Enphase Energy, Inc. (ENPH) Q2 2021 Earnings Call Transcript – The Motley Fool

Enphase Energy, Inc. (NASDAQ:ENPH)
Q2 2021 Earnings Call
Jul 27, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Enphase Energy Second Quarter 2021 Financial Results Conference Call. [Operator instructions] Please be advised that today’s conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Adam Hinckley.

Please go ahead.

Adam Hinckley — Senior Director, Investor Relations, M&A & Government Relations

Good afternoon, and thank you for joining us on today’s conference call to discuss Enphase Energy’s second-quarter 2021 results. On today’s call are Badri Kothandaraman, Enphase’s president and chief executive officer; Eric Branderiz, chief financial officer; and Raghu Belur, chief products officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 30, 2021. During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to Enphase Energy’s expected future financial performance, the capability of our technology and products, including availability and features; our operations, including in manufacturing and customer service; the anticipated growth in our sales and in the markets in which we operate and target; and the capabilities of our installation partners.

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 these risks and uncertainties, please see the company’s annual report on Form 10-K for the year ended December 31, 2020, which is on file with the SEC, and the quarterly report on Form 10-Q for the quarter ended June 30, 2021, which will be filed during the third quarter of 2021. Enphase Energy cautions you not to place 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 a reconciliation 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 would like to introduce Badri Kothandaraman, president and chief executive officer of Enphase Energy. Badri?

Badri Kothandaraman — President and Chief Executive Officer

Good afternoon, and thanks for joining us today to discuss our second quarter 2021 financial results. We had a good quarter. We reported revenue of $316.1 million, shipped approximately 2.36 million microinverters and 43-megawatt hours of Enphase storage systems, achieved non-GAAP gross margin of 40.8%, and generated strong free cash flow of $49.2 million. We exited the second quarter at approximately 41%, 16%, 24%.

This means 41% gross margin, 16% operating expenses, and 24% operating income, all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35%, 15%, 20%. Eric will go into details about our finances later in the call. Let’s now discuss how we are servicing customers.

Our Q2 net promoter score worldwide was 67% compared to 63% in Q1. And our North American net promoter score was 71% compared to 69% in Q1. Our average call wait time decreased to approximately three minutes in Q2 from more than five minutes in Q1. Our 24/7 global customer support helped to reduce the wait times.

In addition, we are building field service teams in the U.S. and Europe to provide on-site help to our installers. We also expect to add a team in Australia during Q4. We remain laser-focused on customer service and making sure that we are the easiest company to do business with.

Let’s now talk about manufacturing. As we have discussed in the past earnings calls, the demand for our microinverter systems continues to be well ahead of supply. In Q2, we experienced component constraints on the supplier AC Fed drivers, which resulted in our microinverter shipment volume slightly lower as compared to Q1. We had three AC Fed driver suppliers qualified by the end of the second quarter compared to two in the first quarter.

For the third quarter, we continue to expect to remain constrained on microinverters, but the supply situation is better than what it was in the second quarter. We expect to have four suppliers qualified by the end of the third quarter. Regarding the fourth quarter, we are cautiously optimistic that the situation will be significantly better compared to the third quarter. On the ASIC used in our microinverters, we have sufficient supply.

So that has not been a big constraint so far. As previously discussed, we are expanding our microinverter manufacturing capacity in Mexico and India. At our facility in India, we installed a second fully automated line in Q2, with production beginning at the end of the quarter. This brings our quarterly capacity to 1.5 million microinverters from India.

In Mexico, we expect to add a fully automated manufacturing line in Q4. This will bring quarterly capacity to approximately 2.2 million microinverters in Mexico. With our existing capacity in China, we expect to easily achieve our target capacity of five million microinverters per quarter by the end of 2021. Let’s talk about batteries.

We have two sources for battery cell packs with a total capacity of 120-megawatt hours per quarter. I previously mentioned, we are going to add a third source in 2022 to increase our overall capacity. Talking about our lead times. Our lead times for storage systems are a little high today between 12 and 14 weeks, and we are working on streamlining our engineering and manufacturing to bring them down below 10 weeks by the end of 2021.

Let’s move on to the regions. Our U.S. and international revenue mix for Q2 was 81% and 19%, respectively. The U.S.

market demand was very strong in Q2, but we were supply constrained. Therefore, revenue was only up 3% sequentially. Our teams work hard to ensure customers that continuous supply of product. The sell-through from our distribution partners to installers remained very strong, keeping channel inventory tight but at manageable levels.

Our teams ensured that all customers had product that they needed to complete jobs, and we’re not forced to seek automative, although the constrained supply prevented customers from building buffer inventory. In Europe, we reported record revenue in Q2. The revenue increased 16% sequentially. The channel inventory was much tighter in Europe than the U.S., but we expect it to improve in Q3 and Q4.

We had solid growth in Netherlands, France, and Germany, and continued strong microinverter sales to Maxeon for its ACM product during the second quarter. We also began selling our Enphase storage systems in Germany during late Q2, representing the product’s first international expansion outside the U.S. We launched our solar plus storage system estimator sizing tool in Germany that showcases panel placement on the roof, along with storage sizing and a comprehensive financial analysis. Germany represents the largest residential storage market in Europe with high attach rates.

The market response to the introduction of the Enphase storage system in Germany has been positive, and we expect this to also drive the microinverter business in the country. Overall, I’m very pleased with our growth in Europe. In the Asia Pacific region, revenue declined 3% sequentially in Q2, primarily due to COVID disruptions in Australia, along with normal seasonality. Despite these headwinds, we are quite happy with microinverter sales during the second quarter from the continued adoption of our highest power IQ 7A product and our AC module partnerships.

We expect to pilot Enphase storage systems in Australia in the fourth quarter. In Latin America, Q2 revenue was up 38% sequentially, largely due to increased sales of both Enphase solar and storage systems in Puerto Rico. As I discussed last quarter, we are expanding into Brazil. We have hired a team there to enter the Brazilian market, and we expect first revenue from this region in Q3.

Now that we have covered the regions, let’s discuss the overall bookings for Q3. Our overall customer demand for Q3, once again, significantly exceeds the higher end of our guidance range. We continue to remain supply constrained in Q3. Our component availability is improving in Q3 compared to Q2, but not at the rate of growth in demand.

Let’s now move to our storage systems rollout. We shipped 43-megawatt hours of Enphase Storage Systems in the second quarter. During the quarter, we released load control, a new feature that provides Enphase storage systems with the capability to automatically shed nonessential loads during an outage. With load control, homeowners have the option to conserve their energy consumption and extend their backup duration simply via a onetime setting of the Enlighten app.

Let’s now turn to training for our Enphase Storage Systems. By the end of Q2, we trained 2,592 installers cumulatively, representing more than 1,500 unique installation companies. This represents a significant jump compared to Q1 as we were able to resume some in-person training in Q2. We also continue to make steady progress on the commissioning of our Enphase Storage Systems and made numerous updates to our software app.

Our goal remains a sub-60-minute commissioning time, which will allow installers to visit the site, install, and commission and Enphase Storage System in less than a few hours. I’m very pleased with the progress we have made on that front. The introduction of load control in late May, along with some pricing adjustments we did for our installers, plus the improvements in the commissioning process have resulted in an acceleration of demand for Enphase storage since June. As a result, we expect to ship between 60- and 70-megawatt hours of Enphase Storage Systems in the third quarter.

We are already fully booked for Q3 on storage. And our current lead times, as I said before, are 12 to 14 weeks. We are working hard to bring the lead times down to under 10 weeks. Let’s talk about our new products, specifically the IQ 8 microinverter and the IQ 8D microinverter product launches.

IQ 8 is the world’s first grid independent microinverter for residential solar. And IQ 8 is the high-power 640-watt AC microinverter, capable of supporting two panels for small commercial solar. We are making good progress in the compliance, reliability, and system testing of these products. We expect first shipments of the IQ 8 PV microinverters in Q3 and first shipments of the IQ 8D product in Q4.

Given our component supply challenges, we are going to ramp these products quite cautiously. On the last earnings call, we discussed the generator compatibility feature for our Enphase Storage Systems last quarter. We are a little bit behind here as we took more time to complete the system testing. We are currently piloting generator compatibility with a handful of real homes and are seeing great results.

We expect to introduce this feature introduction by the end of the third quarter. Homeowners will then have the ability to add generators to their Enphase Storage Systems, and will be able to configure the generator behavior from the Enphase app. The Enphase Home Energy Management system provides a seamless transition from on-grid to off-grid, ensuring a superior installer and no molar experience. This generator functionality, as I said, will be integrated into our mobile app, so the homeowners have full visibility and control from one app.

Let’s now turn to digital transformation. Both our recent acquisitions, Softdesk and the solar business of BIN Engineering are fully integrated and exceeded our expectations with record revenue and installer accounts in Q2. The 850-plus installers using the solar graft software tool will soon have access to new features such as shading and storage system sizing. Our permitting services are also undergoing significant improvements toward automation to drive mass adoption among the long tail of installers.

Our digital transformation initiatives focused on reducing staff costs, while improving profitability and efficiency for our installers, resulting in clean and affordable energy for all. Let me now give you an update on our Enphase Installer Network or EIN. We have now onboarded 500 installers in North America, 146 installers in Australia, and 169 installers in Europe to our Enphase Installer Network through a highly selective process focused on quality and homeowner experience. We also introduced EIN networks in India and Mexico during the second quarter.

This has been a highly successful initiative as we are adding trusted installers who will act as product evangelists on our behalf and are expected to provide an exceptional experience to homeowners. Let’s talk about our entry into grid services for the first time. We have started participating in the Connected Solutions program, which is an incentive program implemented by two utilities in the Northeast region of the United States to reduce electrical demand during the high use periods. Enphase storage customers in Connecticut, Massachusetts and Rhode Island can sign up, monitor, track money on, and control participation in the program using our Enlighten mobile app.

These grid services programs enable utilities to leverage Enphase Storage Systems instead of turning on polluting bigger plants while generating an income stream for the battery owner. Enphase customers participating in the connected solutions program can receive up to $1,500 a year for our 10-kilowatt hour battery once they share the battery when they — when called upon by the utility. Facilitating grid services participation for our customers will reduce the lifetime cost of Enphase storage systems and help drive increased demand. We plan to participate in more such programs in the future.

Enphase is laser focused on building best-in-class home energy management systems and delivering them to homeowners through our digital platform, along with our Enphase Installer Network and distribution partners. We now have solar, storage load control grid services and generator compatibility as part of our home energy management system. We plan on adding other distributed energy resources down the line. Our digital platform captures both installer and homeowner journeys, providing tools and services such as design, proposal and permitting with the goal of reducing soft costs and accelerating the adoption of clean energy.

In summary, we’re very happy with the performance in the first half of 2021 and the ongoing strong demand for our solar and storage products. We look forward to the ramping of our storage systems, introducing new products, accelerating digital transformation and enhancing customer experience. We plan to host an analyst day in the fourth quarter, and will provide more details on our next quarter’s earnings call. With that, I will hand the call over to Eric for his review of our finances.

Eric?

Eric Branderiz — Chief Financial Officer

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our second quarter of 2021 financial results as well as our business outlook for the third quarter of 2021. We have provided reconciliation of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the investor relations section of our website. Total revenue for Q2 was $316.1 million, representing an increase of 5% sequentially.

We shipped approximately 796 megawatts DC of microinverters and 43-megawatt hours of Enphase Storage Systems in the quarter. Microinverter unit shipments declined slightly relative to Q, but favorable product mix led to the sequential revenue growth. Non-GAAP gross margins for Q2 was 40.8% compared to 41.1% for Q1. The decrease was primarily as a result of higher logistics and expedite costs, partially offset by disciplined pricing and favorable mix.

GAAP gross margin was 40.4% for Q2. Non-GAAP operating expenses were $51.7 million for Q2, compared to $43.7 million for Q1. The sequential increase was primarily due to increased investment in R&D and sales and marketing programs and increased hiring. In addition, Q2 was the first full quarter of consolidation of the recent acquisitions of Softdesk and BIN.

GAAP operating expenses were $68.4 million for Q2, compared to $61.6 million for Q1 GAAP operating expenses for Q2, including $14.3 million of stock-based compensation expenses and $2.5 million of acquisition-related expenses and amortization for acquiring intangible assets. On a non-GAAP basis, income from operations was $77.2 million for Q2, compared to $80.2 million for Q1. On a GAAP basis, income from operations was $59.4 million for Q2, compared to $61.4 million for Q1. On a non-GAAP basis, net income for Q2 was $74.7 million, compared to $78.7 million for Q1.

This resulted in diluted earnings per share of $0.53 for Q2, compared to $0.56 per share for Q1. GAAP net income for Q2 was $39.4 million, compared to GAAP net income for — of $31.7 million for Q1. GAAP diluted earnings per share was $0.28 for Q2, compared to diluted earnings per share of $0.22 for Q1. Now turning to the balance sheet and the working capital front.

Inventory was $37.8 million at the end of Q2, compared to $34.9 million at the end of Q1. The sequential increase was driven by higher battery cell pack inventory to support the expected growth of Enphase Energy Store System shipment. This inventory outstanding was unchanged compared to Q1 and stood at 18 days, reflecting the current supply constrained environment as well as longer lead times. Accounts receivable were $281.2 million at the end of Q2, compared to $236.1 million at the end of Q1.

The sequential increase was due to the higher revenue in Q2 and shipments being weighted to the second half of the quarter. DSO of 65 days increased from 56 days in the prior quarter due to the timing of shipments. We exited Q2 with a total cash balance of approximately $1.3 billion, compared to approximately $1.5 billion for Q1. We fully utilized our $200 million share repurchase authorization and bought approximately 1.7 million shares at an average share price of approximately $117 in Q2.

In addition, our board of directors authorized a new share repurchase program of up to $500 million over the next three years. In Q2, we generated $65.6 million in cash flow from operations and $49.2 million in free cash flow. Capital expenditure was $16.4 million for Q2 to expand my competitor manufacturing capacity in Mexico and India, as well for costs related to Enlighten software app development, corporate website development, and investment in IT and cloud infrastructure. Now let’s discuss our outlook for the third quarter of 2021.

We expect our revenues for the quarter to be within a range of $335 million to $355 million, which includes shipments of 60- to 70-megawatt hours of Enphase Storage Systems. We expect GAAP gross margin to be within a range of 37% to 40% and non-GAAP gross margin to be within a range of 38% to 41%, which excludes stock-based compensation expenses. We expect our GAAP operating expenses to be within a range of $105 million to $108 million, including a total of approximately $46.4 million, estimated for stock-based compensation expenses, and $1.6 million estimated for acquisition-related expenses and amortization. We expect non-GAAP operating expenses to be within a range of $57 million to $60 million.

Let me provide some additional color on a few topics. As Badri mentioned earlier, we will be constrained by component availability in Q3. The revenue guidance assumes a modest increase in microinverter shipments, but the primary driver of growth will come from increased storage systems. We expect to ship 60- to 70-megawatt hours of our Enphase Storage Systems in Q3, representing approximately 50% sequential growth at the midpoint.

We expect improved component availability for microinverter production in Q4 and continued momentum for the Enphase Storage Systems. On the cost side, we are continuing to expedite components and finished goods in Q3 to ensure customers have an adequate supply of our products. To put in the magnitude of expedite cost into perspective, the expense in Q2 was larger than for all of 2020. We expect the quarterly expedited expenses to remain at similar levels for the remainder of 2021.

Due to the elevated logistics costs and increase in some component costs, we implemented a modest price increase for microinverters starting in Q3. Next, I would like to touch upon our opex guidance. Our guidance for non-GAAP operating expenses as a percentage of revenue is expected to increase in Q3. As we mentioned in the last earnings call, our opex may be slightly above our 15% target at times, but we will still expect to be comfortably above our baseline financial model target of 20% operating income.

As we accelerate toward our vision of providing best-in-class home energy management systems, we are investing significantly in R&D, particularly in areas that further our competitive advantage such as ASIC and so forth. Semiconductor integration and cloud software are core differentiation that increase our system performance, reduce cost and increase reliability. We are also ramping up our marketing expense in the back half of the year to increase homeowner awareness of our solutions. For Q3 accruals for post-combination expenses from prior acquisitions are expected to be approximately $3.4 million.

Finally, I will touch on an increase of the stock-based compensation expense in Q3. The sequential increase is due to the higher number of employees globally as we continue to accelerate our growth plans as well as the need to retain top-level employees as an S&P 500 company. With that, I will now open the lines for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Mark Strouse with J.P. Morgan. Your line is open.

Mark Strouse — J.P. Morgan — Analyst

Yeah, good afternoon. And thank you very much for taking our questions. So Badri, I appreciate your comments about supply looking significantly better in 4Q, but — and I understand things are fluid, obviously, but can you just talk about your expectations today? Assuming that, that fourth supplier ramp goes to plan, at what point do you feel that you’ll be able to fully meet demand?

Badri Kothandaraman — President and Chief Executive Officer

Actually, let me give you some color. The microinverter has got 300 components. Critical component is what is called as an AC set driver. This is made by a few semiconductor suppliers.

And in the first quarter of this year, we had two such suppliers qualified. The market on the semiconductor supply chain today is immense, and so we worked hard. We qualified a third supplier in the second quarter. We were living hand to mouth in the second quarter, and you saw the results.

The situation is getting better day by day. So in the third quarter, I expect to do more number of microinverters. I expect to qualify 1 more supplier. Still, the semi-supply chain is stressed, though, which is why I cannot meet all my demand.

In the fourth quarter, I see better visibility right now. But look, I predicted that in the first quarter, we are going to be out of the world soon. That was not the case. So I remain cautiously optimistic that the situation is going to get better.

And, you know, we can meet most of our demand. Maybe difficult to meet all of our demand right now because with IQ 8 ramp, I can never say what’s going to happen. We are rapidly getting ready. It’s too early for me to talk about the fourth quarter, but I’m getting ready in terms of manufacturing capacity.

I want to exit the fourth quarter at least $5 million units of manufacturing capacity, not demand. And we’ll continue to work on the suppliers on qualifying additional – you know, I may qualify 1 more supplier if I need to. But at this point, visibility is better than what I told you the last time. However, I still remain cautiously optimistic about Q4.cOK.

That’s very helpful. Thank you. And then I just wanted to ask a follow-up about storage. Yes, it’s been a bit over a year since you introduced your storage solution.

Can you just kind of walk us through the past year? I mean, what have you been surprised by as far as, you know, feedback or, you know, applications that you would have thought would have had more interest? What have you been surprised as far as homeowner demands that you were not prepared for? And then can you touch on pricing? Just the pricing that you implemented at this time last year, does that now hold? Do you see any reasons to increase that or necessarily decrease that?

Yeah. If I tell you a story there, we introduced our Enphase Storage Systems in July of 2020. We had a very clear idea on our value proposition, and that has largely not changed. It has only gotten better.

Our value proposition is all-in-one solar, plus storage solution. We do not deal with high voltages, even for DC batteries. We only deal with low-voltage DC. Our battery solution, 3.3 kilowatt hour is a modular solution, creating a lot of flexibility for our installers.

Our chemistry is a lithium ion phosphate chemistry that is excellent in fire safety. In addition, we focused on power. You know, when you start conditioners, you do need a soft start-up, but with our feature called Power start, we are able to provide extra power for that surge when the air conditioners turn on. Those value propositions have largely remained intact.

Then you asked about market feedback. Our customers gave us a lot of feedback. Our initial commissioning times we’re not that good. They were – you know, the commissioning times were of the order of several lowers, and customers did not like that.

Installers did not like that. They gave us a lot of feedback. We took all of that feedback into perspective and we improved our commissioning process a lot. We have learned a lot in the last year.

Homowners also gave us valuable feedback in terms of in terms of micro grid failures. Like, for example, how do we provide the right notification to the homeowners so that they know that, OK, now I am in off-grid more, in an outage mode, and I need to take extra steps to conserve my battery life. So we learned a lot from homeowners. We updated our software multiple, multiple times during the last year.

And , you know, recently, in May, we introduced load control. Load control was extremely important because, you know, for the people who have, let’s say, a lot of air conditioners, they don’t want to screw around with doing a partial home backup. You can do a whole home backup and you can leave out the air conditioners by default. You can shed the loads automatically.

So we provide now, as of late May, we introduced four circuit load control. So heavy loads can be automatically shared through a onetime app setting. Now you heard me talking about generator compatibility. We — you know, pretty soon by the end of by the end of the quarter, we will be introducing again through software, our home energy management system will incorporate generators to plug into them, giving homeowners unprecedented visibility and control from one app.

Additional things with it. We introduced 24/7 customer support. We have — we now have a field service team which will help the installers — with the installers find it invaluable. We have roundtables, weekly roundtables.

I personally meet with 10 to 15 installers every week, get their feedback and make continuous corrections to the product. Now, let’s talk about pricing. You know, the introduction in the last 1 year was by design. I wouldn’t have changed much.

We learned a lot. Our costs initially were high as typical in a ramp. Our pricing was therefore a little bit high. And now, I have learned a lot from the field.

We have improved the commissioning process. And we introduced load control. So we felt it was the time to make the right pricing adjustment while being very disciplined and doing value-based pricing. So we did exactly that in late May, along with load control, along with the latest commissioning improvements.

We even introduced [Inaudible] in our 15-year warranty plan. We find it at the right time to make a pricing adjustment, which we did. And we have seen since June enormous acceleration in storage demand, which is why we are guiding, you know, 50% from Q2 shipments. Q3 guidance, midpoint of guidance will be up 50% from Q2 shipments.

Now, we got to do one thing. We need to improve our lead times on batteries. When I mean 12 to 14 weeks, if somebody orders the battery today from me, they can only get the battery in 12 to 14 weeks, which is not acceptable. I need to go work on streamlining both engineering, manufacturing cycle time in order to push that down to under 10 weeks, ideally 8 weeks.

So that’s something that I have to do. And I do need to get a third supplier because I see that — I see us doing well. And I’ve become more optimistic on batteries. We do need a third supplier.

So that’s what we’re going to do.

OK. Excellent. Thank you very much.

Thank you.

Operator

Thank you. Our next question comes from Aric Li with Bank of America. Your line is open.

Aric Li — Bank of America Merrill Lynch — Analyst

Hey. Good afternoon. Thanks for taking my question. Just as a follow-up to the prior around the ACF driver constraints, can you talk about the time — timeline for the newly qualified suppliers to ramp under supply contributions? And as well as in the discussions with those new suppliers, is higher firm ASP is a key part of that to get supply prioritization? We heard that in some of our channel checks in the semi industry.

So curious to hear as well.

Badri Kothandaraman — President and Chief Executive Officer

Well, in general, the component costs, our suppliers have increased prices to us because of the constrained supply chain. That’s a given in general. And our guidance, our results, everything incorporates that. To answer your question on the food supplier, we expect the fourth supplier to turn on in the third quarter.

We expect to at least get a couple of hundred thousand microinverters using that supplier.

Aric Li — Bank of America Merrill Lynch — Analyst

Got it. And just as a follow-up question. On storage, you mentioned that the 60- to 70-megawatt hours in 3Q is already fully booked. Can you just talk about what’s needed to ramp to get closer to that 120-megawatt hours? If — you know, it seems like demand is not an issue if you’re fully booked, and we’re only halfway through or plus halfway through the third quarter at this time.

Is the whole — if you could just talk through the bottlenecks there and getting closer to that 120. Thank you.

Badri Kothandaraman — President and Chief Executive Officer

Yeah. Today, that 12 to 14 weeks is kind of excess — it’s kind of made worse by a couple of things. One is our internal manufacturing time is a little long. And you know, the logistics situation in this environment is quite stressed as well.

So in order to improve those and get the 12 to 14 down to under 10, I’m going to work on engineering issues, which are basically test time- nd manufacturing-related. Those are well under my control and we’ll be able to get that fixed within a quarter. In terms of logistics, we’ll see, it is true for the — I mean, the problem exists for the industry, and it’s not practical for me to ship batteries – you know, air ship batteries. That’s not going to happen because the cost of air shipping batteries will not make sense no matter whatever way you cut it.

I can ship a microinverter by paying a little bit of money. But that is not true for batteries. It’s too much of money and it won’t be economically, you know, sensible. So, you know, what I think is within — you know, the optimistic means within 8 to 10 weeks, I should have all of this problem resolved, I should be able to get back to my capacity of 120-megawatt hours per quarter.

And, you know, from then onwards, look for a third supplier to increase that capacity.

Aric Li — Bank of America Merrill Lynch — Analyst

Thank you.

Operator

Thank you. Our next question comes from Brian Lee with Goldman Sachs. Your line is open.

Brian Lee — Goldman Sachs — Analyst

Hey, guys. Thank you for taking the questions. I wanted to start off with a few on pricing, if I could maybe on the micro side. If we assume battery revenue was fairly flattish in the quarter, it implies ASPs for microinverters with, you know, close to 10% in 2Q versus the first quarter.

Is that about the right ballpark? And then I know you mentioned mix a number of times. What exactly in the mix? Can you elaborate a bit as to what helped pricing in the quarter since IQ 8? I think, as you mentioned, hasn’t shifted shipping in Q3, and you announced a price increase on micros, but that doesn’t go into effect until Q3. So — just kind of wondering what drove the better pricing mix in the quarter. And then related to that, since AFPs are up again in Q3, given the price increase.

Just wondering, is it a similar range? Is it low single digits, mid-single digits? How should we be thinking about the price trend on microinverters versus Q2?

Badri Kothandaraman — President and Chief Executive Officer

Yeah. So, you know, you got it right. So basically, the pricing on accessories is — or the volumes on accessories is a little bit higher. And because of that, the pricing for microinverter pure IT.

When you take the same revenue, you divide by the number of micro inverters, it appears high view you because we shipped a lot more accessories. That’s number one. Number two is you asked about the price increase, it was low single digits.

Brian Lee — Goldman Sachs — Analyst

OK. Great. And then just similarly, on pricing, you mentioned adjustment a number of times on the battery side that went into effect in May. Can you give us some quantification? Is that a double-digit pricing adjustment? Is it something more modest than that? Just trying to sort of square up the pricing strategy in batteries as well.

Badri Kothandaraman — President and Chief Executive Officer

Yeah, I’m not going to talk about the exact number, but I would tell you this, it is a meaningful price adjustment there.

Brian Lee — Goldman Sachs — Analyst

Right. Fair enough. And then last 1 here, and I’ll pass it on. Just Badri, you mentioned lead times 12 to 14 weeks, obviously, not ideal on energy storage, you want to get down to 8 to 10.

But if you do have lead times of 12 to 14 weeks today, it would imply, you know, you’ve already got some visibility into probably the first month, maybe first 1.5 months of Q4 deliveries, just given the bookings cycle here. So wondering what you’re seeing in the backlog relative to same period heading into Q2? Should we be expecting sort of a similar acceleration in demand from 3Q to 4Q? Just wondering what the sort of trends you’re expecting on Q4 energy storage given the bookings run rates you’re seeing now.

Badri Kothandaraman — President and Chief Executive Officer

Yeah. It’s too early to talk about Q4, but I’m very happy at the fill rate. I’m very happy at the trends. The customers have, you know — they’re ordering a lot of product on storage.

So that’s all I can say right now because it’s going to be too early to talk about Q4.

Eric Branderiz — Chief Financial Officer

I just want to make 1 clarification how we run. The question from Aric implies that by solving the number — the lead times on storage will immediately unleash the fulfillment of the capacity at 120-megawatt hours. We also have commissioning and activation that we are watching very, very closely. So I wouldn’t assume necessarily by the compression of the 12 to 14 weeks into something like 10 or 8 that Badri is targeting.

It will automatically unleash that fulfillment of the capacity. So that’s a clarification. So the ramp is not as steep as you may think.

Operator

Thank you. Our next question comes from Colin Rusch with Oppenheimer. Your line is open.

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Thanks so much, guys. You know, given that you’re supply constrained and you’re looking at entering into some new markets, including the commercial market in a more robust way, how are you allocating products to really set yourself up with a strong foundation for growth through the balance of this year and into next year?

Badri Kothandaraman — President and Chief Executive Officer

Yeah. Which is exactly why we are going to be quite cautious. That’s why I haven’t ramped the product in Q3. It will be a very cautious ramp, which is piloting to a few installers in our Enphase Installer Network.

We’ll be doing that first. We’ll look at that experience. We may make some course corrections, and then we’ll do a steady ramp because we understand component shortages are there. Q4 is going to look a lot better, like what I said, but we’ll start piloting in Q3.

And on the small commercial product is we’ll start piloting that in Q4. So that will be even better than the IQ 8 microinverter.

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Thanks so much. And then in terms of the installation process for the batteries, can you give us a sense of, you know, how many of your customers? What percentage of your customers are fully trained? And how much of their staff are fully trained on the new expedited process for installing these systems?

Badri Kothandaraman — President and Chief Executive Officer

Yeah. I mean, we — as I mentioned, we have about 2,500 installer personnel fully trained. And of that, we have about 1,500 installation companies. They basically are trained.

And in addition to training, usually, when we call them as certified is when they finish the first installation, where we basically handhold them for the first installation, which is where, you know, we go through the complex or if we go through, you know, the complex today, but will be simple tomorrow, simple process of commissioning. And, you know, that number, the number of certified installers is usually half of the number of, you know, trained installation companies. So that will give you an idea that — we’re talking about a significant number of long tail installers that we have trained in the last four quarters. And that’s the name of the game.

Once we make it so easy to commission, so easy for them to install, we believe the ramp will come automatically.

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Thanks so much, guys.

Operator

Thank you. Our next question comes from Philip Shen with ROTH Capital Partners. Your line is open.

Philip Shen — ROTH Capital Partners — Analyst

Hi, everyone. Thanks for taking my questions. Badri, I think you just mentioned that the pricing for the battery is lower, or you’ve made some meaningful price adjustments there. I was wondering if you could comment on the margins for storage.

Are they in line with corporate average? Are they perhaps a little bit below? And what the margin outlook in general might be for storage?

Badri Kothandaraman — President and Chief Executive Officer

Right. Like what I said, when we introduced the product in July, you know, the — at that time of introduction as typical with the new product, the product costs will be slightly higher. And so at that time, we started off with a higher – you know, with a slightly higher pricing. And then we also had — you know, as typical in a new product, it takes some time for the new product to be streamlined.

So we had commissioning issues. And now we have learned in the last year, we have reduced. We have streamlined commissioning. I think it’s pretty decent right now.

I – you know, I still want it to be a lot better. So now we are ready, meaning we felt we were ready. Therefore, you know, we made the adjustment to the pricing. And that doesn’t mean we compromise any of our guiding principles.

It is – we will always price on value. We will never enter a business until we are sure that it can support the corporate gross margin of 35%. So all of those are still intact.

Philip Shen — ROTH Capital Partners — Analyst

Great. And then as it relates to the mix of micros, can you comment on, in Q2, what the mix was between IQ 7 versus 7+? And then what do you expect that trend to be in Q3 and Q4? Because my sense is the IQ 7+ has a better price profile. And then perhaps if you can also comment on the margin outlook or profile for each of those items as well. Thanks.

Badri Kothandaraman — President and Chief Executive Officer

Well, just for the people on the call, IQ 7+ is a higher-power microinverter compared to IQ 7. IQ 7+ has got a 290-watt AC output while IQ 7 has got a 250-watt AC output. And because of that, IQ 7+ is usually used for higher-end modules. Higher-end modules may be around 340, 350 watts.

You start using IQ 7+, so you don’t compromise on what is called the DC/AC ratio. Historically, we haven’t broken out the mix between 7 and 7+. We’re not going to do it even now. But we are definitely seeing a trend toward the higher power, And that’s not a surprising trend in the industry.

That’s what the industry does. So the power and the DC module keeps going up. Therefore, the microinverters have to go up. So IQ 7+ is here to stay, is here to ramp.

And, you know, in terms of the pricing, the way we do pricing is in terms of dollar per watt. And so if you provide increased wattage, meaning, if I provide increased wattage, the price of that microinverter is automatically higher. In addition — in other things that are also contributing to pricing in addition to just wattage, it’s quality, et cetera, customer experience matters, too. They’re all variables in pricing.

But, you know, IQ 7+ is definitely more. And — but coming to the reverse side of the equation is IQ 7+ requires us to make some small tweaks compared to the IQ 7 microinverter in terms of hardware. So the transformer may be a little bit different, you know, some of the transistors, input transistors may be a little different. So the cost is not the same of the microinverter.

However, again, like what I said, we price products and value and make sure our corporate gross margin is always met. And we obviously like higher-powered products because they give us a little bit extra margin compared to lower power, as you can imagine. So long answer…

Philip Shen — ROTH Capital Partners — Analyst

So what do you think?

Badri Kothandaraman — President and Chief Executive Officer

Go ahead.cSorry, Badri. When do you think you might be able to hit? Are you majority 7+ in Q2? Or were you? Or if not, do you expect to be majority of 7+ in Q4? It seems like a lot of the channel is already converting — has converted already to 7+. It’s really the safe harbor inventory, that y.

Yeah. I mean, I don’t have numbers for you, but it is — it will be up and to the right every quarter. That’s all I can say.

Philip Shen — ROTH Capital Partners — Analyst

OK. Thanks for the detail.

Operator

Thank you. Our next question comes from James West with Evercore ISI. Your line is open.

James West — Evercore ISI — Analyst

Hi. Good afternoon, guys. Badri, I know you’re rolling out storage, or you’re intending to roll out storage in Europe. You went into Germany this quarter.

In Australia, I believe, in the second half. Does the fact that you’re — you have some constraints, you have some lead time issues that you’re working on. Does that slow that international rollout or you’re continuing on pace?

Badri Kothandaraman — President and Chief Executive Officer

No, it’s not going to slow my Australia rollout. Like – you know, like what I said, we’ll do methodically in all markets, right? Like how we had a nice ramp in North America. I would say the ramp in North America lasted for four quarters, where we learned from the installers, where we learn from the homeowners, we course corrected. We did a lot of work.

Like that, every country is going to be different. Germany, I mean, Germany may be a little bit easier for us, may not be four quarters, maybe one to two quarters. Australia could be different because they usually have a little bit more, meaning the power grid in Australia may not be as stable as Germany, so they will use backup more than Germany. So that will be a little bit different.

And they’re all different grid voltages in frequency. So we learned there for some time. And you know, by that time, all our manufacturing issues will be resolved.

James West — Evercore ISI — Analyst

OK. Makes sense. And then I know you noted a big acceleration in demand in June, and you’ve gone through a lot of feedback cycles and feedback loops on storage. Was this the culmination of kind of all of that feedback? Or was there some specific component of that that all of a sudden kicked in, maybe the installation time or something like that, that led to that big jump in June?

Badri Kothandaraman — President and Chief Executive Officer

The way I said it, right, the introduction of load control, that’s helped the reduced commissioning times that we really achieved in Q2 that helped the adjustment of pricing that helped. We also introduced a 15-year warranty for customers so that if you do storage-only financing, you have to pay less dollars a month.

James West — Evercore ISI — Analyst

Right.

Badri Kothandaraman — President and Chief Executive Officer

So we introduced kind of these four. Now we are introducing grid services for certain regions. So that will help. So basically – Yeah, and the last one is generated comparability, although we haven’t released it.

It’s coming. So that will also help. So I think all put together, you can see that the ramp has started.

Operator

Thank you. Our next question comes from J.B. Lowe with Citi. Your line is open.

J.B. Lowe — Citi — Analyst

Hey, good afternoon, Badri, Eric, Adam. Question is on capital allocation. You guys still have a lot of cash on the balance sheet. You timed your share repurchase very well earlier this year.

And I saw that you also did another $20 million investment on the private side. I’m just wondering what kind of targets you’re seeing out there in the marketplace? And how do you juxtapose that against the share repurchase potential that you guys have now that you have another $500 million authorization?

Eric Branderiz — Chief Financial Officer

Yeah. Well, we have a big appetite for, you know, M&A. But we are not willing to pay sometimes the prices as well there, especially over the last few quarters. Now there is a little bit of a more — the market is opening a little bit better, some of these facts and pulling back, pricing appears to be more palatable in the way we are doing the analysis in terms of IRR, payback and so on and all these acquisitions.

We — you know, as a communication record here, I mean, we are very diligent on making sure that all the acquisitions that we do meet a high bar of a payback IRR in all of those things that are very important to us. So when we think about capital allocation, the amount that we have reserved for M&A is very important. So that’s something important to us to convey and which we’ll be opening over the next few quarters. In terms of the $500 million over three-year share buyback program that the board approved.

I think this phenomenal, right, because it allows us to redeploy that capital into share buybacks. As the opportunity comes with the volatility on the stock throughout that period. So meaning we are not using that one more than strategically positioning the company to rebuy the shares, for example, that we issue as part of the converts. In this case, we have four million shares issued.

We bought $1.7 million of our shares back at a very reasonably low price. So that kind of gives you a sense of what we are thinking in terms of the utilization of that approval by the Board of $500 million over three years. And finally, we know how to run the company with very little cash. So my cash — floating cash that I need on the balance sheet to run the company has been about between $300 million, $400 million.

So that tells you that, as we continue generating cash, we’re going to replenish that over the years, right? So that’s kind of the program that we have in a lot of M&A inside, the opportunistic share buyback on the $500 million approved by the board over three years, and quite a bit of internal growth. That’s why we commented on the opex as well, right? As we see going forward, sometimes, we decide to build the capability in-house. That means hiring more people, increasing our opex. But we’re still committed to be comfortably above the 20% operating income for the company as a whole.

So hopefully, that answered long, but detailed answer give you a sense of how we are managing cash.

J.B. Lowe — Citi — Analyst

Yeah, that’s great. Follow-up question is just as you’re kind of — you’re being cautious on the IQ 8 IQ 8D rollout. Kind of a higher-level question, like how should we think about, let’s say, going into — by the end of 2022, let’s say, what percentage of your sales would you expect IQ 8 to be as — just given the kind of changing nature of the rollout next year?

Badri Kothandaraman — President and Chief Executive Officer

Yeah. I mean, look, our experience from IQ 6 to 7, that took about four to five quarters. And will IQ 8 be different? I think everybody has been waiting for IQ 8. And they are going to move to IQ 8.

IQ 8 offers exceptional value is for the first time, you can run on sunshine without the grid. So you know, I think it should ideally be faster, but let me put on my cautious hat and say we have we are in the middle of component supply issues. So we cannot get ahead of ourselves. I would say, at least four quarters.

At least four quarters is what I think, could be, you know, plus, minus 1one or two.

J.B. Lowe — Citi — Analyst

OK. Thanks, guys.

Operator

Thank you. Our next question comes from Kashy Harrison with Piper Sandler. Your line is open.

Kashy Harrison — Piper Sandler — Analyst

Good afternoon, and thank you for taking my questions. So, yeah. So a few weeks ago, Generac announced they were entering the inverter space via the Chilecone acquisition. You guys inverted — invented the microinverter 15-or-so years ago and you know the product better than anyone and the go-to-market strategy better than anyone else.

So just curious how you think about maybe some of the — you know, some of the challenges you think new entrants may face in trying to enter the space and compete with you? And maybe even just broadly, how you think about the competitive landscape of the inverter, resi inverter market moving forward?

Raghu Belur — Chief Product Officer

Yeah. This is Raghu. Yes, there have been numerous entrants over the last 15 or so years. The bottom line is that business is very, very hard.

And micros is even harder you. That’s why there were even more microverter entrants and hardly any left. And it’s because you have to achieve a level of reliability, cost and performance that’s — and to do that with the micro is extremely difficult. Look, we have 8 generations of innovation under our belt.

So we have an incredible amount of experience and we have had our arrows in our back actually. So the bottom line is that, again, we are relentless when it comes to innovation. And when you think about innovation for us, it’s about innovation around semiconductors and software, to talk our ASIC, it’s kind of the key to what we do with our micro. So we are continuing to innovate in that area.

We’re also looking at kind of next-generation materials like gallium nitride is an example of that. And we are making sure that we continue down the path of adding more value, driving more performance, lower cost, and not compromising reliability in any way. So this is a hard business, and we are really continuing down that innovation path.

Badri Kothandaraman — President and Chief Executive Officer

Yeah, to lever down on what you said, I mean, no matter what the other guys do, our strategy is to innovate. We have the eighth generation today, we will soon have the ninth and tenth. Because of that innovation, we have 300-plus patents right now, and that’s a lot of IP. And, you know, we’ll create more IP to fortify this position.

So, you know, we’ll do what we have done in the last few years.

Kashy Harrison — Piper Sandler — Analyst

That’s helpful. Thanks for that color from both of you. And then — and this is  my follow-up, Badri, in the prepared remarks, you made some commentary on grid services. And as you mentioned, this is the first time you’ve talked about it.

Can you just give us a sense of the revenue opportunity? How you guys are thinking about the revenue opportunity associated with good services to Enphase? And then maybe, even just more broadly, with software in general because you’ve done BIN and Softdesk and now you’re talking grid services. Just how do you think about software revenues over time? Thank you.

Badri Kothandaraman — President and Chief Executive Officer

Yeah. We have we are entering grid services. It’s a little bit early to talk about revenue and revenue models. But the name of the game is this.

This helps the homeowner. At the end of the day, if I can reduce the payback period for the homeowner, I will, along with our installers. So if we do that by offsetting, meaning if the homeowners can help the utilities for many times during the summer and a few times during the winter, they get paid for it. For example, the connected solutions program is a lucrative program.

With a 10-kilowatt hour Enphase Encharge battery you can get up to $1,500 a year in Rhode Island. And you can get up to $1,000 a year in Massachusetts, extremely lucrative program. Of course, the dollars, et cetera, since these are still in pilot stage, dollars, et cetera, are questionable, might come down when they are in full ramp or when thousands such programs are there among the United States, but it is starting. It is starting.

It is going to help us sell solar plus storage, and we are solving a real problem for the utility. So the utilities are going to be, you know, participating in with us. And there are some interesting business models that emerge. A few times, we will work with the aggregators like in the case of Connected Solutions, there are two utilities in the Northeast.

National Grid and Ever.

Adam Hinckley — Senior Director, Investor Relations, M&A & Government Relations

Eversource.

Badri Kothandaraman — President and Chief Executive Officer

Yeah, Eversource. And they have partnered with an aggregator, and we work with that aggregator. It’s not necessarily the case. We could potentially start working with the utilities.

We are exploring such partnerships on how that will work, what are the puts and takes. It’s still in the infancy stage. So that’s why I don’t think it’s the right time to talk about revenue. But we are going to understand this market a lot more in the next a few quarters.

And coming back to the connected solutions, where do we differentiate? Because our differentiation is we make it so easy for a homeowner to go to his app and he can pick grid services, and he can enroll on the grid services program easily with a touch of a button. And once he is enrolled, he can actually monitor how much he’s saving. He can basically opt out of the event. Like, for example, if you have an event tomorrow where the utility wants, you know, your battery to discharge, you can opt out today.

That option is also through the app. You can set your reserve in the battery. Normally, the utility will set it will recommend 10% in order to give you the full grid services benefit, but you can adjust that in the app, too. So the app makes it seamless.

And of course, that’s where we come in. We want to make sure we take care of the homeowner and our installers and our partners there. And we want to provide an exceptional experience for the homeowner.

Operator

Thank you. Our next question comes from Moses Sutton with Barclays. Your line is open.

Moses Sutton — Barclays — Analyst

Thanks for squeezing me in. A bit of an outdoor question. I saw some competition of bidirectional EV charging. How do you see competing with yours and other more holistic energy storage offerings over time? Is it a threat in any way? It’s, of course, a limited product in what it can do, but just thinking how you think of that evolving as the storage and backup market itself evolves over time?

Raghu Belur — Chief Product Officer

Yeah. I think we have — this is Raghu. I think we have — our goal, our aim if you look at it from a strategy point of view is to deliver best-in-class home energy management solutions and systems. And we consider all the available resources in the home that starts with solar, stationary storage, load control, generators, fuel, et cetera.

— And directionally, we will play a key role in providing a great homeowner experience, meaning that in the event of an outage for example, now you have that — another resource available in order to ensure that your home stays up and you can drive through any outage. We do not consider this to be competitive in any way at all. We consider that to be an integral part of the overall solution that we are offering. And we have a unique role to play in that because we do the power electronics, the communications, the software, the entire brain of that home energy management system is what we offer.

I think bringing back — bringing up our rational EV system onto our platform is going to just make the whole solution that much more resilient. And I think that’s a good home owner experience. And like I said, we play a very unique role there.

Moses Sutton — Barclays — Analyst

Thanks, Raghu. That’s helpful. And just one more. I may have actually missed this.

Are any logistics constraints further downstream on the AC module supplier side from those module companies holding back reorders of micros and enabling you to shift that supply to direct micro sales to distributors and installers?

Badri Kothandaraman — President and Chief Executive Officer

No, that’s not an issue.

Moses Sutton — Barclays — Analyst

Thanks.

Operator

Thank you. Our next question comes from Maheep Mandloi with Credit Suisse. Your line is open.

Maheep Mandloi — Credit Suisse — Analyst

Hey. Thanks for taking the questions. Maybe one thing just on the software and the permitting businesses, which we recently acquired and ramping up pretty well. Could you just talk about like the revenue contribution from those businesses or how should we think about that either in the near term or in the longer term in the U.S.

rather markets?

Badri Kothandaraman — President and Chief Executive Officer

I’m not going to break out the revenue, but let me give you some color. We bought solar — I mean, we bought Softdesk. Softdesk is a software company that makes design and proposal software for installers and licenses to them. The license fee, in general, is well-understood by the industry.

and you can do some work on it. We also said that we have 850 installers right now utilizing that platform. So that’ll give you a rough idea of the contribution. And the more important thing we are excited about are is both these companies, the software company and the permitting services, which I will talk about next.

Both of them achieved the record revenues. This is the highest revenue. And why? Because, you know, Enphase today sells our products, microinverters and storage to a lot of long tail installers. Our installer count is — meaning installers we have served.

Out of the 5,000 long tail installers in the U.S. We probably interact with at least 1,500 of them. And so it’s a huge opportunity on, you know, understanding the overlap between the installers who utilize the solar graph in our tool and understanding the overlap on, you know, who actually buys the products. So therefore, there is enormous scope for us to introduce our long tail installers of white products, to solar graft platform.

And that’s what we are going to do. We are going to make that platform a lot better, investing a lot more there. We are going to have sharing. We are going to have storage and we are going to make that a best-in-class software tool.

That’s on the Softdesk. That’s the acquisition based in Montreal that we completed early in the year. The next one is even more interesting. This is the permitting services company that we closed the acquisition in April.

That company does permitting services for a significant fraction of the North American business, the North American solar business. And there again, so far, the permitting services has been restricted to a few big customers simply because it is – you know, today, although we provide a service, it’s a 24-hour service. And we think there can be a lot of efficiency that can be taken out by automating that permitting service to make it almost like a self-service. It takes a couple of hours versus 24 hours.

So again, the name of the game there is to take that installer count from a handful today, which is mainly big installers to thousand-plus installers that we have. Once again, that’s what we are going to do by automation. So — and I gave you some color, and — but the short story is both businesses are exceeding their targets that were promised to us before. They both have good leadership, and we are thinking of interesting ways the two companies can work together.

And I think the name of the game is to introduce both services to our installers.

Maheep Mandloi — Credit Suisse — Analyst

Got it. Thanks for the explanation. Really helpful. And then maybe just on the — just going back to one of the questions on the competition in the microinverter space.

Could you maybe talk about, like, if it would make sense to use IQ 8D kind of a product for the residential market? Because that seems to like the MO for a couple of our competitors to offer two-for-one or four-for-one in the residential space. So do you expect any of those applications for the IQ 8D in residential? Or do you think a one-for-one makes more sense from a technical point of view, from a customer point of view?

Badri Kothandaraman — President and Chief Executive Officer

Yeah. I mean, look, we think one-for-one makes the most sense. That’s our bread and butter business. Why? Because quality.

Once again, when you put a lot of electronics there, you have two panels that are connected, four panels that are connected. We cannot provide that kind of exceptional quality to the homeowner. It’s difficult. However, there are some regions where — and some businesses like the commercial business that don’t have the same stringent requirements.

And so for those businesses, it may be economical to use a two-panel, one microinverter IQ 8D product. And we’ll be looking at that hard. It’s not an easy question for us to answer. We’ll be looking at that hard, but we are never going to deviate from our core product being like enough.

Like when we go to IQ 9, when we go to IQ 10, we want to make that single microinverter a lot better. That is the core for us. We are going to be making that a lot better. But in markets like Australia, for example, where our market share, we want to improve our market share, we may try some experiments.

We may. But they will be done methodically without deviating from our core platform.

Operator

Thank you. Our next question comes from Joe Osha with Guggenheim Partners. Your line is open.

Joe Osha — Guggenheim Securities — Analyst

Hi, there. Yeah, two completely unrelated questions. First is with regards to all of the conversation about grid services. I’m trying to understand how this works vis-a-vis the plan to some of the big developers like Sunrun, for example.

Is this a cooperative relationship? Or are you going to begin competing with some of the initiatives that the large developers have on their own?

Raghu Belur — Chief Product Officer

This is Raghu. No, it’s actually — it is cooperative because we are the ones who provide the actual — we are the developers of the equipment, right? So we have a deep understanding of how the whole system within the home interact plus all of the software platform that allows gives you access into the system itself. So we feel that the whole relationship is positive. In general, I want to make a comment about grid services.

But if you look ahead, it will be a requirement. I mean you need coordination among all of the systems that are deployed because as you think about the world evolving into a world of EV, et cetera, and home electrification, this coordination will become more and more important. So having a system that’s extremely intelligent that’s behind the meter that is coupled to a very intelligent platform that’s in the cloud is critical. And that’s a big competitive advantage for us because we have built that system.

We have architected that system from the bottoms up that allows very simple, clean, and effective communication and control from the cloud to all of these DERs that are deployed behind the meter.

Badri Kothandaraman — President and Chief Executive Officer

Yeah. To add a few things more is we know how markets evolve. So right now, the solar market, if you see, it is, you know, 60% loan, 30% lease, 10% cash. There is — and probably a storage market will go in the same way.

The advantage we have is we work with all customers. We work with, you know, partners like Sunrun who have leasing. We work with many number of long tail installers who are basically providing, you know, help working with the fintech partners, they offer loans to the homeowners. So where we come in is we can provide any kind of solution.

For the loan market, what we can do, where the homeowner actually owns the asset, the homeowner owns the battery. When the homeowner owns the battery and he sees significant savings, his decision on buying the battery is easy. And whether it’s loan, whether it’s lease, we are going to be there. It is our platform.

And we are going to make it so easy for the homeowner to save money. And our app gives unprecedented visibility. So we’ll service everybody.

Joe Osha — Guggenheim Securities — Analyst

OK. Thank you. That’s helpful. And then, again, totally unrelated question.

You’ve obviously been very successful with your decision to embrace LFP chemistry. It seems like other parts of the industry, including even parts of auto, are starting to maybe take a look at toggling to that chemistry. As you look out, does that potentially create any availability challenges for you?

Badri Kothandaraman — President and Chief Executive Officer

It’s a tough question on predicting the future. But like we love LFP. We like the fire resistant aspect of it. We have quite reputable battery suppliers.

And the LFP market is going to become big like what you said, the auto guys now want to come in. For the auto guys, they will go back and forth between LFP and other chemistries because LFP comes with more weight. More weight is OK for ESS, which is the stationary storage. More weight is questionable.

Although they — some of them are moving, more weight is questionable. For EVs, and I’m sure innovation is going to happen on that front. So — but for us, we made the right decision before. I think we are happy that other people are moving to it.

We have good partners. We are going to get a few more good partners to increase our capacity, and, you know, our strategy is unchanged there.

Operator

Thank you. Our next question comes from Eric Stine with Craig-Hallum. Your line is open.

Eric Stine — Craig-Hallum Capital Group — Analyst

Hey, everyone. Just sneaking in here at the end. I know that the portable power systems, I guess, called Ensemble-In-A-Box, something that you’ve been optimistic about, I think you were targeting a 4Q launch on that. Maybe an updated timeline.

Is that still the plan? And how do the component shortages play into that?

Badri Kothandaraman — President and Chief Executive Officer

Yeah. Although I didn’t talk about it, we are furiously working on it, and we are planning to pilot the portable power station in the fourth quarter to our, you know, homeowners and installers, actually.

Eric Branderiz — Chief Financial Officer

We’re going to have more on other states — so in Q4, sorry.

Eric Stine — Craig-Hallum Capital Group — Analyst

OK. So it’s still basically on plan?

Badri Kothandaraman — President and Chief Executive Officer

Yes.

Operator

Thank you. Your next question comes from Pavel Molchanov with Raymond James. Your line is open.

Pavel Molchanov — Raymond James — Analyst

Just one question from my end. You know, we’re hearing a lot of conversations from Washington about building out solar and other clean tech manufacturing capacity within the United States and, you know, your existing footprint, India and Mexico, as you talked about. Any interest in developing some type of supply chain footprint within the U.S. specifically?

Badri Kothandaraman — President and Chief Executive Officer

Well, we’re not ruling anything out. If the economics are right, we may do it. The economics need to be right, the incentives need to be right. It’s possible.

Raghu Belur — Chief Product Officer

And, you know, if there is anybody capable to put something up and running pretty quickly, it’s probably going to be us, right? And we know we have — we know how to establish control manufacturing very quickly in partnership with our control manufacturer. We know how to, you know, transfer without compromising our reliability lines from place to place. We’ve proven that with Mexico, and we know how to do that very quickly. So in the event the battery decides to go that path and the economics are there, we probably are the best-suited to do it.

Pavel Molchanov — Raymond James — Analyst

Thanks very much.

Operator

I’m not showing any further questions at this time. I would now like to turn the call back over to Mr. Kothandaraman for closing remarks.

Badri Kothandaraman — President and Chief Executive Officer

So, thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.

Duration: 87 minutes

Call participants:

Adam Hinckley — Senior Director, Investor Relations, M&A & Government Relations

Badri Kothandaraman — President and Chief Executive Officer

Eric Branderiz — Chief Financial Officer

Mark Strouse — J.P. Morgan — Analyst

Aric Li — Bank of America Merrill Lynch — Analyst

Brian Lee — Goldman Sachs — Analyst

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Philip Shen — ROTH Capital Partners — Analyst

James West — Evercore ISI — Analyst

J.B. Lowe — Citi — Analyst

Kashy Harrison — Piper Sandler — Analyst

Raghu Belur — Chief Product Officer

Moses Sutton — Barclays — Analyst

Maheep Mandloi — Credit Suisse — Analyst

Joe Osha — Guggenheim Securities — Analyst

Eric Stine — Craig-Hallum Capital Group — Analyst

Pavel Molchanov — Raymond James — Analyst

More ENPH analysis

All earnings call transcripts