Day, ladies and gentlemen, and welcome to the Enphase Energy's 4th Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms.
Christina Carrabino. Ma'am, you may begin.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's Q4 year end 2017 results. On today's call are Badri Khlathanduraman, Enphase's President and Chief Executive Officer Bert Garcia, Chief Financial Officer and Raghu Balour, Chief Product Officer. After the market closed today, Enphase issued a press release announcing the results its Q4 year ended December 31, 2017. During the course of this conference call, Enphase management will make forward looking statements, including, but not limited to, statements related to Enphase Energy's financial performance, market demands for its current and future products, advantages of its technology and market trends. These forward looking statements involve significant risks and uncertainties and Enphase Energy's actual results and the timing of events could differ materially from these expectations.
For a more complete discussion of the risks and uncertainties, please see the company's quarterly report on Form 10Q for the quarter ended September 30, 2017, which is on file with the SEC and the annual report on Form 10 ks for the year ended December 31, 2017, which will be filed with the SEC in the Q1 of 2018. Enphase Energy cautions you not to replace any undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statements as a result of new information, future events or changes in its expectations. Also, please note that financial measures used on this call are expressed on a non GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. The company has provided reconciliations of these non GAAP financial measures to GAAP financial measures in its earnings release posted today, which can also be found in the Investor Relations section of its website. Now, I'd like to introduce Badri Kassandraaman, President and Chief Executive Officer of Enphase Energy.
Audrey?
Good afternoon, and thanks for joining us today to discuss our Q4 and full year 2017 financial results. We had a profitable quarter. We reported revenue of $79,700,000 for the Q4 of 2017 at the higher end of guidance. Our non GAAP gross margin in the 4th quarter was 24.2%, also at the higher end of guidance. Our non GAAP operating income was $1,300,000 This return to profitability represents a significant milestone for the company.
My top priority at Enphase is to build a solid financial foundation by improving operations and fortifying the balance sheet. We are making excellent progress towards achieving our target 30, twenty, ten financial operating model. We are targeting 30% gross margin, 20% operating expenses and 10% operating income all by the Q4 of 2018. In 2017, we sequentially increased our non GAAP gross margin every quarter from 13.3% in Q1 2017 to 24.2% in Q4 2017. This margin improvement came from the IQ6 transition, supply chain optimization and pricing management.
On supply chain optimization, we were laser focused on the IQ6 transition in 2017. We successfully executed on multi sourcing strategies for our microinverter components and accessories in addition to reducing overhead costs. In short, we went through a major cultural transformation and developed systematic business processes for achieving world class costs with cross functional teams spanning the entire company. We introduced IQ 7 in the Q1 of 2018. We expect IQ7 transition to be fully complete in 2018, leading to further improvement in our gross margin.
It is important to note that IQ7 is a worldwide product SKU and every one of our regions will transition to IQ7. This is a notable difference from IQ6, which was primarily a North American product. Another lever that is instrumental in gross margin improvement is pricing management. We have been disciplined in keeping pricing flat for the last couple of quarters. We have established a dedicated pricing team led by a senior executive to underscore its importance.
So pricing management in 2017 was focused on transactional control, which is establishing policies and procedures and executing them rigorously. In 2018, we will focus our efforts on value creation for installers through product segmentation. For example, introducing high performance AC modules with our partners. In recent interviews, which we conducted with installers on their AC module experience, they reported installation time savings up to 20%, logistics savings up to 10% and simpler inspection procedures when compared to a discrete solution. In summary, we are confident of achieving our 30, twenty, ten financial model by Q4 'eighteen with continued cost management via supply chain optimization and IQ transition combined with pricing management.
Now turning to the balance sheet. We exited the 4th quarter with a cash balance of $29,100,000 and recently closed a $20,000,000 private equity investment. This additional liquidity will allow us to grow our market share as well as accelerate our cost savings initiatives. We have also sharpened our focus on improving AR, AP and inventory management business processes to improve the cash conversion cycle. Bert will go into greater detail about our financial results later in the call.
Now turning to our markets. The 4th quarter revenue in the U. S. Was up 4% sequentially. We completed the transition to our IQ6 product for our North American customers during the Q3 and substantially all 4th quarter inverter shipments to this region were IQ6.
In Europe, revenue was up 1% sequentially and 66% year on year. We maintained our market share lead in France and grew market share in Netherlands. We look forward to introducing IQ in Europe and increasing our served available market by entering Germany and Austria. In APAC region, revenue increased 51% sequentially as the demand for our products continued to grow and we added to our customer base. India is starting to ramp revenue for us and we expect the business to grow significantly in 2018.
Both IQ6 Plus and IQ7 Plus are already certified for India. We opened an R and D center in Bangalore, India during the Q4. Our presence in India enables us to leverage the enormous talent available to grow the business worldwide, while maintaining control on the OpEx. In addition, we see a growing commercial opportunity for Enphase in India as the country is powering the growth of solar with its ambitious target for clean energy. In the Latin American market, the 4th quarter revenue was down 58% sequentially as a continued result of the devastating hurricanes in Puerto Rico that occurred last August September impacting overall shipments to the region.
Mexico, however, remains a strong market for Enphase. Moving on to products. We released IQ7 in January 2018. IQ7 is segmented into 3 variants: the 250 watt AC IQ7 for 60 cell modules, the 295 watt AC IQ7 plus for 6072 cell modules, and the 320 watt AC IQ7X for 96 cell modules. Note that IQ6 was not compatible with 96 cell modules.
IQ7X fills that gap now and makes that market available to us. We have started shipping IQ7 to our U. S. Customers and we expect to start shipping to rest of the world in the Q2. We are experiencing the industry wide component shortages in our IQ7 rollout and we are working diligently through the issues.
We recently announced a strategic partnership with Panasonic Corporation of North America for the development of high efficiency AC modules using our IQ7X microinverter, which addresses 96 cell modules. In addition, we are working with several other partners on IQ7 based AC modules. While IQ7 provides us with a good platform for growth in 2018 worldwide, IQ8 based on our grid agnostic always on Ensemble technology has the capability to transform our future by increasing by creating new market opportunities. So one of solar's biggest challenges is that it is grid type. What that means is if the grid is failing and the sun is still shining, there will be no production out of your solar system.
To address this limitation, we have invented a microinverter technology that is completely grid agnostic. The Enphase system's capability is further enhanced when the Ensemble technology is incorporated into our AC battery storage solution. With IQ8, you can have a system that will continuously provide energy regardless of the presence or absence of the grid that is solar during the day and storage at night. This is what we refer to as always on. We continue to make progress on IQ8 during the Q4.
The ASIC used in IQ8 represents a mini power plant and is the brain of the microinverter. We are pleased to report that the ASIC is fully functional, demonstrating the feasibility of Ensemble technology. The ASIC has 5,000,000 gates and is made in 55 nanometer state of the art technology at TSMC, enabling very high speed digital signal processing. We are continuing to productize IQ8 and we expect to introduce it in 2019. We will update you on IQ8's progress over the coming quarters.
In summary, we are encouraged by our overall progress in 2017. Our 30, 2010 transformation is going well. We are committed to creating a solid financial foundation with further gross margin expansion and sustained profitability in 2018. I would like to thank our employees for their hard work and dedication and our customers, partners and shareholders for their continued support and interest in Enphase. Now I will turn the call over to Bert for his review of our financial results.
Bert?
Thanks, Ladri. I'll provide more details related to our Q4 fiscal year 2017 financial results as well as our business outlook for the Q1. As a reminder, the financial measures that I'm going to provide are on a non GAAP basis unless otherwise noted. Total revenue for the Q4 of 2017 was $79,700,000 an increase of 3% sequentially. Total net revenue per DCE watt decreased by 11% in the Q4 of 2016 consistent with our expectations for year over year reductions in ASPs.
Total revenue for 2017 was $286,200,000 representing shipments of approximately 2,900,000 microconverters and 8 37 Megawatts DC, a 1% year over year decrease in megawatts shipped. We shipped approximately 2 21 megawatts DC in the Q4 of 2017, a decrease in megawatts of 4% sequentially. The megawatt shipped represented 755,000 microinverters, approximately 73% of which were our new IQ microinverter systems. As Badri mentioned, we completed the transition to our IQ6 products for our North American customers during the Q3 and as a result substantially all 4th quarter shipments to these regions were our IQ6 product. Non inverter revenue, which includes our AC battery storage solution, Envoy communications gateway and all accessories increased as a percentage of revenue compared to our prior quarter results.
Non GAAP gross margin for the Q4 of 2017 was 24.2% compared to 21.8% for the 3rd quarter. We're pleased with the progress we've made with our gross margin expansion. The increase reflects the transition to our IQ microinverter system in North America and the improvements to date we've implemented on our supply chain optimization initiatives and pricing management. Gross margin was negatively impacted by approximately 1% related to expedite fees that we incurred because of industry wide component shortages. Non GAAP operating expense increased approximately $1,000,000 sequentially from $16,900,000 in Q3 to $18,000,000 in Q4, primarily due to an increase in R and D expenses related to the development of our IQ8 product.
As compared to the Q4 of 2016, we reduced non GAAP operating expenses by 23% or $5,500,000 reflecting the cumulative impact of restructuring actions and operational efficiencies we implemented. Non GAAP operating expense in the Q4 of 2017 excluded $2,000,000 of restructuring charges and $1,200,000 of stock based compensation expense. Non GAAP operating expense for 2017 was $72,800,000 compared to $107,600,000 in 2016. This 32% decrease is reflective of our hard work and commitment towards establishing a solid financial foundation. We believe we've laid the groundwork for 2018 to be successful and grow our business.
On a non GAAP basis, income from operations was 1 point Non GAAP net income was $683,000 resulting in Non GAAP net income was $683,000 resulting in $0.01 per share compared to a non GAAP net loss of $964,000 in Q3 or a loss of $0.01 per share. On a full year basis, non GAAP net loss for 2017 was $20,500,000 or a loss of $0.25 per share compared to a non GAAP net loss of $52,400,000 or a loss of $1.06 per share in 2016. The significant year over year improvement underscores the substantial work we've done over the past 12 months to solidify our financial footing. Now turning to the balance sheet. Inventory was $26,000,000 for the 4th quarter compared to $25,300,000 in the 3rd quarter $32,000,000 in the year ago quarter.
As Bhadri mentioned, inventory management is one of our key cash management initiatives in 2018. We exited the quarter with total cash balance of $29,100,000 a slight increase from the Q3 balance. On February 9, we sold approximately 9,500,000 shares of the company's common stock in a private equity investment at a price of $2.10 per share for gross proceeds of $20,000,000 Now let's discuss our outlook for the Q1 of 2018. We expect our revenue for the Q1 of 2018 to be within a range of $65,000,000 to $70,000,000 Turning to margins, we expect GAAP and non GAAP gross margin to be within a range of 22% to 25%. Note that our Q1 gross margin guidance includes the negative impact of higher expedite fees resulting from industry wide component shortages.
We expect our non GAAP operating expense for the Q1 to be within a range of $17,500,000 to $18,500,000 and GAAP operating expense to be within a range of 19.5 dollars to $20,500,000 including an estimated $2,000,000 of stock based compensation expense. Now, I'll open up the line for questions.
Thank Our first question comes from Eric Stine from Craig Hallum. Your line is open.
Hi, everyone. Maybe to start with the IQ7 and just to confirm, did you say you're rolling that out in Q2? And as we think about some of the new markets you're entering, I mean, which ones should we look to be meaningful contributors first, maybe in Europe and also in Asia?
So let me talk about the IQ7 rollout. We announced that we are rolling out IQ7 in Q1 of 2018, which is this quarter. We have already done that in North America. We are going to roll out IQ7 in the rest of the world in the Q2 of 2018. And let me remind you of all the benefits of IQ7.
So IQ7 produces 4% more power, is about 17% smaller and 19% lighter than IQ6 providing value to installers. It is a single worldwide SKU so that it improves product velocity and operational efficiency, which is inventory. And IQ7 expands our served available market, which is primarily in Europe and Asia Pacific. When I'm talking about Europe, I mean Germany and Austria. When I'm talking about APAC, I mean India.
So and if you note, the rest of the world product is moving from the 5th generation of microinverter to the 7th generation of microinverter, which is IQ7. So that is gross margin expansion. And IQ7 ACM will inherit those benefits. The last one, which is icing on the cake is IQ7X. Note that IQ6 was not compatible to 96 cell modules and IQ7X changes that.
Our 320 watt AC IQ7X is comparable to 96 cell modules and it has 97.5 percent CEC efficiency. So it addresses a huge portion of the market in North America, which was not available to us previously in IQ6.
Okay. Got it. That is extremely helpful. I guess, talking about the benefits there on the installation side, and I guess this also kind of works with the AC module as well. Just, you mentioned the positive feedback from installers.
Just curious how that is playing in the market given that it sounds like in response to the tariffs that a lot of installers are choosing to absorb that cost rather than pass it on?
Yes. So let me start with the AC module. So the AC module provides a lot of value by absorbing the field assembly of the module and microinverter into the factory by integration. You know that we announced ACM partnerships with LG, Chinko, Solar World and Warri in 2017. We started shipping microinverters to our ACM partners from June 2017 and they started hitting the channel in October of 2017.
We have also involved I mean, been heavily involved along with our partners in training and evangelizing ACM with installers. I'd like to remind you once again that our interviews with installers have indicated up to 20% savings on installation time and 10% savings on logistics. We are working with a number of other module partners and we'll announce them when we are ready. We already told you about the Panasonic partnership as well for IQ7X ACM, which addresses 96 cell modules. Let me now come to the 201 case.
So the 201 case has created some headwinds on our ACM progress. The tariff inadvertently affects the ACM, while the intention of the tariff was only for cells and modules. So we are actually diligently working on getting exclusion on the microinverter portion of the ACM tariff and we are working with the USTR on that.
Is there any thoughts on how long that process could be or just play that one by ear?
Well, we are going to submit our response within the allowed time. We are going to actually submit the response in 30 days. The allowed time is 60 days. And after that, I think they will probably take another 30 days to government process. Got it.
Yes, it is a government process, so it's not going to be predictable.
Right. Okay. Thanks a lot. Yes.
Thank you. Our next question comes from Jeff Osborne from Cowen and Company. Your line is open.
Hey, good afternoon guys and congratulations on the results and margin expansion. I was wondering if you could just touch on the component MOSFET and IGBT shortage that you've talked about and others have talked about in the space. 2 part question. 1 is, how long do you think it will last? And then, I think as part of the guidance, you talked about that impact in gross margins.
Is there any way to quantify what that impact is?
Yes. So let me give you some color on the component shortages. I'll give you a little bit of history as well. We experienced significant component shortages throughout 2017. These component shortages were mainly on high voltage FETs and on memories.
Our gross margin was negatively impacted by 1% to 2% due to expedite fees in Q3 2017 and Q4 2017. In Q1 2018, we see continued pressure on the same components. In fact, we think this component shortage will persist throughout 2018 and even into early 2019. And it is top priority for us as a management team. We are always working on a 3 horizon framework to tackle this.
In the short term, it is basically hustle like hell, which is blocking and tackling. In the medium term, create viable options, look at alternate sources, make our design more flexible, even changing layout. And in the long term, given our improved liquidity position, create long term supply agreements with our partners. So to answer your question, I expect the same 1% to 2% impact to gross margin in Q1 of 2018. And we have that in our guidance.
Yes. As I was going to say, I mean, you knew about the shortage in 2017 in the spring. I think it started. So I assume that's factored into the 30, 2010 plan or should we discount that by a few points?
No, you should not discount that. It is already factored into our 30, 2010.
Okay. I wanted to double check on that. And then can you just talk about the cadence of OpEx throughout the year? Is the Mackenzie study still going on? And how does that progress as the second half evolves?
The Mackenzie study is done. It was finished in Q4 of 2017. So let me give you a little bit of color on our OpEx. We have reduced our OpEx significantly from $108,000,000 in 2016 to $73,000,000 in 2017. Our current OpEx is a little bit high.
It is at 22% of revenue. I would like it to be at a model of 20% consistent with the 30, twenty, ten operating model. And we have certain investments that we want to make on the IQ7 I mean, on the IQ8 platform, which we are not going to compromise. With that in mind, we also established an R and D center in India, where we do expect to get to our long term 20% OpEx target and have absolute and have the adequate capacity.
Perfect. Thank you. That's all I had.
Okay. Thank you.
Thank you. Our next question comes from Brad Mako from Ampac. Your line is open.
Hey, gents. How are you doing? Can you talk a little bit about just with the IQ7, 8 and the 6 roadmap, how has that changed the tone with your customers? And how does that how do you view your market share trending in 2018? And also along with that, how do you see the end market growing?
Thanks.
Right. IQ 7, like what I said, it produces more power. It is 17% smaller, 19% lighter than IQ6. So it provides intrinsic value. It's a single worldwide SKU.
And extremely important there is the single hardware SKU. And every country is a software profile. So it's a software configurable architecture. And so therefore, in terms of product velocity, operational efficiency, in terms of managing inventory, IQ7 will be fantastic. IQ7 increases our served available market in Europe and Asia Pacific.
We are going to go after new markets in Germany and as well as Austria and mainly India. As I told you, the rest of the world is moving from not the 6th generation, but the 5th generation to the 7th generation. So you can see the intrinsic gross margin expansion, which we are so focused on. Getting to 30, twenty, ten, achieving 10% profit by the end of Q4 2018 is the topmost priority for us. And we talked about IQ7 I mean, we talked about ACM in general and IQ7 based ACM will inherit a lot of these benefits.
And now to talk about IQ7X, that will address about 500 megawatts of market in North America, which was not previously available to us. Now it's available. And with our focus on long tail and high performance IQ7X, it's consistent with our strategy of expanding gross margin.
So how does the IQ 7X compare to the Solar Bridge solution that SunPower is shipping today for their 96 cell modules. Could you give us a sense for what the performance characteristics and price differences may be?
Hi, Brad. This is Raghu. I think performance wise, it's much more efficient. The CC efficiency of the SunPower Solar Bridge product, I believe, is 95% or 95.5% and we are 97.5 percent. That's a pretty substantial improvement in efficiency.
And efficiency, as you know, also drives things such as of course, drives energy yield, but also drives the power dissipation and reliability as well. Obviously, we are driving our costs down effectively through silicon integration. The IQ7 actually has a new ASIC on it compared to even the IQ6. We went from a 2,800,000 gate ASIC to a 3,800,000 gate ASIC on the 7 and the 7X has the same ASIC as well. So I can say that we are driving our cost on of course price is a very complex thing to talk about and can talk about it this way.
Excellent. Thanks. And I guess that how quickly do you think that the IQ7 could ramp in some of these new geographies like India and Germany?
Well, let me talk a little bit about the timing of the IQ7 transition. Like what I said, we have introduced IQ7 in North America in the Q1 of 2018 already. So IQ7 is shipping as we speak. We expect to introduce IQ7 to rest of the world in the Q2. And we are very careful in ramping our new products because Enphase stands for quality and reliability first.
So we want to make sure that we do a lot of beta testing in the rest of the world and then we released the product in a controlled fashion, which is why IQ7 is a complex transition for the rest of the world and the entire supply chain of IQ7 will ramp up in the next 6 months. While I did talk about the supply constraints, we are mitigating those constraints by qualifying additional sources and making the design flexible. And we expect to mitigate those issues in the next 4 to 6 months. So that's basically the color on the transition.
Thank you. My last question is on the growth rate of the market. If you look at your regional customers that I think are growing most rapidly across the sector, they're doing obviously better than Solar City, who has been in decline for the last year or so.
Can you
characterize what you're seeing in terms of the year on year increases likely to be seen this year for the small and medium sized customers that have been taking share from the larger nationwide TPO installers space?
Yes.
I'll probably give you a little bit of color on market share in North America. We believe we are holding share in North America. And the way we think about market share, let me actually elaborate on that. Our top priority is to build a solid financial foundation. We are focused on consistent profitability than growing market share at any cost.
We are consciously walking away from empty calorie business that is very low margin businesses. Our products are actually ideal for long tail installers who value our ease of use and high quality. And we are introducing high performance products such as IQ7X, IQ7 based ACM, which are ideal for the long term, I mean long tail markets. So we expect the long tail markets to grow significantly and we have the ideal products for that and we expect that to be a significant expansion in our gross margin.
Thank you. Our next question comes from Philip Shen from ROTH Capital Partners. Your line is open.
Hey, guys. Good work on the steady execution. First question is on the IQ7 rollout. Just to put a finer point on things, Badri. Would it be possible to give us a sense of what the mix of product might be by quarter?
Historically, you guys have done that with prior generations of product release. By when do you think we could see a 100% IQ7 mix, for example? And along the way, what the quarters possibly look like in Q2, Q3 and so forth? Thanks.
So I'll just give you some color on the IQ6 transition, then I'll talk about the IQ7 transition so you get the full picture. The IQ6 transition took us 3 to 4 quarters to complete. The IQ7 platform, it uses the same accessories as IQ6 for North America. However, the IQ7 platform is brand new in the rest of the world. It is a huge learning curve for the rest of the world.
We think, therefore, in combination, the IQ7 transition will take us approximately 3 to 4 quarters. We expect to complete the IQ7 transition by the Q4 of 2018. Like what I said, we have already started shipping in North America in this quarter. We expect to introduce it in rest of the world in Q2 of 2018 and we are confident of meeting our 30, twenty, ten by Q4 of 2018. Great.
And then, you mentioned a couple of times earlier already that there is possibly meaningful margin benefit as the rest of the world converts to IQ7 since they're coming from the, I think, Gen 5 or M250. So can you quantify in some fashion what that margin benefit might be?
Yes. I mean, I'm going to talk about gross margin in general. So we have 3 levers on gross margin: pricing management, supply chain optimization and IQ7 transition. On pricing management, we are focused like what I said in the prepared remarks on transactional control in 2017, and then 2018 will be about offering high value products like IQ7X and IQ7 based ACM. On supply chain optimization, we are focused not only on the microinverter, but also focused heavily on cost reducing the accessories as well as reducing our overhead.
And note that a significant portion of our revenue does come from accessories. So it's important for us to control cost there. In terms of overhead, we are looking at all aspects, which is variance, logistics, warranty and are tackling those. The last one is obviously IQ7 transition, which has clear benefits in terms of BOM reduction, in terms of SAM expansion, in terms of IQ7x, but it is not the only thing in our gross margin expansion. So bottom line, we are changing the way we work on pricing and costs.
It is not just about IQ7. In combination of these three things, which is pricing management, supply chain optimization and IQ7 transition, we will get to the 30, twentyten by Q4 2018.
Great. One last one here for me. I think if you look at the blended company numbers, the blended ASP from Q3 was about $0.38 and Q4 $0.41 if my numbers are right there. So you actually have had some degree of perhaps price increase. Some of our discussions with customers have been that you've been able to you've actually been raising some pricing out there, perhaps not the MSRP necessarily, but reducing the rebates out there.
So historically, we see 7% to 10% price erosion year on year. Clearly, we're not in that situation now. In fact, it might be going the other way. How do you expect and I know pricing discipline in management is a core part of your strategy, as you just mentioned. But as you look ahead, do you expect ASPs to continue to rise?
Or should we just should we expect a flat kind of curve ahead?
Right. That's a good question. Our revenue includes a mix of inverter and non inverter sales. But noninverter revenue was up sequentially as a percentage of our mix compared to Q3. Our noninverter revenue, when I define that, that's basically your accessories, which is Envoy, combiner box and the AC battery.
So you got to be careful in looking at those numbers to draw a conclusion. But what we are doing is very clear. We are walking away from empty calorie businesses. We are focused on profitability as a company. We will achieve 30, twenty, ten by Q4 of 2018.
So having said that, I believe we maintained pricing flat for the last couple of quarters. The what's our strategy in 2018, we have modeled a 2% reduction every quarter in 2018. So that's what we have modeled. And all our financials, all our operating plans, thirty-twenty-ten, etcetera, takes into account that. And we are focused like what I said on value creating products like IQ7X, like IQ7 based ACM, like IQ8, which will come in 2019, which is an enormous differentiator for us.
So that's our focus.
Great. That color and detail is very helpful. I'll pass it on.
Thank you. Our next question comes from Colin Rusch from Oppenheimer. Your line is open.
Thanks so much guys. You talked a little bit about the high voltage FETs. Can you talk specifically about silicon carbide sourcing and any sort of mitigation that you're doing around EV demand for those materials to mitigate any sort of price increases?
So yes, this is Raghu. As Badri mentioned about industry wide component shortage on the high voltage FETs and memory as well, We actually do not use silicon carbide diodes in this generation of in the IQ generation of the product.
Okay. So that's all gone. Okay. And then can you talk a little bit about the pricing dynamics and the AC module offering and how that's supporting your price dynamics as you go through the balance of 2018?
Right. So in terms of the AC modules, basically, I talked to you about the interviews with installers. And the interviews with installers have so far indicated up to 20% savings in installation time, up to 10% savings in logistics. And these are clear value levers for the AC module that offer clear benefits to the installers. And therefore, when we discuss pricing with our partners, it basically takes into account this value and we make sure that we share some of this value with the installers as well.
Okay. I'll take the rest of
it offline. Thanks guys. Thank
you. And our next question comes from Edwin Mok from Needham and Company. Your line is open.
Hi, guys. Thanks for taking my question. So first just to since we talk about ACM, just a follow-up. Is there a way to think about how much your volume has been on ACM? It sounds like 4th 40 shipped some product to ACM already, right?
And with IQ7 coming, do you have a target percentage of your sales that will come from ACM, let's say, exit industry?
Hey, Edwin, it's Bert. So we're not breaking out recent announcement with Panasonic, I think there's equal excitement with some of our recent announcement with Panasonic, I think there's equal excitement with some of our partners that this is a product category that has tremendous upside and tremendous promise. So again, as this develops, we'll continue to talk about it and give you guys as much color as possible. At this point, we're not breaking it out. Okay.
That's fair. And then for the quarter, your non inverter sales went up, right? Is there a way to think about and maybe if you can help us by explaining what part of your non inverter cells was what product was driving that growth? Is it just what happened if you were buying more combined emboss this quarter? Or do you have growth in battery this quarter?
I think that product has been helpful a little bit. And maybe just kind of tied to battery, how what are you guys seeing in the market in terms of adoption? And what do you think can change that or accelerate that adoption?
Yes. We are seeing an uptick in ACV sales compared to the previous quarter. And the uptick we are seeing quarter on quarter comes from both Europe as well as Australia. And solar plus storage is extremely central to our strategy as we develop IQ8 and we remain committed to it. With regarding the other portion on the accessories, yes, we ship a little bit more combiner boxes as well as envoys in Q4 of 2017.
Yes, that's correct.
I see. Okay, great. That's helpful. And then last question I have on the 30, twenty ten model, right? If I look at this quarter OpEx and your OpEx guidance, as you said, your OpEx is ticking up a little bit, right?
That would push your revenue to hit your 30, 20, 10 number to like kind of like $90,000,000 range, right? If I basically take 20 percent of OpEx being $18,000,000 right? Is that how we are thinking about the 30, 2010 model now? Or I just want to make sure I understand that correctly?
Yes. So that's certainly one way to look at it. Of course, we aren't going to be providing guidance beyond next quarter. But yes, I mean, if you just do the simple math, I think you probably back into it that way. Again, the most important thing is we are absolutely committed and confident in our ability to get to thirty-twenty-ten.
I think it's kind of bottom line. If you haven't picked that up, that is definitely what we're focused on.
Okay, great. That's all I have. Thank you.
Thank you. Our next question comes from Pavel Molchanov from Raymond James. Your line is open.
Thanks for taking the question. You alluded to the tariff issue on AC module imported into the U. S, I'm curious just mechanically how would you get an exemption for a product that is physically attached to an imported module that is otherwise covered by the tariff? I mean, it seems like just administratively that might be a bit of a hassle now?
Yes. Hi, this is Raghu. So let me give you some color on that. So clearly the ACM is a very natural technological evolution to the standalone microinverter and because of the value that it provides by absorbing all the field assembly into the factory. Now the two zero one case has inadvertently affected the ACM by the ad valorem ruling.
But if you go back to what the intent of the 201 was, it was limited to cells and modules and inverters should be outside the scope of 201. However, the government has unintentionally created the situation. So of course, increasing the cost of our micro by 30% only in an ACM case, incentivizes the string inverter technology as an example. So doing that is very bad for innovation and a step backwards in terms of the advancement of technology. And clearly, that was not what the intent of the government was, right?
So what's the good news here is the USTR has now published a process for exclusion. And that process for exclusion is a detailed explanation and reasoning for exclusion via questionnaire. And they've given us some time to go submit all of the details behind it and they've given us 60 days to do it and we're going to turn around and do it in the next 30 days. We also looked at the mechanics of how this exclusion can take place. If you think about how the customs and border patrol, how they would tariff it, there's actually some precedence here back in the days, memory devices had the similar issue and they established a process for separating out the 2 values and then taxing or tariffing the value appropriate to the right component.
In our case, it would be the DC module. In the unlikely event such an exclusion is not granted, we have an alternate path. So one of the key features of our ACM solution is that that micro is detachable from the module. So what this means that the module can be connected to the microinverter after importing the DC module into the U. S.
So while this will increase the cost a little bit, but it will be much less than the 30% of the tariff.
Okay. Interesting. So that's plan B, I suppose. Yes. Regarding the battery, when you talk about your margin structure including the 30, twenty, ten target, what assumptions does that make for the profitability of the battery?
Or is it just so small in your sales mix that it doesn't really matter either way?
Well, although we are seeing an uptick in the ACB sales, it is still a small percentage of our sales mix. We are working like what I said, we are working on IQ8 and IQ8 as a platform will have a new AC battery configuration and that will come out in 2019. It will have a great cost structure. But for now, it is a low percentage of our sales.
Understood. Appreciate it, guys.
Thank you. Our next question comes from Vishal Shah from Deutsche Bank. Your line is open.
Hi, thanks for taking my question. Can you talk about the margin profile of your shipments in the U. S. Versus the international markets? And also in the Q1 or the first half of the year, what percentage of your shipments will be to the U.
S. Market?
Yes. So, hey Pavel, it's Vishal here. So, broadly speaking, our shipments our products shipments in rest of world are perhaps slightly less margin rich than U. S. Products.
Just very, very small though and it's really related to the configuration of those products. So again, not significant differences there. With respect to the mix, U. S. Versus Rest of World, it's still about seventythirty.
So you still expect U. S. Shipments to be 70% in the first half?
That's right.
Is the industry showing any signs of slowdown post the 201 case until you get some clarity on your on the ACM ruling or not really?
So we're not seeing much impact on U. S. RASI related to the 201 trade case. As Raghu mentioned, there is a little bit of uncertainty with respect to the ACM product with respect to again to that exclusion. But as he mentioned, we're working very, very quickly to work through that and to relieve that uncertainty.
But no, we're not seeing a big impact at all with respect to 201 at this point.
And what percentage of your Q4 shipments were from ACN?
Again, we're not breaking that out, as I've mentioned before.
Okay. And then as far as the noninverter revenues are concerned, like how should we think about the margin profile of that part of the business? And when do you think it's going to be meaningful enough for you to report a separate percentage as of the mix?
So
in terms of when we think we're going to have enough data or when we're going to start breaking out as a percent of the mix. That's a good question. I'm not sure we're prepared to do that at this point. What was your first question? Sorry, remind me.
What is the margin profile of that business relative to your inverters? I mean, is it similar margin or better margin?
Yes. Again, sorry, Vishal, we're not prepared to break out the margin differential between inverter and non inverter.
Okay. And then final question, as you approach this thirtytwentyten model, how should we think about the cash profile of the business? I mean, are you going to be cash flow positive for the rest of the year through every single quarter or is it going to take some time?
So if you've noticed over the last several quarters, our cash has been improving, holding aside even the $20,000,000 recent investment. Our cash has been improving in the sense that we've been reducing burn sequentially every quarter. We see that improving in 2018. Again, a lot of the work we've done to restructure the company continues and will continue to bear fruit into 2018. Again, we talk about it as a process and not an event and that process will continue into 2018 and will yield benefits certainly not only in terms of profitability, but in terms of cash flow as well.
We've said I think pretty consistently that we believe 2018 will be a year where we get sustainably profitable. And I think that that follows through the cash as well.
Okay. Thank you.
Yes, you bet.
Thank you. And I am showing no further questions from our phone lines. I would now like to turn the conference back over to Badri Kassandaraman for any closing remarks.
So thank you for joining us today. We have stabilized our cash position and are very pleased to be profitable in the Q4 of 2017, and we are working hard to achieve our thirtytwentyten model in Q4 'eighteen and creating a solid financial foundation. We look forward to speaking with you again in the next couple of months.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.