7th generation product versus right now they are on the 5th generation product.
So that will obviously help. And that the conversion is going to be higher in Q4. But like what he said, we are not in a normal industry. We are in solar. I hear 10% of tariffs one day.
I hear 25% of tariffs one day, right? So therefore, for us is although we are actually conservative management, right? So although we are doing extremely well, we need to take all of these headwinds into the picture and we need to prepare the company for these. So at this point, we are really comfortable with our model 30, 2010. And storage, he asked the same question.
We think the storage gross margins will also be very close to that corporate model. And we're not going to change the model right now.
Okay. So there is You want to repeat the question? Yes. Okay. So I think let me paraphrase a little bit here, right?
So I think your question is, look, you got IQ 7 coming up, which definitely improves your margins or will improve your margin of quicker pricing intuitively. You're saying basically a variation of the same comment that Brad made, right? And by you're also saying there is a trade off in your mind between market share growth and the use of that potential gross margin to subsidize that growth, right? That was the question, right? Okay.
Yes. We can make those decisions almost real time in terms of the way we do pricing here and the way we approach our decision. It's actually pretty dynamic, right? So short of saying that we are using dynamic pricing, and maybe Dave can answer some of these questions, right? I think tough decisions can be done really well.
The question for the critical thing for me is this. Is that the only way, right? Because we also have value pricing, right? We probably can get a situation in which we have growth where the gross margin could be bigger, right? So there is not an we are not denying the possibility that the model can be beat.
We are not saying it will be exactly that. We are saying we are committing to this operating model. That's what company says based on the visibility that we have and considering that we are a fairly conservative group of people that we don't like to overcome it. And with that being said, the trade off or the real time trade off between market share, pricing and all of those things eventually could lead to a favorable situation, right?
So Colin, am I on? Yes. Okay.
With IQ6,
we had to turn down a number of valued customers because the costs are too high. That's right now changing. The costs are coming under control. IQ7 is ramping. But there is more important phenomenon here.
Because of the value associated with IQ8 and Ensemble, customers are now coming back to us. It is much more strategic discussion now involving solar plus storage versus previously, which was only solar and completely commodity based. With Ensemble and with our differentiation of software and semiconductors, we are really approaching that as a value sell. And that is like 2 of the top tier ones across the world have come back to us and want to reengage on the next platform, right? So we will not be we will not lose our discipline on pricing for sure.
At the same time, we value these strategic relationships. If that relationship is going to be purely a commodity play, I'm not interested in playing. If it's going to be something that has long term value, then I don't mind being a little bit off in pricing. But for me, what is important is that there is a really healthy relationship, the one that you saw, for example, with Sunnova. And we talk about a platform cell versus pure microinverter cell.
That's where we've gone.
So if I can paraphrase,
Yes. Yes. And we are not going
to guide you. We are back.
We are back there.
We are back. But we are cautious, right? We are back and cautious.
Sure. On? All right. So the question is, what is our view of our reliability versus strength? And so I'm not going to talk about anybody individually, but you can go look at that and some of that's public.
And that the versus the numbers I showed you for our current generation technologies, their public information, their failure rates are 5x to 10x higher than ours.
We showed am I on? What is the failure rates of eCAPS and we have been told that eCAPS is a failure point, etcetera. We showed that in the last analyst meeting. We even showed a graph that till date, the total number of eCAP failures is 9 bppm, which means out of every 1,000,000 units that we ship, 9 parts come back to us for capacitor failures and those are not even confirmed as ECAP failures. So the failure rate is at an all time low, and we are extremely confident that eCAPS are reliable.
What is the impact of tariffs and how does it affect the customer relationships? How does it affect pricing, etcetera? That's the question. Long answer, because there are a lot of tariffs, right? We had the 201 first.
The 201 tariffs was imposed on modules. Now the AC module got inadvertently affected because of the 201. The microinverter portion of the AC module was also erroneously tariffed. We have basically filed an exclusion with the USTR and we are still waiting to hear from them. That is on the 201 case, right?
So, so far everybody with me? That's the first one. The second one is 301A is what I call. 301A is the $50,000,000,000 tariff that Trump imposed. On that one, the microinverters were not affected.
Then there was a $200,000,000,000 of tariff that is called 301B. Okay? That one, microinverters are affected by 10%. Okay. And that 10% is fluid.
It can go from 10%, it can go 15%, 25% and it's still not decided, no decision has been made. And of course, we are fighting for exclusion, etcetera. But our strategy is pretty simple. We recognize the need to have contract manufacturing outside China. We are already proceeding towards qualifying Mexico.
I've already invested the capital for that. I'm going to have a manufacturing in Mexico in 6 to 9 months, like what I said on the earnings call. And those are actually happening as we speak. Okay. And for us, we view this as an opportunity to both reduce cost because when we have multiple contract manufacturers, multiple availability, multi sourcing, it helps overall.
So not only it is the tariff mitigation, it's going to help us eventually in costs. So did I answer your question a little bit? I mean, we haven't seen any big customer impact because of the 201. I haven't seen at least in the residential market. And the pricing situation is very stable.
I haven't seen much there. Yes, of course, the module prices, they swing all the time. And I think eventually it will be good for the end consumer. But as far as the pricing pressure on us, we haven't seen that much. How much volume are you planning to manufacture in international locations will be served from China and all the U.
S. All the international locations will be served from China and all the U. S. Locations, I mean most of the U. S.
Locations will be served from Mexico. That's to a first order. That's we might refine that thinking as time goes, but that's what we are thinking We haven't finished the presentation yet, so. All right. I am going to finish the last slide and then
I'm happy that we got all excited with my final Oh, yes.
Okay. So, conclusion, everybody hates this pitchfork here, but still. So we talked about creating a solid financial foundation for profitable top line growth, right? And that's the focus of the company now. Cost is in our DNA.
We know how to do cost. 30, 20, 10 comes naturally to us now. I still go to meetings. I still sit 3 hours a week on cost. But this is coming naturally to us.
Supply chain, pricing management, IQ7 transition, these all will happen. We know how to do this. The solidification of market share leadership in microinverters or in inverters is going to be enabled by IQ7. We got a beautiful platform. We got a lot of regions to go penetrate.
We are doing that now. That is not possible before. IQ7X that supports 96 cell modules now, that is not possible before with IQ6. And the acquisition of the SunPower's microinverter business advances ACM, that will add on top of it. Okay.
So that's more in the short term. And then Ensemble, we expect it to be a game changer, especially the storage side, as somebody pointed out, it's going to increase. I mean, the higher the storage attaches, it is for us because it's going to increase the revenue per home, right? So we are extremely excited on Ensemble Solar and Storage. And that's where our the name of the game again is that we are an innovation focused company.
We have differentiated products to solve customer problems and that is why I think that will be a big winner. Okay. So with that, I will stop and now we can have questions, So Raghu, did you get the question? Yes.
So you're asking storage attach rates in places like Australia and EMEA. Our Australia is the biggest market for us, that's 25 megawatt hours, I'd say close to 60% of that, 65% of that is in Australia and the rest is in EMEA. It's very interesting. I don't know the specific number on attach rates exactly. But there's an interesting caveat to that is that 40% of all our attached systems that were installed were on non Enphase systems.
So it's not just people aren't just buying storage to attach it to with the Enphase system, but they're taking that and attaching it to non Enphase. There are a couple of other dynamics there as well. It's the sale is still complex, right? Trying to sell storage is still complicated, trying to explain to homeowners, hey, this is what your ROI is going to look like based on rate arbitrage. Backup is a pretty straightforward and easy sell.
So what people are doing, the reason why they like the 1.2 kilowatt hours is it's a very low price to entry. So people are saying, yes, I know, I know, let me just go and commit, get a 1.2 kilowatt hour block right now, knowing that as the market matures and people start to better understand what the use of storage is, what the economics there are, they can come in and add more to those existing systems. So those are the how we are seeing the dynamics there. That's why actually, even though we are pushed we announced the in charge 3.3, we are not going to we're going to still offer the 1.2, because people want that. We have been customers are saying don't we like the low one.
The 1.2 is good as well.
What the attachment rates are within the SunPower's dealer network
today? They publicly did give a number 35%.
35%. 35%, yes, 35%. It's publicly available information, 35 percent. I think the San Juan also disclosed, I think, Vivint when they acquired them. But this is they just did it.
Do you want
me to take that? Yes. We see a mixture of both. So we see a mixture of both. And will you repeat the question?
Okay. The question is how are you going to get your OpEx to 20% of sales? Is it by growing your revenue or is it by cutting costs, right? The like what I said, one of our cornerstones is we are not going to be cutting innovation. In order for us to do that, we need to have the right people at the right places.
Okay. And what I say is the right people at the right places is to not have India as a location just for low cost in some areas. The way we are approaching India is all functions will be in India. For example, today, our entire operations is running from India today. Our revenue tactical, meaning the sales operations, the sales operations, not sales, sales operations role is being run from India.
We also have hardware and software teams ramping up. We have our pricing teams ramping up. We have our customer service ramping up. So once you have an ecosystem that is there, which is at a cost, which is much better compared to regions like here, We should be able to take OpEx down, right? But at the same time, at the same time, I want to add targeted places.
I want to add here, like for example, Martin, he is the Chief Technology Officer in the company and we need 5 more people like him in his team, right? And that talent I will not be able to get in India, that kind of talent. And like Dave wants to expand the North American sales team to go after more accounts as well as the Europe sales team. Those I can't have in India. But I will create the room for all of those and drop expenses because I'm moving the execution teams very fast there.
So I hope I was
a little bit clear there. And that's why we were very confident of meeting the 20%.
Your comment about the 2 Tier 1s that have recently come back and reengage, can you give us some more color about what level of engagement or what stage of cycle you're in with them? And were these previously customers? And why did they did they step away because of bankability reasons and now that's available or is it more IQ8 driven?
Yes, I'm not going to provide that much color. Okay. But we walked away from some of them because we just didn't have the right cost to serve them. But now we are in a well placed position. And so the relationships are resuming and it is mostly on I mean, of course, they want to buy IQ 7, but it's mostly on Ensemble Solar and Storage.
And bankability play a big role on coming back? Yes. I mean, the
bankability is off the table, like what he said, so I'm not even going there.
It's pretty impressive that you put the convert in place in roughly 8 hours. Given that, can you comment, can you tell us the profile of the investor? Who was the banker? Are these debt funds exactly who invested in this?
Okay. So the book runner was Credit Suisse and Credit Suisse. And the profile of the portfolio is very large hedge funds of which they actually participate on the loan. They have loan participation. So we were very selective in how we approach filling the book, and we were very deep into understanding the strategies.
And obviously, nobody is going to commit to anything, right, in terms of a particular strategy, certain strategy, right, can change or whatever, right? But I think that the biggest concern that we have is we wanted to open the opportunity for long investors to come in. And I think we are not exactly where we wanted to be, but we the behavior of the bond, the selection of the large hedge funds, all of them actually makes you believe that
we are in a good position right now. And one other point to add is T. J. Rogers, he got in originally at $0.92 if I remember right, in January of 2017, he invested $5,000,000 and now he invested again $5,000,000 at 5.56 dollars right? So yes, that's a data point for you guys.
Okay, go ahead.
So let's look at it please repeat the question. Yes, so the peer to peer trading is that something that Ensemble can handle or is it something that you have to do a lot more work on to make it happen? So we start with always when Martin and I were talking in the very early days, it's the right thing to do is to put the right architecture in place. If you have the right architecture in place, all of these can be enabled over time. So the very intrinsic nature of what we do is fully distributed.
So we never went away from that. It would have been very easy to say we're going to make a centralized or central authority that manages resources and that would have been the wrong architecture. So it took us which would have been easy to do, would have been done faster, but it would have failed at its very core in that it wouldn't be capable of enabling things like what you're talking about where you're looking about peer to peer transacting and everything. We didn't talk a lot about that in this analyst call. We're going to save something for the next one, right?
So we don't have we are being very cautious about what we are talking about in terms of what the capabilities of Ensemble are today. But the architecture exists in order to do more and broader things in the future, without a doubt. And what I'll do is trigger things like new business models, etcetera, and that's what talking to John was very interesting about, right. That's why we work closely with the partners like John at Sonova.
I don't have I don't keep track of that. I'm not going to talk about it. No. It's hard for me to put a number to it. But I think what is the most important thing here is, they are not only coming to us for IQ7.
The engagement is not just on solar. The engagement is on the entire system. The engagement is on solar, storage, load control, ECL, the entire thing, the entire system. So the discussions have moved from a tactical level to another level. And we would like all relationships to become like what they are with Cinnova.
And I think they're getting there. And Ensemble is playing a big role in actually enabling that for us.
Moving from the widget to the solution, complete solution, right? Yes. Those are the right conversations,
I'm going to have Eric answer all the difficult questions.
I can answer all the questions that I cannot answer, I guess, by not answering them. But Yes, you got to repeat that.
I think that You got to repeat the question. Yes. So Can you give us guidance for 2019? That's the question. Yes.
That was the question. The answer
is no. Well, I think that the way I am approaching this Sao Paulo transaction is the we went a long way providing ranges of the opportunity. And the reason we did that, and although I pushed back on Badri a lot, right, because I was new and suddenly I found myself providing these kind of guidelines, right? But Badri was very smart on one point. He says, we will make a transaction like this one.
We will make an investment of this nature. How do we get the market or the investors to understand how important it is and it meets the minimum economic asset test. And if you do the valuation analysis on company valuation and all the metrics associated with that, you basically get that at a minimum. You also get that at a minimum the opportunity, even though we are committing to a 30, 20, 10 in 20 19, you see the margin kind of accretion of that transaction. Then it's the conversation about what do we do with that, right?
And how do we approach it, right? So that's the 2nd piece. In terms of what I think that on this transaction, what is the biggest piece that is missing is what is not but it's not part of the transaction that comes with the partnership. That Valerie mentioned multiple times and for some reason, we are getting questions about the transaction and not getting questions about the opportunity. And I think the we are already operating internationally.
I believe SunPower has a desire to continue to play internationally. They have a presence there. We have a presence there. We know how to do business there. I believe they don't have a complete solution there, right?
So and now we have IQ8, and IQ8 was not part of this transaction. But we have this trusted long term partnership with SunPower, Europe, Asia Pacific and so on. So the way I'm answering your question by not answering the question is think on both terms. Think about now suddenly we have IQ7. So even if we don't do IQ8, we have IQ7 and IQ7XS and it's a push on the firmware.
Same supply chain, that's why the OpEx that we provide as a guideline meets the asset test criteria, at least for me to get comfortable that we disclose that, right? So I think these partnerships that you see playing out, the Sunnuba, the SunPower, those ACMs, ones that Badri mentioned, all of those are real and the opportunities will come out of that.
Expectation for growth for the
company is about 23% on the top line. That's maybe in the guide, but that's what the street estimates are looking at. So, in that context, we see the market, is the TAM going to grow about that much for the company with the new products and you don't that's kind of the pathway towards reaching to that is the PAMLR growth sum and then we're going to gain some market share back?
Let me answer that question. I mean, you talked about some numbers, right, 20%, 23%. So the question is, your model assumes Okay. 2019 consensus assumes a 23% growth from 2018?
380 to 380 to 310.
So from 2018, it assumes 23% growth. So what do you think about that? How is that going to come? So of course, I mean, we already told you one, he answered that question. One is, it is going to come from SunPower that you already know.
The second one, we already told you how excited we are on the storage front. Eric, he actually went and gave you some kind of attach rates there. That's 2. And then 3rd is all of the things we are doing right now on the regional expansion, on developing high power products, on our AC module partnership, there we haven't even scratched the surface. I mean, we are actually engaged in the AC module partnerships with India folks, with Europe folks and we haven't announced those and we'll announce when we're ready.
But like what I said, there is no secret there. It is regional expansion. It is SunPower. It is high powered modules. It is AC modules and of course, Ensemble storage.
Those are the
vectors.
How many people from Solar Bridge am I keeping in Texas? Roughly 15.
And then
just curious on for review the 25 megawatt hours of storage cumulatively they sold. Can you give us a sense
But 2 per home, so 2. Apples and oranges. Right. So first thing, apples and oranges, because that we are talking about 1.2 kilowatt hour system. Eric, whatever he told you was for mCharge, which is the 10 kilowatt hour system.
And he just back up. Just wanted you to Can he back up? Yes. That solution, the new solution has got back up, while the old solution does not. So having said that, each system that we have sold previously, which is we call ACB 1.0, which we have shipped over 25 megawatt hour, each system or each home has roughly 2 micro, I mean 2 AC batteries, 2 AC batteries per home.
So that's without the
right? When you look at EMEA APAC, their backup is not has not been such a big use case for them. It's about rate arbitrage. When you look at, we expect that a lot of the in charge, the 10 kilowatt hour sweet spot that we're referring to is more than North America play and backup is a very big, it's still going to be a pretty big player, which means by definition you have to do a micro ATS etcetera. So you're right.
So it's a different thing for North America. Yes.
But I think a good follow-up on that question, Raghu, for clarification. I know where you're going. When you when we are looking about the thing, let's say, kilowatt hour battery backup solution, right, in charge, with that, you need a component element to it. If there is a component, what would that be? I think that's your question, right?
Yes, that's correct. So you have that if you want to enable inCharge to have backup capability, then you need to have a micro ADS to go with it. If you want to use InCharge again for pure demand charge or as a grid type system, you don't have.
I can tell you what we are seeing in the market. I mean, we take all competition seriously. So we are all the time looking for signs. And so far, we haven't seen much yet. And we hear it is sometime late Q3, Q4, but we can't confirm.
I mean, so far, we haven't seen much impact.
Could I ask one about the retrofit opportunity? You mentioned on the call the M190 and M215 replacement. But then also if you think about the IQ8, you've shipped 700,000 plus systems historically. Wouldn't there be an opportunity for customers that had a non grid agnostic system to swap out, say, half of their inverters for an IQ8? And then also, is there a retrofit opportunity for systems that might be, say, SMA or another string inverter to add IQ8 to their system and become grid agnostic next?
Yes, those all opportunities exist. IQ8 will be ideal. But again, to be pragmatic, right, we are like what Eric said, we are conservative. We have to first walk before we can run. Our focus right now is to get the Ensemble product out, right, and to engage with the Tier 1s is to make sure we basically start selling the entire system.
When I say the entire system, solar plus storage plus ATS, right, plus cloud. So get that going, make that bulletproof. And then I come back to the retrofit market, which is huge, and do targeted marketing, see what they want. So absolutely.
You mentioned software and services are going to triple again in 2019. Can you just give us some examples of what types of products you can charge for in a software model that you could not in the past?
Right.
So basically, I mean, I'll give you a couple of examples. One is we develop a lot of APIs that a bunch of developers want to use. So that is a licensing model that we're already getting revenue from. I mean, of course, the revenues are nothing close to material, but they are increasing. And then the second one is, yes, again, a flavor of what we do, because there are a few others that we are not going to talk about today.
The second one is something like an Enlightened Manager, an advanced Enlightened Manager Plus, which basically gives the homeowner a lot more customization, a lot more color of what's going on at the per panel level in a much more intuitive way. That if we provide that value and the customer is ready to pay for it, those are 2 options that would be scratching the surface.
And the model I think will be distributed model, right, meaning for the homeowners who have full control over their experience, right? Right. We are not thinking about controlling and right? Yes. That's not the way we are thinking.
I think we are out of time. It's time to go for lunch. All right. Thank you.