Good day, ladies and gentlemen, welcome to the Enphase Energy's fourth 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, instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. 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, thank you for joining us on today's conference call to discuss Enphase Energy's fourth quarter and year-end 2017 results. On today's call are Badri Kothandaraman, Enphase's President and Chief Executive Officer, Bert Garcia, Chief Financial Officer, Raghu Belur, Chief Product Officer. After the market closed today, Enphase issued a press release announcing the results for its fourth quarter and year ended December 31st, 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, market trends. These forward-looking statements involve significant risks and uncertainties, 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 10-Q for the quarter ended September 30th, 2017, which is on file with the SEC, the annual report on Form 10-K for the year ended December 31st, 2017, which will be filed with the SEC in the first quarter of 2018. Enphase Energy cautions you not to place any undue reliance on forward-looking statements and undertakes no duty or obligations 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. I'd like to introduce Badri Kothandaraman, President and Chief Executive Officer of Enphase Energy. Badri?
Good afternoon, thanks for joining us today to discuss our fourth quarter and full year 2017 financial results. We had a profitable quarter. We reported revenue of $79.7 million for the fourth quarter of 2017 at the higher end of guidance. Our non-GAAP gross margin in the fourth quarter was 24.2%, also at the higher end of guidance. Our non-GAAP operating income was $1.3 million. 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 30/20/10 financial operating model. We are targeting 30% gross margin, 20% operating expenses, and 10% operating income all by the fourth quarter 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 IQ 6 transition, supply chain optimization, and pricing management. On supply chain optimization, we were laser-focused on the IQ 6 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 first quarter of 2018. We expect IQ 7 transition to be fully complete in 2018, leading to further improvement in our gross margin. It is important to note that IQ 7 is a worldwide product SKU, and every one of our regions will transition to IQ 7.
This is a notable difference from IQ 6, 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. 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 30/20/10 financial model by Q4 2018 with continued cost management via supply chain optimization and IQ transition, combined with pricing management. Turning to the balance sheet. We exited the fourth quarter with a cash balance of $29.1 million and recently closed a $20 million 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. Turning to our markets. The fourth quarter revenue in the U.S. was up 4% sequentially.
We completed the transition to our IQ 6 product for our North American customers during the third quarter, and substantially all fourth quarter inverter shipments to the region were IQ 6. In Europe, revenue was up 1% sequentially and 66% year-over-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+ and IQ7+ are already certified for India. We opened an R&D center in Bangalore, India during the fourth quarter.
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 fourth quarter revenue was down 58% sequentially as a continued result of the devastating hurricanes in Puerto Rico that occurred last August and September, impacting overall shipments to the region. Mexico, however, remains a strong market for Enphase. Moving on to products. We released IQ 7 in January 2018. IQ 7 is segmented into three variants. The 250-watt AC IQ 7 for 60-cell modules, the 295-watt AC IQ7+ for 60- and 72-cell modules, and the 320-watt AC IQ7X for 96-cell modules. Note that IQ 6 was not compatible with 96-cell modules.
IQ7X fills that gap now and makes that market available to us. We have started shipping IQ 7 to our U.S. customers, and we expect to start shipping to rest of the world in the second quarter. We are experiencing the industry-wide component shortages in our IQ 7 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 IQ 7-based AC modules. While IQ 7 provides us with a good platform for growth in 2018 worldwide, IQ 8, based on our grid-agnostic, always-on Ensemble technology, has the capability to transform our future by creating new market opportunities. One of solar's biggest challenges is that it is grid-tied.
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 IQ 8, 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 continued to make progress on IQ 8 during the fourth quarter. The ASIC used in IQ 8 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 million gates and is made in 55 nm 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 30/20/10 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. I will turn the call over to Bert for his review of our financial results. Bert?
Thanks, Badri. I'll provide more details related to our fourth quarter and fiscal year 2017 financial results, as well as our business outlook for the first quarter. 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 fourth quarter of 2017 was $79.7 million, an increase of 3% sequentially. Total net revenue for DC Watt decreased by 11% from the fourth quarter of 2016, consistent with our expectations for year-over-year reductions in ASPs. Total revenue for 2017 was $286.2 million, representing shipments of approximately 2.9 million microinverters and 837 megawatts DC, a 1% year-over-year decrease in megawatts shipped. We shipped approximately 221 megawatts DC in the fourth quarter 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 third quarter. As a result, substantially all fourth 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 fourth quarter of 2017 was 24.2%, compared to 21.8% for the third 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 million sequentially, from $16.9 million in Q3 to $18 million in Q4, primarily due to an increase in R&D expenses related to the development of our IQ8 product. As compared to the fourth quarter of 2016, we reduced non-GAAP operating expenses by 23%, or $5.5 million, reflecting the cumulative impact of restructuring actions and operational efficiencies we've implemented. Non-GAAP operating expense in the fourth quarter of 2017 excluded $2 million of restructuring charges and $1.2 million of stock-based compensation expense. Non-GAAP operating expense for 2017 was $72.8 million, compared to $107.6 million 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 $1.3 million, compared to an operating loss of $104,000 in Q3. We are extremely pleased that we've achieved non-GAAP operating profitability. 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 $20.5 million, or a loss of $0.25 per share, compared to a non-GAAP net loss of $52.4 million, 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. Turning to the balance sheet. Inventory was $26 million for the fourth quarter, compared to $25.3 million in the third quarter and $32 million in the year-ago quarter.
As Badri mentioned, inventory management is one of our key cash management initiatives in 2018. We exited the quarter with total cash balance of $29.1 million, a slight increase from the Q3 balance. On February 9th, we sold approximately 9.5 million 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 million. Let's discuss our outlook for the first quarter of 2018. We expect our revenue for the first quarter of 2018 to be within a range of $65 million-$70 million. Turning to margins, we expect GAAP and non-GAAP gross margin to be within a range of 22%-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 first quarter to be within a range of $17.5 million-$18.5 million and GAAP operating expense to be within a range of $19.5 million-$20.5 million, including an estimated $2 million of stock-based compensation expense. I'll open up the line for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and then the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then 1 now. Our first question comes from Eric Stine from Craig-Hallum. Your line is open.
Hi, everyone. Maybe just start with the IQ7, just to confirm, did you say you're rolling that out in Q2? As we think about some of the new markets you're entering, which ones should we look to be meaningful contributors first, maybe in Europe and also in Asia?
Let me talk about the IQ7 rollout. We announced that we are rolling out IQ7 in Q1 of 2018, which is this quarter. We've already done that in North America. We are going to roll out IQ7 in the rest of the world in the second quarter of 2018.
Let me remind you of all the benefits of IQ7. 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. 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. If you note, the rest of the world product is moving from the fifth generation of microinverter to the seventh generation of microinverter, which is IQ7. That is gross margin expansion. 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, IQ7X changes that.
Our 320-watt AC IQ7X is compatible to 96-cell modules, and it has 97.5% CEC efficiency. 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.
Yeah. Let me start with the AC module. 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, JinkoSolar, SolarWorld, and Waaree 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 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 will 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 Section 201 case. The Section 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. 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.
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. After that, I think they will probably take another 30 days.
Government process.
Yeah, it is a government process, so it's not going to be pretty.
Right. Okay.
Yep.
Thanks a lot.
Yep.
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. Two-part question. One is, how long do you think it'll 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. 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%-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. It is top priority for us as a management team. We are always working on a three-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.
In the long term, given our improved liquidity position, create long-term supply agreements with our partners. To answer your question, I expect the same 1%-2% impact to gross margin in Q1 of 2018.
Thank you.
We have incorporated that in our guidance.
Yeah, as I was going to say, you knew about the shortage in 2017, in the spring, I think it started. I assume that's factored into the 30/20/10 plan, or should we discount that by a few points?
No, you should not discount that. It is already factored into our 30-20-10.
Okay. Wanted to double-check on that. Can you just talk about the cadence of OpEx throughout the year? Is the McKinsey study still going on, and how does that progress as the second half evolves?
The McKinsey study is done. It was finished in Q4 of 2017. Let me give you a little bit of color on our OpEx. We have reduced our OpEx significantly from $108 million in 2016 to $73 million 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 30-20-10 operating model. We have certain investments that we want to make on the IQ8 platform, which we are not going to compromise. With that in mind, we also established an R&D center in India, where we do expect to get to our long-term 20% OpEx target and have the adequate capacity.
Perfect. Thank you. That's all I had.
Okay. Thank you.
Thank you. Our next question comes from Brad Meikle from AMPAC. Your line is open.
Hey, gents. How you doing? Can you talk a little bit about, just with the IQ 7, IQ8, and the IQ 6 roadmap, how has that changed the tone with your customers and how do you view your market share trending in 2018? 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 IQ 6. It provides intrinsic value. It's a single worldwide SKU. Extremely important there is the single hardware SKU. Every country is a software profile. It's a software configurable architecture. Therefore, in terms of product velocity, operational efficiency, in terms of managing inventory, IQ 7 will be fantastic. IQ 7 increases our served available market in Europe and Asia Pacific. We are going to go after new markets in Germany as well as Austria and mainly India. As I told you, the rest of the world is moving from not the sixth generation, but the fifth generation to the seventh generation. You can see the intrinsic gross margin expansion, which we are so focused on.
Getting to 30-20-10, achieving 10% profit by the end of Q4 2018 is the topmost priority for us. We talked about ACM in general, and IQ7-based ACM will inherit a lot of these benefits. 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, with our focus on long tail and high performance IQ7X, it's consistent with our strategy of expanding gross margin.
How does the IQ7X compare to the SolarBridge solution that SunPower is shipping today for their 96-cell modules? Could you give 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 CEC efficiency of the SunPower SolarBridge product, I believe, is 95% or 95.5%, we are 97.5%. That's a pretty substantial improvement in efficiency, as you know, 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 2.8 million gate ASIC to a 3.8 million gate ASIC on the 7, the 7X has the same ASIC as well. I can say that we are driving our cost down. Of course, price is a very complex thing to talk about, we can't talk about it this way.
Excellent. Thanks. I guess how quickly do you think that the IQ7 could ramp in some of these new geographies like India and Germany?
Let me talk a little bit about the timing of the IQ 7 transition. Like what I said, we have introduced IQ 7 in North America in the first quarter of 2018 already. IQ 7 is shipping as we speak. We expect to introduce IQ 7 to rest of the world in the second quarter. We are very careful in ramping our new products because Enphase stands for quality and reliability first. We want to make sure that we do a lot of beta testing in the rest of the world, and then we release the product in a controlled fashion, which is why IQ 7 is a complex transition for the rest of the world, and the entire supply chain of IQ 7 will ramp up in the next six 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 four to six months. 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 the most rapidly across the sector, they're doing obviously better than SolarCity, 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?
Yeah. 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. 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. We are introducing high performance products such as IQ7X, IQ7-based ACM, which are ideal for the long-tail markets. 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 could the quarters possibly look like in Q2 and Q3 and so forth? Thanks.
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 three to four quarters to complete. The IQ7 platform, it uses the same accessories as IQ6 for North America. 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 three to four quarters. We expect to complete the IQ7 transition by the fourth quarter 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, we are confident of meeting our 30/20/10 by Q4 of 2018.
Great. Then, you mentioned a couple times earlier already, that there's 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. Can you quantify in some fashion what that margin benefit might be?
Yes. I'm going to talk about gross margin in general. We have three levers on gross margin. Pricing management, supply chain optimization, and IQ 7 transition. On pricing management, we are focused, like what I said in the prepared remarks, on transactional control in 2017. Then 2018 will be about offering high-value products like IQ7X and IQ7-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. 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 variants, logistics, warranty, and are tackling those.
The last one is obviously IQ 7 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. Bottom line, we are changing the way we work on pricing and costs. It is not just about IQ 7. In combination of these three things, which is pricing management, supply chain optimization, and IQ 7 transition, we will get to the 30/20/10 by Q4 2018.
Great. One last one here from 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. You actually have had some degree of perhaps price increase. Some of our discussions with customers have been that you've actually been raising some pricing out there, perhaps not the MSRP necessarily, but reducing the rebates out there. Historically, we see a 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 and 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 expect a flat kind of curve ahead?
Right. That's a good question. Our revenue includes a mix of inverter and non-inverter sales. Non-inverter revenue was up sequentially as a percentage of our mix compared to Q3. Our non-inverter revenue, when I define that's basically your accessories, which is Envoy, combiner box, and the AC battery. You got to be careful in looking at those numbers to draw a conclusion. 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 30/20/10 by Q4 of 2018. Having said that, I believe we maintained pricing flat for the last couple of quarters. What's our strategy in 2018? We have modeled a 2% reduction every quarter in 2018. That's what we have modeled. All our financials, all our operating plan, 30/20/10, et cetera, takes into account that.
We are focused, like what I said, on value-creating products like IQ7X, like IQ7-ACM, like IQ8, which will come in 2019, which is an enormous differentiator for us. 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?
Yes, this is Raghu. As Badri mentioned about the industry-wide component shortage on the high voltage FETs and memory as well, we actually do not use silicon carbide diodes in the IQ generation of the product.
Okay, that's all gone. 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. In terms of AC modules, basically, I talked to you about the interviews with installers. The interviews with installers have so far indicated up to 20% savings in installation time, up to 10% savings in logistics. These are clear value levers for the AC module that offer clear benefits to the installers. 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.
Okay.
Thank you. Again, ladies and gentlemen, to ask a question, please press star and then one now. Our next question comes from Edwin Mok from Needham & Company. Your line is open.
Hi, guys. Thanks for taking my question. First, since we're talking about ACM, just to follow up, is there a way to think about how much your volume has been on AC? It sounds like Q4 you shipped some product with ACM already, right? With IQ 7 coming, do you have a target % of your sales that will come from ACM, let's say, exit industry?
Hey, Edwin, it's Bert. We're not breaking out discretely volumes for ACM at this point. As we've mentioned, we are very excited about the progress we're making. As noted in 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. 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. 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 sales, what product was driving that growth? Is it just so happened that people buying more combiner boxes this quarter, or do you have growth in battery this quarter? I think that product has been helpful a little bit. Maybe just kind of tie the battery. 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 ACB sales compared to the previous quarter. The uptick we are seeing quarter-on-quarter comes from both Europe as well as Australia. Solar plus storage is extremely central to our strategy as we develop IQ 8, 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. That's correct.
I see. Okay, great. That's helpful. Last question I have on the 30-20-10 model. If I look at this quarter, OpEx and your OpEx guidance that you said, your OpEx is ticking up a little bit, right? That would push your revenue to hit your 30-20-10 number to kind of like $90 million range, right? If I basically take 20% of OpEx being $18 million. Is that how we're thinking about the 30-20-10 model now, or I just want to make sure I understand that correctly.
That's certainly one way to look at it. Of course, as you know, we aren't going to be providing guidance beyond next quarter. If you just do the simple math, I think you could probably back into it that way. Again, the most important thing is, we are absolutely committed and confident in our ability to get to 30-20-10. I think that'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? It seems like just administratively, that might be a bit of a hassle now.
Yeah. Hi, this is Raghu. Let me give you some color on that. 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 201 case has inadvertently affected the ACM by the ad valorem ruling. 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 this situation. Of course, increasing the cost of our micro by 30%, only in an ACM case, incentivizes the string inverter technology as an example. Doing that is very bad for innovation and a step backwards in terms of the advancement of technology.
Clearly that was not what the intent of the government was. 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 a questionnaire. They've given us some time to go submit all of the details behind it. 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 Protection, how they would tariff it, there's actually some precedents here back in the days, memory devices had a similar issue, and they established a process for separating out the two 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 that such an exclusion is not granted, we have an alternate path. One of the key features of our ACM solution is that micro is detachable from the module. What this means that the module can be connected to the microinverter after importing the DC module into the U.S. While this will increase the cost a little bit, but it'll be much less than the 30% of the tariff.
Okay, interesting. That's plan B, I suppose.
Yes.
Regarding the battery, when you talk about your margin structure, including the 30/20/10 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. Like what I said, we are working on IQ8 as a platform will have a new AC battery configuration. That will come out in 2019. It'll have a great cost structure. For now, it is a low percentage of our sales.
Okay. Understood. Appreciate it, guys.
Thank you. Our next question comes from Vishal Shah from Deutsche Bank. Your line is open.
Yeah. Hi. Thanks for taking my question. Can you talk about the margin profile of your shipments in the U.S. versus the international markets? In the first quarter or the first half of the year, what % of your shipments will be to the U.S. market?
Yeah. Hey, Pavel or Vishal, sorry. Broadly speaking, our products shipments in rest of world are perhaps slightly less margin-rich than U.S. products. Just very small though, and it's really related to the configuration of those products. Again, not significant differences there. With respect to the mix, U.S. versus rest of world, it's still about 70/30.
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 the ACM ruling or not really?
We're not seeing much impact on U.S. res related to the 201 trade case. As Raghu mentioned, there is a little bit of uncertainty with respect to the ACM product, with respect, again, to that exclusion, but as he mentioned, we're working very quickly to work through that and to relieve that uncertainty. No, we're not seeing a big impact at all with respect to 201 at this point.
What percentage of your Q4 shipments were from ACM?
Again, we're not breaking that out, as I'd mentioned before.
Okay. As far as the non-inverter revenues are concerned, how should we think about the margin profile of that part of the business? When do you think it's going to be meaningful enough for you to report a separate percentage of the mix?
In terms of when we think we're going to have enough data or when we're going to start breaking out its percentage 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?
Yeah. Sorry, Vishal. We're not prepared to break out the margin differential between inverter and non-inverter.
Okay. One final question. As you approach this 30/20/10 model, how should we think about the [cash innovation profile] of the business? Are you going to be cash flow positive for the rest of the year through every single quarter, or it's going to take some time?
If you've noticed over the last several quarters, our cash has been improving. Holding aside even the $20 million recent investment, our cash has been improving in the sense that we've been reducing burn sequentially every quarter. Again, we see that improving in 2018. Again, a lot of the work that we've done to restructure the company continues and will continue to bear fruit into 2018. Again, we talk about it as a process, 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 follows through the cash as well.
Okay, thank you.
Yeah, you bet.
Thank you. Again, ladies and gentlemen, to ask a question, please press star and then one now. I am showing no further questions from our phone lines. I would now like to turn the conference back over to Badri Kothandaraman for any closing remarks.
Thank you for joining us today. We have stabilized our cash position and are very pleased to be profitable in the fourth quarter of 2017. We are working hard to achieve our 30/20/10 model in Q4 2018 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. You may all disconnect. Everyone, have a wonderful day.