Good day, ladies and gentlemen. Thank you for your patience. You've joined Enphase Energy's first quarter 2015 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 be given at that time. Should you require any additional assistance during the call, please press star then zero on your touch-tone telephone. As a reminder, this conference may be recorded. I would now like to turn the call over to your host, 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 first quarter 2015 results. On today's call are Paul Nahi, Enphase Energy's President and Chief Executive Officer, and Kris Sennesael, Chief Financial Officer. After the market closed today, Enphase issued a press release announcing the results for its first quarter ended March 31st, 2015. We are providing an accompanying presentation with our earnings call that you can access in the Investors section of our company's website at www.enphase.com. 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 microinverters, advantages of its technology, market trends, future products, and future financial performance. These forward-looking statements are based on the company's current expectations and inherently involve significant risks and uncertainties.
Enphase Energy's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties. Factors that could cause results to be different from these statements include factors the company described in its press release of today, especially under the section entitled Forward-Looking Statements, as well as those detailed in the section entitled Risk Factors of the company's report on Form 10-K for the year ended December 31st, 2014. Enphase Energy cautions you not to place 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 certain financial measures used on this call are expressed on a non-GAAP basis 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 Paul Nahi, President and Chief Executive Officer of Enphase Energy. Paul?
Good afternoon. Thanks for joining us today to discuss our first quarter 2015 financial results. As usual, I'll start with my opening remarks and touch on some key highlights. Then Kris will take us through the first quarter financials and the outlook for the second quarter. After that, we'll open up the call for Q&A. After our groundbreaking year in 2014, we started 2015 with solid performance and continue to experience strong business momentum with all our customers in the domestic, residential, and commercial markets, as well as the international markets. During the first quarter, we shipped 162 megawatts of microinverter systems, an increase of 74% year-over-year.
We reported revenue of $86.7 million for the first quarter of 2015, an increase of 50% year-over-year, and non-GAAP gross margin of 32.6%, despite the fact that we lost approximately $1 million in revenue and one full percentage point of margin due to unfavorable foreign exchange fluctuations. Enphase continues to be the leading choice for residential and small commercial installers in the U.S. and a growing number of installers in our international markets. In fact, Enphase is installed in more than 90 countries worldwide. Since inception, we've now shipped more than eight million microinverters, representing more than two gigawatts of installed generating capacity. Enphase systems have produced over three terawatt-hours of clean energy. The demand for solar in the U.S. remains very robust.
According to GTM Research, 2015 is expected to be another year of significant growth in the U.S., with a forecast of 1.8 gigawatts of residential PV, up approximately 50% year-over-year, and a forecast of 1.5 gigawatts of commercial PV, up 40% year-over-year. In addition, outside the U.S., solar continues to take a bigger share of the energy market and continues to grow. According to IHS Research, the global solar market, including all residential, commercial, and utility-scale PV installations, is expected to be 56.5 gigawatts in 2015, up 30% year-over-year. Our continued success in the U.S. and global markets is a result of several factors, one of which is the unique value proposition of our microinverter system. Our proposition benefits the entire ecosystem. We address the system owner by providing a lower levelized cost of energy and therefore a better return on investment.
Our ease of design, installation, and management helps our installers create a more efficient and profitable business. By providing better economics to all our customers, we've been able to see a dramatic rise in revenue and market share over the past several years. Our value proposition is predicated on quality and reliability, the quality and reliability in every component we select, every product we manufacture, and every system we monitor. Our system offers high performance, safety, reliability, simplicity, and intelligence. In addition, our distributed networked architecture will make mainstream access to clean, affordable energy a reality. Last year, we discussed our commitment to local job communities and job preservation through our American Pride microinverters, which are assembled in America. We're pleased to have recently partnered with Petersen-Dean Roofing and Solar, the largest privately held roofing and solar company in the U.S., to provide products assembled in America.
Under the agreement, Enphase will supply American Pride microinverters for deployment in Petersen-Dean's residential and commercial installations. The partnership brings together two leaders in the fast-growing U.S. residential and commercial solar market who share a strong commitment to American technology, domestic job creation, and the emerging clean energy economy. We began shipping our C250 microinverter system to commercial solar customers in the U.S. during the first quarter and are seeing strong interest from both new and existing customers. The C250 system delivers optimal performance and enables installers to use less wiring and fewer balance of system components, thus significantly reducing labor and overall installation costs. The C250 launch was accompanied by the growth of our Enphase Energy Services business, which provides system owners, operators, and installers with scalable asset management and O&M services.
We recently increased geographic coverage, adding service teams in the Northeast region of the U.S., along with Arizona and Florida. Turning to our international business, revenue was up 52% year-over-year. In the U.K., we expanded our distribution channel and grew our business with residential and commercial installers, including Pretty Green Energy. We're working with Pretty Green Energy, a leading installer of PV systems, to offer high-end solutions in the residential and small to medium commercial PV market. Relationships such as this are critical to ensuring our customers have access to the unsurpassed value and quality both companies offer. In Continental Europe, we recently enhanced our local sales operations and added resources in the Netherlands to provide leading-edge services and support to our expanding base of Dutch customers.
Also in Europe, we continue to build our customer base and are working with partners such as MyLight Systems, a company in the solar self-consumption space based in France. This partnership, focused on advanced energy management, will integrate the Enphase Envoy, the intelligent networking hub of the Enphase system, into MyLight monitoring systems, bringing installers a new level of energy management integration for residential and commercial buildings. In the APAC region, we've been pleased with our progress in Australia and New Zealand, where first quarter revenue increased over 300% year-over-year. During the quarter, I visited with several customers in Australia and New Zealand and came away with the confidence that we're poised for continued success in these markets. Our market share continues to increase, and the Enphase brand is becoming more well-known and respected in the markets we have entered.
As an example, we formed a partnership with EnergyAustralia, one of the country's leading utilities, to provide our microinverter systems to Australian customers. This is a big win for our APAC operation because it is not only the first strategic partnership with an Australian utility, but also offers Enphase access to approximately 10% of the Australian market. As we discussed last quarter, Enphase took big steps forward in our evolution from a microinverter systems company to an energy technology company with the announcement of our distributed network energy management system. The system will not only be able to generate, store, and manage energy, it will also collect and utilize valuable grid-level data. This data will provide impressive insight into the grid and will help us work with utilities to strengthen it.
An Enphase system provides the best return on investment for the owner and the most support for grid operators. A great example of this is our recent work in Hawaii, where our data, software, and grid edge analytics saved Hawaiian Electric Company tens of millions of dollars by improving the stability of the grid. As a service provider, we worked with Hawaiian Electric to clear the backlog of solar customers awaiting interconnection on the island of Oahu. We are very proud to be part of Hawaiian Electric's pioneering work in developing the blueprint for the next-generation electrical grid and the mass adoption of solar. This is just the beginning of our exciting collaboration with utilities, and it demonstrates how utilities and innovative solar technology companies such as Enphase can work together to the benefit of ratepayers while making large-scale grid integration of solar a reality.
As the density of solar grows in any particular utility area, the necessity to work well with the grid and to comply with the ever-increasing complexity of grid requirements will become increasingly critical. We were honored to be recently named to Greentech Media's Grid Edge 20 for the second consecutive year as one of the most innovative companies working to architect the electric power industry's future. Awardees were selected based on their contribution to grid edge technology, which is increasingly important at a time when utility business models are facing change and more distributed energy resources are coming online. As solar energy continues to thrive, storage will become an increasingly important part of the total solution. It's important to note that storage must be accompanied with an energy management system to control the charging and discharging of the battery while taking into account energy generation and usage.
In discussions with customers all over the world, the Enphase AC Battery is being extremely well-received, and we are well oversubscribed for our initial system tests to begin later this year. We are increasingly confident that our AC Battery, with its modular architecture and seamless integration into Enlighten, our energy management system, will be unique in its simplicity, ease of installation, performance, and cost-effectiveness. I will close my comments by noting 2015 is off to a great start for Enphase. We are encouraged by the positive industry outlook and are excited about the many opportunities ahead. We are as committed as ever to enhancing our core products and services and are moving forward with bold initiatives that will change the face of energy production, storage, and management. I will turn it over to Kris for his review of our financial results.
Thank you, Paul. I will provide some more details related to our financial results for the first quarter of 2015, then I will provide the business outlook for the second quarter of 2015. As a reminder, the financial measures that I am going to provide are on a non-GAAP basis unless otherwise noted. Total revenue for the first quarter of 2015 was $86.7 million, an increase of 50% compared to the first quarter of 2014. The large year-over-year growth was driven by overall strong demand for Enphase Energy microinverter systems in our core U.S. residential and commercial markets, as well as further market share gains in our international markets. We have been able to grow our top line by an impressive 50% year-over-year, despite a reduction in customer concentration.
A year ago, in the first quarter of 2014, our largest customer accounted for 22% of our total revenue, and in the first quarter of 2015, this was reduced to 17% of our total revenue. This speaks to the strength of our business, not only with our largest customer, but even more so with many other large, medium, and small customers in the residential and commercial solar markets. On a sequential basis, revenue was down 18% from the fourth quarter of 2014, which is better than the 20%-25% seasonal decline that we have historically experienced during the first quarter of each year, despite the fact that there were some harsh winter conditions this year with a lot of snow, especially in the Northeastern U.S.
We shipped 162 megawatts AC, or approximately 186 megawatts DC during the first quarter of 2015, an increase of 74% on a year-over-year basis. The 162 megawatts shipped represented approximately 719,000 microinverters, of which substantially all were our fourth-generation microinverter systems. The Enphase M250 represented approximately 30% of all units shipped. Gross margin for the first quarter of 2015 was 32.6%, despite the fact that we lost approximately one full percentage point of margin compared to the fourth quarter of 2014 as a result of a weaker euro, British pound, and Australian dollar. Our engineering and operations teams continued to execute very well on our cost reduction roadmap, and we incurred less than expected freight and expedite costs. Inverter pricing came in as expected.
Revenue from accessories during the first quarter of 2015 was soft, resulting in a decrease of our total revenue per watt, but this was offset by a similar decrease in total cost per watt. Operating expenses during the first quarter of 2015 were $30.7 million, approximately flat when compared to the fourth quarter of 2014, despite the fact that we continue to make major investments in R&D, not only to support the development and further cost reductions of our microinverter systems, but also to make significant investments in the development of our AC Battery storage technology, energy management system, and grid edge analytics. R&D expenses were $12.3 million, sales and marketing expenses were $11.1 million, and G&A expenses were $7.3 million. Total non-GAAP operating expenses excluded $2.8 million, of which $2.7 million are stock-based compensation expenses.
We reported a non-GAAP operating loss of $2.5 million in the first quarter of 2015, compared to a non-GAAP operating loss of $3.8 million in the first quarter of 2014. On a GAAP basis, the operating loss for the first quarter of 2015 was $5.5 million, compared to a GAAP loss of $5.8 million in the first quarter of 2014. For the first quarter of 2015, the non-GAAP net loss was $3.2 million, or a net loss of $0.07 per share, compared to a non-GAAP net loss of $4.1 million, or a net loss of $0.10 per share in the first quarter of 2014. On a GAAP basis, the net loss was $6.3 million, or a net loss of $0.14 per share, compared to a GAAP net loss of $6.2 million, or a net loss of $0.15 per share in the first quarter of 2014.
Turning to the balance sheet, cash flow from operations during the first quarter of 2015 was a negative $11.5 million. Cash flow was impacted by 2014 bonus payments during the first quarter of 2015. Inventory increased to $34.7 million as the labor dispute in the Port of Oakland was resolved quicker than expected, resulting in a temporary increase of our inventory levels. Capital expenditures were $3.6 million, and depreciation and amortization was $2.5 million. We exited the first quarter with a total cash balance of $27.1 million and continue to have access to our working capital facility of up to $50 million. At the end of the quarter, the facility remained undrawn and the company remains debt-free. Let's discuss our outlook for the second quarter of 2015. We expect revenue for the second quarter of 2015 to be within a range of $100 million to $105 million.
We expect gross margin to be within a range of 30%-32%. As foreign exchange rates continue to deteriorate, we have included in this outlook a negative impact on revenue of approximately $2.5 million-$3 million and a negative impact on gross margin of approximately two percentage points. We also expect non-GAAP operating expenses for the second quarter of 2015 to be flat to up 2% compared to the first quarter of 2015. Now I will open the line for questions.
Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press *1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the question queue, please press the # key. Again, to ask a question, press *1 on your touch-tone telephone. Our first question comes from Krish Sankar of Bank of America. Your question, please.
Hi. Thanks for taking my question. Two quick ones, Paul or Kris. First one, how do you see some of your smaller customers who have a much higher cost structure positioning themselves for a post-ITC world? What do you think the implications are for them for a high ASP product? Because post-ITC, the attention is going to turn to cost. I had a follow-up after that.
I would say our smaller customers today are focused on cost. I don't think a whole lot's going to change post-ITC. The advantage that some of our smaller customers have is that they have an intimate relationship with their customers. They have an ability to sell the value proposition. It's interesting when you look at the bifurcation of our customer base, it is actually the smaller customers that are asking us for more and more features, more and more functions, and more and more things that they can sell to their customers. I think actually the post-ITC world, from a pricing sensitivity standpoint, is going to look the same as it is now, with a deep focus on making sure that we continue to reduce our prices.
I think the smaller customers are going to be able to leverage their relationships with their local customers and provide more and more services and more and more features.
Got it, Paul. As a quick follow-up, you guys introduced your storage technology last October at SPI. I remember you didn't disclose the cost per kilowatt hour. I'm just curious, do you have any updated thoughts around it? Is there any number you can give? If you cannot disclose it, how do you think the battery system compares to what some of your competitors have announced of late?
You're absolutely right. We announced our storage solution back in October. It was very well received and has since been increasingly more enthusiastically received. We have a very modular approach, one kilowatt hour systems. They're very simple to install. You basically take one person, can hang them up on the wall, and just plug it in. It seamlessly integrates and automatically integrates into the Enlighten energy management system. Because of all that, we feel that the ease of installation, the cost of installation is going to be much less than with some potentially competing solutions. In addition to that, as we look at the total system cost, we are very, very comfortable that we'll be extremely cost-competitive with what's out there.
Thanks, Paul.
Sure.
Thank you. Our next question comes from Colin Rusch of Northland Capital. Please go ahead.
Thanks, guys. Can we just get a little bit more detail in terms of the accessory sales? What I'd like to really be able to back into is your cost on a per-watt basis. It looks like the cost program has actually been more aggressive than we might have expected, going from late last year into this year. Just give us a little bit more color around those accessories so we could start to triangulate those numbers.
Yeah, Colin, this is Kris here. In the past, we have not disclosed or given a breakdown of our revenue between inverters and accessories, and we are not planning on doing that going forward either. We have seen some big fluctuations quarter to quarter. Just to give you a range, it fluctuates anywhere from, on the low end, 17% to revenue, towards the high end, more like 25% of revenue. We definitely have seen some fluctuations there quarter to quarter. Part of that is seasonal as well. Q1 2015 was definitely a soft quarter in terms of accessory revenue. As a result of that, you see a substantial drop in the revenue per watt. Having said that, pricing of inverters, as I mentioned before, pricing as inverter is on our normal trends that we have disclosed before of approximately 10% on a year-over-year basis.
Can you just give us the currency assumptions that you're working with for the second quarter guide, just so we have a sense of how that might trend through the quarter as the currency moves?
Foreign exchange is definitely something that we watch very closely. There has been some hefty fluctuations, starting the beginning of the year, it went much worse in March and April. We have based our forecast on a euro exchange rate of approximately EUR 1.10. Currently, we are trading a little bit better there, that is good news. Of course, we'll have to see how that all plays out for the rest of the quarter.
Just a quick question on the inventory. How long do you think it'll take you to clear all of that and get back to a more normalized level? Is that something that's just a matter of weeks, or is it going to take a quarter or two to, kind of, work all of that through the system?
We target to finish that by the end of the second quarter. There might still be a little bit of spillover there into the third quarter, most of it will be cleared by the end of the second quarter.
Excellent. Thanks a lot, guys.
Thank you. Our next question comes from Edwin Mok of Needham & Company. Your question please.
Great. Thanks for taking my questions. First is actually a housekeeping. Do you have any other 10% customer beyond the largest one?
I'm sorry, Edwin, could you repeat that?
Yeah, no problem. Did you have any other 10% customer beyond the first, the largest customer?
We do, interestingly enough, the other large customers are all distributors. In fact, you could look at those customers as proxies for the thousands of small, medium, and large installers that we currently support.
I see. Actually, that's a good point there. Then, in terms of this impact of this port strike that we saw last quarter, does that cause your channel inventory to go up a little bit also in the quarter? Can you give some color on that?
No. The port issue was definitely a big issue. Just to put that a little bit in perspective, as you know, we ship our product from Flextronics in China to the port in Oakland. Normal transportation time, before the labor issue, was approximately 30 days. That stretched out all the way up till almost 90 days. That was definitely causing some balancing act there to manage our inventory levels. The issue got resolved late February. As a result of that, 10,000s of microinverters that were floating around on boats got offloaded and became part of our inventory, and so that resulted in a spike of the inventory levels, as reported at the end of Q1. As I stated before, we expect to bleed that off towards the end of the second quarter.
No impact on the channel. Okay. By the way, thanks for color on the international market. Looks like you guys are doing really well, especially in Australia. Can you give us some idea about your percentage of revenue come from those markets right now? I was a little bit surprised, frankly, by the magnitude of the FX's impact, because I thought international has only been around 10, 15% of your sales. Maybe give us some color and how do we kind of think about that? Because it seems like it's growing faster in a company. That's a growth driver, but impact by FX, it might be offsetting, right?
Yeah. Our mix between U.S. revenue and outside of the U.S., our international revenue, has not really changed. It's still an 85, 15 split, 85 in the U.S., 15% outside of the U.S. Despite the fact that our international revenue is growing extremely fast, in Q1, we had 52% year-over-year growth. Obviously, our U.S. business continues to grow, also extremely fast. It's difficult for now to outpace the revenue that we see in the U.S.
I see. Okay, great. Last question, and then I'll let the other guys ask. Your commentary around PetersenDean and your partnership with them, right? Kind of lead me to think that, maybe on some of these non-traditional solar installers could be a growth area for you guys. How do you kind of think about those customers? Is it an area that you believe will allow you to drive more growth in U.S.? Is that an area that you think you can target more? That's all I have. Thank you.
Our current customer base really ranges from the largest tier 1s all the way to the smallest installers. It is true that the environment is very volatile right now. There are a lot of new entrants, and I think there are going to be a lot more new entrants in the upcoming years. Some of these are going to be maybe specialty installers. Some of them may be more generalists. What is very clear is that the ability with an Enphase system to very quickly get up and running, to be able to simplify their back-end office logistics, the simplicity of the design, the simplicity of the installation, the simplicity of the O&M does enable a lot more people to get into solar than they could have before, and that is a unique characteristic of a microinverter.
Certainly we're going to do our best to attract those customers as well. I would view that as just one part of a much broader initiative to continue our market share growth in the U.S. residential market.
Okay, great. That's all I have. Thank you.
Thank you. Our next question comes from Philip Shen of ROTH Capital Partners. Your question, please.
Hey, Paul, Kris. Thanks for taking my questions. First one is on pricing. I think I heard you mention that the pricing outlook has not changed, and you still expect 10%. Can you expand on that and talk about the current competitive dynamics in the marketplace? Potentially, provide us some additional color on what you're seeing out there.
Sure. The competitive environment today doesn't look very much different than it did last year or the year before. Our competition is primarily string inverters, with or without DC optimizers. We continue to increase our market share against the string inverters. Again, because of the value proposition of a microinverter. As Kris had mentioned, we've been on a fairly consistent price reduction path year-on-year for quite some time now. It's a bit variable, but I'd say that we're pretty much on that same path as we look forward to 2015 and even 2016. As a result of where we are in the technology curve on a microinverter, there is a tremendous amount of room in front of us for further cost reduction. We're actively engaged in that. That's helping us reduce our prices very aggressively while maintaining very healthy gross margins.
In addition to that, we're adding new features, new functions that are unique to Enphase, unique to microinverters, that will also help us, I think, on the pricing side. There's a lot of work going on, both in the area of cost reduction and future enhancement to help support the current and the future pricing expectations that we have.
Great. Thanks, Paul. Shifting gears here. Kris, I know you mentioned the international outlook, or the international mix of sales is about 15%. Was wondering if you could comment on the full year 2015. What do you expect the mix of international sales to be as well as commercial sales?
Right. As you pointed out, the breakdown between U.S. and international is 85/15. The breakdown between residential and commercial is also 85/15. We, of course, continue to grow our business in the U.S. residential market, which is 75% of our business. We see a tremendous amount of growth of the total available market, and we continue to defend, grow our share in that market, and that is fueling a lot of the overall growth. In addition to that, of course, we have a strong focus on growing internationally, U.K. and Australia, and many other markets from Canada, Mexico, to other continental European countries and other countries in APAC region. As a result of that, we do expect our international revenue to grow faster than the U.S. revenue, and so we will probably move more towards an 80/20 towards the end of this year, from that perspective.
If I look beyond that, 2016 and 2017, of course, we will continue to look at entering into new countries. There's a lot of action going on within the company to prepare for that. Similar, on the commercial side, as you know, we have launched our dedicated commercial product, the C250, that has 480 volt, 3 phase, 60 cell and 72 cell. Now we have a dedicated product to go and attack the commercial market. That product is very well received in the market. It's a little bit of a longer sales cycle. As I said, the product is very well received and, we expect that as well to grow towards the end of the year, closer to an 80/20 relationship, resi commercial, than currently 85/15.
Great. That's really helpful, Kris. It sounds like, you're at 85/15 today in both, but as you transition through the year quarter by quarter, you'll potentially end up in Q4 at that 80/20 split.
That's correct.
Great. Thanks, Kris. I'll jump back in the queue.
Thank you. Our next question comes from Vishal Shah of Deutsche Bank. Your question please.
Hi. Thanks for taking my question. Maybe, Paul, can you talk about your largest customer, I believe, there has been a transition now for that customer from maybe one supplier to two. I mean, that's been a bit of a headwind in your sales. I mean, do you expect that headwind to continue, or you kind of think that your market share the customer stabilize in the near term?
We've been talking about this for well over one year now. They've indicated that they were gonna move very likely to beyond two vendors, more than that. That is on track. It's very hard for me to comment on what's gonna happen in the future. You'd need to talk to that one large customer. What I can say is that despite the fact that our percentage share in that customer has decreased, the actual revenue dollars has increased, but the revenue dollars outside of that customer has increased even faster. It's very easy to forget that there are many worldwide customers that we are not yet selling to. As Kris has just noted, we have far more markets in front of us than we're currently selling in. While we treat every customer very importantly, and we recognize The importance of our larger customers.
At the same time, we also are very focused on growing our presence, not just in the U.S. residential market, but the U.S. commercial market, which is a very fragmented market, and in international markets as well. All of the numbers that we're giving for Q2 take into account the fact that we're assuming that there's going to be more and more vendors in our top customer.
That's helpful. Just one other question on the margins. As we think about the rest of the year, the second half, do you expect your margins to stabilize at these levels? Or how should we think about the product mix, particularly the 4-gen product impacting margins, and where do you think margins can go from here?
What we've said is that we have a financial strategy of balanced, profitable growth, which means that we're trying to push the top line as hard as we can while increasing profitability year-on-year. We've been doing that for many years consistently, and we're going to continue to do that. Our target gross margin of 35%-40% remains our target gross margin, and we are more confident than ever that we can achieve that. However, that is not our focus right now. We've said that gross margins are going to bounce around in the low 30s, and we're very comfortable with it. We're not trying to optimize the gross margin number right now.
What we are very focused on is the continued development of new technologies, increasing the features and functions of the energy system, which includes the microinverter itself, storage, energy management, providing an aggressive cost reduction roadmap to our customers, and doing all of this while increasing the profitability. Remember that our R&D expenses include a lot of new products that we're not shipping. As Kris had mentioned, things like our AC Battery solution, things like Grid Edge analytics, energy management, even some services that are part of the Enphase Energy Services offering are under development that we're not shipping. We're able to invest in this and increase in profitability because of the growth in revenue and because of the healthy gross margins.
That's helpful. Thank you.
Thank you. Our next question comes from Michael Morosi of Avondale Partners. Your question, please.
Hi, guys. Thanks for taking my question. Obviously, there's some pretty big news recently as it relates to the storage opportunity in the industry, I'd just like to see if you guys can walk us through how you're thinking about Enphase within the storage market and how the microinverter technology stacks up against other technologies in the storage context.
Sure. We certainly share other companies' optimistic view on the global storage market. In fact, I think it would be accurate to say that as solar grows, storage will become an essential part of the total energy mix. We have often said that in the future, we will not be selling solar systems, we'll be selling energy systems, which will consist of generation, storage, and energy management all wrapped into one package. Having said that, it's clear that storage needs to be an important part of the mix, it is because of our 5th-generation microinverter that is uniquely capable of bidirectional power flow that we're able to create the AC Battery solution. Remember, this is a solution that's around 40 pounds. You literally hang it on a wall very much like a picture frame.
You plug it in, both the chemistry, the battery itself, as well as the inverter, is all in that box. There is no additional material that's needed. You hang it on a wall, you plug it in, because it's our communication system, Enlighten will automatically see it, automatically configure it, and come up with a charging and discharging profile for it. That simplicity of installation and simplicity of design, we think, is extremely unique and is going to be extremely valuable. Having said that, there are going to be multiple solutions out there, we welcome all of it. We believe firmly that the storage market is a tens of billions of dollar market in the making, there certainly is going to be more than one competitor.
The enthusiastic response that we have received from customers all over the world has really given us a great deal of confidence that we are on the right track. In fact, if you look at the markets that we are currently in, let's say Australia specifically, the demand for storage there is robust, and it's driven by a very clear economic model. Our current presence in Australia, our growing customer base in Australia, is going to give us a tremendous launching platform for the AC battery solution as well as other countries included.
Appreciate it.
Thank you. Once again, ladies and gentlemen, to ask a question, please press star one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the question queue, please press the pound key. Again, to ask a question, press star one at this time. Our next question comes from Paul Coster of J.P. Morgan. Your question, please.
Thank you for taking my question. It's probably a pretty naive one since it's my first time around. Clearly, your nearest competitor with a DC optimizer solution has claimed a very significant cost advantage. I'm just wondering if the improvements that you have in mind over the course of the next year or so close the gap materially. Do you even accept that the gap is as wide as they say? Well, let's leave it at that for now. The second question really is, are you tempted to lower your gross margins a bit to recapture some market share?
To address the first part of the question, it's not at all clear to me that they have a cost advantage today. I do not have any data to support that. The data that I do have doesn't support it. What's interesting is that if you look at our cost reduction roadmap going forward, it is extremely aggressive. It addresses every part of the system. As I said earlier in the call, we're still in the very early days of technology development for a microinverter. There is a lot of work in front of us in terms of semiconductor development, semiconductor integration, system-level design, cabling, mechanical engineering, and we are investing heavily in all of these areas. The decision that we have to make is: where do we apply our R&D dollars? I could certainly apply all of them on cost reduction and get there sooner rather than later.
At the same time, we are looking at some very new and exciting markets. Japan as one of them. We've said many times that we're very excited about the potential for Enphase to enter Japan, and we are right now going through the certification process. We're looking at, as we've talked about already at length, the AC battery solution, the energy management system. We're balancing our development dollars between ongoing cost reduction coupled with feature enhancement. We believe that that balance that we have struck between the two will allow us to maintain or increase our cost competitiveness against string inverters and continue to increase the features and functions that we believe consumers all over the world are going to be demanding.
Does the introduction of the 5th-generation product actually sort of reduce the cost significantly, or is it all part of a smooth curve here?
What we have seen in the past, what we don't guide specifically to cost in the future, but I can tell you what we've seen in the past, is that when we introduce a next-generation product, we generally see a cost reduction, but it may be marginal. That gives us a new platform with which to apply a lot of cost reduction activities to continue to get that cost down. We've seen that four generations in a row, and I don't see any reason why that would stop.
Okay. Thank you very much.
Thank you once again, ladies and gentlemen. To ask a question, please press star one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, press the pound key. Again, to ask a question, press star one at this time. As there are no further questions in queue, I'd like to turn the call over to Paul Nahi for any closing remarks. Sir?
Thank you. I'd like to close by acknowledging our recognition as one of the 2015 best places to work in the San Francisco Bay Area by the San Francisco Business Times and the Silicon Valley Business Journal. We've always been proud of our corporate culture of creativity, collaboration, and technology innovation and believe our employees are truly best in class. I want to thank our entire Enphase team for their continued hard work, passion, and dedication. We look forward to speaking with you again next quarter.
Thank you, Mr. Nahi, and thank you, ladies and gentlemen, for your participation. That does conclude Enphase Energy's first quarter 2015 financial results conference call. You may disconnect your lines at this time. Have a great day.