Enphase Energy Inc (ENPH) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to Enphase's first quarter 2014 financial results conference call. (Operator Instructions). I would now like to turn the call over to your host Bob Denseman, Treasurer of Enphase Energy. Mr. Denseman, you may begin

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's fiscal first quarter results for the period ending March 31st, 2014. This call is also being broadcast live over the web and can be accessed in the investors section, Enphase's energy's website at www.enphase.com.

On today's call are Paul Nahi, Enphase Energy's Chief Executive Officer and Kris Sennesael, Chief Financial Officer. After the market closed today, Enphase issued a press release announcing the results for fiscal first quarter ended March 31st, 2014. We are providing an accompanying presentation with our earnings call that you can access on the investors section of our Company's website.

During the course of this conference call, Enphase Management will make Forward-looking including but not limited to statements related to Enphase Energy's financial performance, market demands for merchant microinvertes, advantages of its technology, market trends and future financial performance. These Forward-looking statements are based on the Company's current expectations and inherently involves significant risks and uncertainties. Enphase Energy's actual results and the timing of event 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 describes as 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, 2013.. Copies of these documents may be obtained from the SEC or by visiting the investors section of the Company's website. Enphase Energy cautions you not to place undue reliance on Forward-looking statements and undertakes no obligation to update any Forward-looking statements as a result of new information,future events, or changes in 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 reconciliation of these non-GAAP financial measures to GAAP financial measures in its earnings release posted today which could also be found in the investor relations section of this website. Now I would like to introduce Paul Nahi, Chief Executive Officer of Enphase Energy. Paul.

good afternoon,and thank you for joining us today to discuss our first quarter 2014 financial results. We are going to follow our usual format.

I will start with my opening remarks and touch on key highlights for the quarter. Kris will go over the financials and business outlook, and then we will open up the call to Q and A. Enphase is off to a great start in 2014.

By leveraging the business momentum upon entering the year and executing well on our global business strategy, we were able to deliver record first quarter results. Our revenue of $53.6 million up 26% year-over-year was the highest for any first quarter in our Company history and exceeded the top end of our financial outlook.

In addition, we shipped 93 megawatts which was an increase of 37% year-over-year. Demand was strong in our core North American residential markets despite the severe weather conditions in Canada and the Northeastern United States.

On the international front, our geographic expansion continues to grow very well as revenue in Europe and Australia was up 41% on a year-over-year basis. We are pleased to see the meaningful top line contributions from our international expansion efforts.

During the first quarter of 2014, we completed the initial resourcing of our Australian office and recently announced the opening of our Melbourne headquarters along with the appointment of our new general manager for the Asia Pacific reasonable. We now have a solid beachhead to address the very promising Australian market and will use it a as springboard to address other opportunities in the region as well. Last month I was in Australia and New Zealand as part of our media tour announcing Enphase's increased presence and investment in the Eightback region along with our long-term commitment to these markets.

To date,, we have received a great deal of positive feedback and enthusiasm from our microinverter system which is evidenced by the fact that we are currently working with 11 of the top 25 installers in Australia.. During my visit, I met with several of these installers and gained a better understanding of the market and legislative dynamics facing the Australian solar industry. I came away encouraged that we are poised to make great strides there.

In the UK, we made great progress and posted strong first quarter results. We expanded our distribution channel with the addition of five new partners, gained market share with some major residential installers, and built out our sales team with the addition of some key personnel to address distribution, strategic accounts, inside sales and project development. These actions enabled us to gain significant traction in this rapidly growing solar market. Our revenue in the UK was up over 60% sequentially from the fourth quarter and our market share now is estimated to be 7%.

In Continental Europe, we are doing well in a challenging market. We continue to build our customer base, recently adding five large vertically integrated installers in France. In the Netherlands, we recently celebrated our second year in the Dutch solar market where there are now over 3,000 Enphase systems installed.. The Dutch market provides an excellent example of how quickly Enphase can grow in a region.

We have extensive experience working with and providing the education and training for our distribution and installation partners enabling them to quickly and efficiently design, install, and manage their Enphase microinverter systems. On the whole, we are aerial very pleased and encouraged with the progress we are making in expanding our geographic footprint particularly in the rapidly growing Australia and UK markets. This has been one of our key initiatives, and we expect a meaningful contribution from international markets during 2014 and beyond.

Turning to the US, we are making great progress with our North American financing initiatives. We continue to work with multiple financing partners providing loans, leases, and other alternate forms of financing. In fact, last week we announced a significant milestone in our relationship with HERO or Home Energy Renovation Opportunity.

HERO is a leading residential energy efficiency financing program which enables home owners to receive solar financing through Property-Assessed Clean Energy or PACE. This allows them to pay for their solar system through their property taxes with tax deductible interest. More than 1200 Enphase solar systems have been financed with the HERO program over the course of two years in Southern California by 131 different solar installers. Using Enphase's enlightened platform, HERO monitor's production and reports to participating cities and counties.

Due to the program's success, it will be expanding beyond Riverside and San Bernadino into other California counties in 2014. This expansion will add to the more than $180 million of solar and energy efficiency loans to date for the program and is expected to create nearly 2,000 jobs annually.

We are very excited about our participation and the prospect of further leveraging PACE to make solar more affordable and within reach of more and more homeowners. The solar financing landscape is evolving rapidly and Enphase is well-positioned to support our financing partners. We have stated that one of our key initiatives is to lead the industry by advancing the application of technology.

Our microinverter system has resulted in a fundamental shift in the solar industry, and we are pleased to have been recently recognized for our leadership role as an industry change agent. In April, Green Tech Media named Enphase to the grid-edge 20 as one of the 20 most innovative companies leading the charge into grid-edge modernization.

We have long believed our differentiated strategy, leveraging a high technology business model will help sustain our long-term growth, margin expansion, and allow us to continually develop new and innovative products. Continual innovation in hardware, software, and services is part of our DNA at Enphase.

In fact, our new fourth generation products which include the m250 and the m215 with integrated ground represented a significant portion of our microinverter revenue the first quarter of 2014. Along with our efforts to change the industry through the advancement of technology and to make solar energy more affordable and broadly accessible, are our efforts to promote solar energy. One of our many projects in this area is our philanthropic partnership with Grid Alternatives, a non-profit that makes solar power and solar job training available to underserved communities. Over the last four years, Grid Alternatives and Enphase have powered over 1,000 low-income homes across the US, generating over $25 million in long-term savings to help these families pay for basic expenses.

Our recently announced expanded partnership will serve an additional 350 to 400 family overs the next 12 months providing $10 million more in savings while providing thousand of individuals with hands-on job training in the growing solar industry.. I will close my Q1 comments by acknowledging the consistent improvement of our financial performance. Our quarterly top line growth of 26% year-over-year, further gross margin improvement, a healthy balance sheet, and positive cash flow all point to the success of our business model and our ability to execute. We will continue to work hard to sustain this performance.

Kris will discuss our financials in more detail in a few moments, but before I turn it over, I would like to provide a short industry update. When we hosted our Q1 2013 earnings conference call a year ago, I stated we were extremely bullish on the future of the solar industry due to multiple factors including decreasing system costs, new strategies for lowering the cost of custom acquisition, and new financing vehicles that are helping take solar mainstream.

We believe this is creating a foundation for explosive growth around the world. Escalating energy prices along with an increasing awareness of the environmental impact of burning fossil fuels were expected to result in increasing global demand for alternative energy solutions including solar.. It appears these dynamics are gaining momentum. 2013 was a very good year for the global solar industry for 2014 is looking even more promising.

A recent solar industry report stated that every quarter in 2014 is forecasted to reach new highs. We have long believed that the future of the solar industry holds tremendous promise and Enphase is in a position to be a clear winner when this manifests itself. I believe that this now more than ever, and I am extremely excited about our prospects for the balance of 2014 and beyond. Now, I will turn it over to Kris for his review of our financial results.

Thank you, Paul. First I will start by providing some more detail on the financial results for the first quarter of 2014 , and then I will turn to the business outlook and touch on the shelf registration we filed yesterday. As a reminder, the financial measures I am going to provide are on a non-GAAP basis unless otherwise noted.

During the first quarter, we saw strong business momentum that started in the fourth quarter of 2013 and has continued into the first and second quarters of 2014. Total revenue for the first quarter of 2014 was $57.6 million, beating the high end of our revenue outlook of $54 to $57 million that we provided during our previous earnings call. Revenue for the first quarter of 2014 increased 26% compared to the first quarter of 2013.

On a sequential basis, revenue was down only 14% from the fourth quarter of 2013 which is much better than the 20% to 25% seasonal decline that we have historically experienced during the first quarter of each year. This year we are seeing the impact of strong overall demand for solar in our core markets as well as growing demand for Enphase microinverter systems and increasing contributions from our global expansion. We shipped 93 megawatts AC or approximately 107 megawatts DC during the first quarter of 2014 which is an increase of 37% on a year-over-year basis. The 93 megawatts shift represents approximately 423,000 microinverters of which over 70% was our four generation microinverter system which includes the m250, and the m215 with integrated ground functionality.

As Paul mentioned, first quarter demand was strong in the US residential markets and across all geographies except for Canada and the Northeast of the United Stateswhich were down substantially on a year-over-year and sequential basis due to the severe and extended winter weather. During the first quarter of 2014, international revenue was approximately 15% of total revenue. Our revenue in Europe and Australia was up 41% year-over-year.

In Europe, we are very pleased with the progress in the UK which was up over 60% from the fourth quarter of 2013. The first quarter of 2013 gross margin was a Company high of 32.7%, an increase of 570 bases points compared to the first quarter of 2013 and an increase of 40 bases points compared to the fourth quarter of 2013.

As a reminder, during the first quarter of 2014, we implemented fair value accounting for warranty obligations which resulted in approximately one point of gross margin improvements. Pricing during the first quarter of 2014 remained relatively stable, and we continue to drive down overall product costs. Operating expenses during the first quarter of 2014 were $22.6 million. Up $1.3 million or 6% from the fourth quarter of 2013.

We made additional investments to support and drive international growth as well as target some new market expansion opportunities. As reflected by our fast-growing revenue number in the UK and Australia, these investments are paying early dividends.

For the first quarter of 2014, R & D expenses were $85 million, sales and marketing expenses were $8.3 million, and G&A expenses were $5.8 million. These non-GAAP operating expense did not include $1.9 million in stock-based compensation expenses.

Our operating loss for the first quarter was $3.8 million which was better than expected due to the strong top line performance and improved gross margins. For the first quarter of 2014, net loss was $4.1 million or a loss of $0.10 per share compared to a net loss of $8.7 million or $0.21 per share in the first quarter of 2013..

On a GAAP basis, the net loss for the first quarter of 2014 was $6.2 million or $0.15 per share. So when looking at the income statement on a year over year basis, I am very pleased with increases in our top line and gross margins as well as a significant improvements to our bottom line.

Turning to the balance sheet. We once again did an excellent job of managing our working capital. Cash generations from operations during the first quarter was $4.3 million while our net cash flow was $1.7 million.

This marks the second straight quarter of positive cash flow. Our receivables and inventory metrics continue to be very good as we ended the quarter with DSO of 44 days and inventory on hand of 33 days. Capital Expenditures during the first quarter of 2014 were $2.2 million and depreciation and amortization was $1.9 million.

We repaid approximately $900,000 of our existing term debts. We exited the quarter with a total cash balance of $39.9 million and $7.8 million of term depth.

As a reminder, our working capital facility remains undrawn, and we recently extended the maturity of this facility to November, 2016. We remain confident that our cash position and credit facility along with our focus on working capital management and drive towards profitability provide adequate liquidity to support the growth of our business.

In closing, I am very pleased with our first quarter results reflecting Enphase's strong business momentum as well as the solar industry in general. We believe the dynamics for the industry and Enphase look favorable for the balance of 2014 , and we will continue our efforts to improve our financial performance and expand our industry leadership position.

Now let us discuss our outlook for the second quarter of 2014. We believe the strong demands for our microinverter systems and favorable industry conditions provide the foundation for a good second quarter. We expect revenue for the second quarter to be in the range of $69 million to $73 million. At the midpoint of the revenue outlook range, revenue would be up 22% compared to the second quarter of 2013.

We expect the gross margins to be within a range of 30% to 33%. As previously stated, we are committed to drive further gross margin expansion but the timing of pricing actions and further cost reductions are not necessarily lined up on a quarter-to-quarter basis. We expect operating expenses to be up approximately 2% to 5% compared to the first quarter of 2014as we continue to invest and accelerate the growth of the Company.

Finally, before turning it over for questions, I want to point out that yesterday, we filed a Shelf Registration Statement on form S3 with the Security and Exchange Commission for a secondary offering of up to five million shares held by our current stockholders. This registration is solely for the purpose of providing liquidity for early stage investment in Enphase who may wish to sell shares at some time in the future. Enphase will not sell any shares and will not receive any of the proceeds from any potential offering under this shelf, and the total number of Enphase common shares outstanding will not change as a result of any potential offering under this shelf.

The registration statement has been filed with the SEC, but has not yet become effective. At the present time, the Company has no specific plans to offer any of the securities covered by the registration statement. And now, I will open the line for questions.

Thank you. (Operator Instructions). Our first question is from Phillip Shen from Ross Capital. Your line is over

Hello, guys. Thank you for taking my questions

Sure.

I would like it start off with the UK market. Seems like it was a great market for you in the quarter. And the market overall is doing quite well. You talked about your current market sharing being 7%. How do you expect that market share to trend over the year, and can you comment on the overall market dynamics in the UK overall and how you are positioned.

Sure. So we have been in the UK market for a relatively short period of time and obviously you can see by our market share growth that the value proposition of the Enphase microinverter system has certainly resonated there. It is resonating there for the same reason it resonates in the US which is that we provide a better return on investment or the owner and we provide a more efficient, more profitable business for the installer. We do have a very well established team there that is functioning extremely well.

We expect the UK market to continue to grow. The dynamics there, the regulatory dynamics as well as the overall economic conditions are very positive. So we are expecting that to continue to trend well. We are not going to comment obviously on our market share position going forward, but if you look at the dynamics in general, it bodes very well for Enphase.

Okay. Great. And in your PowerPoint you have the overall mix of Gen 4 systems being 74%. Can you break out what it was for the m250 specifically, and how you expect that mix to change and trend over the year?

Right. So the m250, the higher power inverter was approximately 20% of total units shipped. This is still a relatively low number, mainly driven by the fact that the availability of higher powered modules is very limited. And so, we do expect over time that the availability of the higher powered modules will increase and so also our share of the m250 and the overall units shipped will further increase. But that will take multiple quarters going forward.

Great. Thanks, Kris One more if I may, and I will jump back in queue. There are a number of financing options available for homeowners to install solar in the US. How do you see PACE developments fitting to the overall mix of installations throughout the year and over the long run, how do you expect PACE share to trend?

That is actually great question. What we are seeing right now which s very interesting is the proliferation of multiple types of financing vehicles that allows us, that allows the solar industry to reach more and more homeowners. PACE is a very interesting and very powerful vehicle that allows the homeowner to apply the cost of solar to their property tax and get the tax deduction as well, the interest tax deduction as well on that as well as amortizing the cost over 20 years. The PACE programs in California are going extremely well, as I mentioned in the call earlier, we talked about the fact that it is in fact expanding into yet again more counties in California. The fact is that PACE is actually enacted in approximately ten states across the US right now. So I think as the solar industry matures, we are going to see more and more financing vehicles whether it is loans, whether it is PACE, and even some more yet to be built that are going to allow solar to reach more and more households across a broader economic range.

Great, thank you, Paul. I will jump back in queue.

Great. Thank you.

Our next question is from the Chris [Vancar] with Bank of America. Your line is open

Hello, thank you for taking the question. I have a couple of them. Number onePaul you kind of articulated your international growth and your market share. Kind of curious what you think your market share is in your home base and along the same path, the trends that you are seeing in markets like California and Arizona that are actually devising the net metering legislation?

Our growth in the US we believe to be somewhere in the neighborhood of 40% to 50% of the North American, the US residential market. We have been fairly consistent there for the past couple of quarters. We have been attracting more and more installers. We have been working with more and more financing partners. So is I feel very good about our continued growth and the path in the US.

In reference to some challenges to net metering, we are going to see those challenges not just in California and Arizona but other states as well. However, the solar industry has tremendous momentum right now and despite some of the challenges that the utilities are going to face in adopting a higher and higher degree of density of solar, we are going to find ways to work with these utilities to build business models that make sense for both classes of companies. I do not see in the short term any material effect with these changes over time. It is going to take a lot more negotiating and discussions, but the solar industry has done a good job in spearheading a lot of those discussions to date. I think we are going to continue to do so.

Got it. That is very helpful. And just quickly, I know you guys do not give a full-year outlook, but is it fair to assume that your international revenue this year should be significantly higher than 2013?

Again, we are not giving specific guidance. If you look at the progress that we have made in the international market, the success we have had both in communicating the value proposition as well as really outstanding execution in multiple markets, it is fair to assume that over time our total share of revenue will become greater and greater from the international markets. How soon that occurs, it is going to depend on many different factors including the growth of the US market. So I would say that our prospects internationally have never been brighter, but I am not going to comment on the specific timing.

Got it. Fair enough, and then the final women for Kris. The optics going up 2% to 5%, just kind of curious. How do we think about the split between R&D and SG&A. Is there more of a focus on R & D given new product impulse or is this more G&A leveling up as the goes (inaudible) up?

No. There is an even split I would say between R & D and sales and marketing. We keep G&A relatively flat, but we definitely continue to invest in R & D and sales and marketing. R & D of course is very important as we want to continue to bring out new products and continue to work on driving down the product cost. That is definitely a key item and we will continue to invest in that.

And then of course sales and marketing, especially in support of our international expansion. We will have 2% to 5% sequential increase. It is very important if you look at top line growth in Q1 with a 26%, in Q2 at the mid point of the guidance, we are at 22%. We definitely want to continue to grow top line and accelerate the growth of the top line, and in order to do that, we will have to continue to invest in our operating expenses and support that while at the same time of course driving leverage in the model. As you can see with those increases, we have an operating expenses, the rate of increase is much lower than the rate of the increase in the top line. So as such we are driving leverage in the model.

Thank you very much, guys. Thank you.

Thank you. Our next question is from Vashal Shaw with Deutsche Bank. Your line is open

Hello, guys. This is Jeremiah on the line for Shaw. Thanks for taking my question and congratulations on the progress you have made

Thank you

I just wanted to touch on potential profitability outlook. Obviously no full guidance, but you guys are in striking distance. Do you have any kind of way of thinking about that in terms of the timeframe there? Could we city that over the next couple quarter potentially?

So as you probably remember in Q4 of 2013, we had our first profitable quarter from a non-GAAP operating income point-of-view. And we were definitely very excited about that. In Q1, we are getting back to a quarter in which we have a loss. But Q1 is a seasonally softer quarter.

And we were down 40% on the revenue line sequentially, mainly because of it is a soft first seasonal quarter. Going forward with you look at the guidance, Q1 regard for very stop line growth, and there is still a range out there, right, from 69 to 73 with gross margin at 30 to 33 and operating expenses up 2% to 5%. But when you do the math the high end of the guidance, we have to show that profitability in the second quarter. Again it will depend on where the actuals come out vis-à-vis the guidance that we provided here.

And as we continue to grow the top line in the second half of the year and depending on what happening from a margin point-of-view, we definitely are committed to further drive those margins, but there is a lot of elements that go into the equation there for gross margins. There is pricing and pricing pressure, and we will continue to drive down our product cost. With some modest increases in operating expenses to support the current and future growth of the Company, I do think we have the right mix there to continue to drive towards profitability.

Okay Great. Yes, it sounds like you can get there pretty sustainably in the future. On that note, as the international market expands, maybe could you just touch on kind of the dynamics there and how that might be affecting your margins both from an overall perspective and also as you are entering new markets?

Sure. So the margin picture is very complex. It involves different products, product mixes, geographies, different market segments. So it is very hard for me to provide sort of guidance by one particular geography or by one particular market segment.

What I would say just in general is that the high technology business model that we have that is very semiconductor focused that allows us to apply R & D to further reduce our costs has given us a great deal of confidence that we are going to be able to continuously reduce our costs and stay ahead of the price reduction. Having said that, whether or not it happens on the same quarter, that we have always said that is really not something we can predict. But over the long term, we are feeling very good about it. So in general, we have seen in the past anywhere between 6% and 14% ASP reductions year-on-year, and we have been able to keep PACE with that with yet again more cost reductions, and we feel confident that over the long run we are going to be able to maintain that trend.

Okay, thank you. That is helpful. And just one last quick question. Do you have any specific plans to enter some of the big markets internationally such as Japan, Germany or Italy?

The short answer is to that is yes. We absolutely plan to expand into the rest of continental Europe. We are in active discussions with several potential partners for Japan. We are investigating the Japanese regulatory environment as well. We have as Kris has mentioned before, really embarked upon a path of profitable growth which means we have to be careful about not letting OpEx get too far ahead of growth, but having said that, we have been very aggressive in our international expansions to date, and we are going to continue that same level of expansion into yet again new countries, again both in Europe and outside.

Thank you guys.

Thank you.

Thank you. Our next question is from Timmy Radcliffe with Morgan Stanley. Your line is open.

Hello, guys. Thank you for taking the question. I just had a couple quick ones on your customer mix. The first one in terms of the mix of customers and specifically installers versus third party, type leasing players. Can you talk about how much of your capacity today is going towards the former versus the latter?

We do not break out the specifics there. What I would say just in general is that we have -- we are working with almost every significant financing partner in the US right now. The value proposition is work very long well with that. We are continuing to add new partners all the time. We talked about HERO and PACE and yet again new forms of finance that is are going to be coming online that we should be able to talk about in the near future as well. While again I can't break out the specifics, I can say that our progress in the financing market is going extremely well.

Great. And then as a follow-up, can you maybe talk about your share within some of your top customers and kind of the outlook for that share? I know at the time of the IPO you talked a fair amount about some customers that believed so much in Enphase product that they reasoned exclusively. Are all those relationships still intact? And maybe with regards to some of the customers who maybe do not use Enphase 100%, but that represented a large amount of your volume. How are those relationships going?

In general, I would say that the relationships that we have had remain intact That we are seeing some of our very large customers expanding and continuing to use Enphase. Some are 100% Enphase. Some are less so.

Some will make decisions for circuitous supply issues. It is very hard to sort of talk about the customer base in general because each of our customer has a very different business model and different way of approaching it. But our relationships with certainly all of our major customers, and I would say the vast majority of our customers in general, is stronger than it has ever been and remains a very powerful portion of our value proposition.

Great. Thank you for the info and congrats on the strong quarter.

thank you very much.

Thank you and our next question is from Pavel Molchanov with Raymond James. Your line is over

hello guys. You know me I ask this question every earnings call. Competitive landscape. Power 1, SMA, any start-ups popping up that are giving you guys any headaches?

So if you are referring to the competitive microinverter landscape, the answer is no. Although power 1, ATV and SMA and other competitors have their micros and have been actively marking them for some time now. They just have not received any significant traction. Having said that, and as we said on I think just about every call as well is that given this wholesale shift to microinverters, and we are seeing that in every country we are going to. We have already talked about why that is occurring, the value proposition that is accelerating that, there is no question that we will eventually see it whether it is their second, third or fourth generation products, we certainly over time expect to see it. Which is why we continuously invest in R & D. which is why we are staying ahead of the technology curve on microinverters, on software, or services and a broad array of products.

But having said that, as of today we are not seeing any meaningful competition. The only -- the competition that we are seeing really is primarily coming from traditional string inverters.

Okay. Understood. And pricing for, your either your specific product mix or I guess how should we think about that heading into maybe next 6 to 12 months?

We do not forward announce any pricing as I have said in the past. In fact I said it in this call. On average, if you look historically, we have reduced our pricing anywhere between call it 6% or 14% per annum.

We have been able to maintain a cost reduction ahead of that. So you have seen a gross margin expansion. But again, we do not give any forward pricing, but we think that our ability to continuously reduce our price and reduce our cost to provide a better value to the installer and provide a better value to the consumer will continue unabated.

Okay. Appreciate it, guys.

Thank you.

Thank you. (Operator Instructions). Our next question is from Paul Straggler with Esplanade. Your line is open

hello, guys. Couple quick ones. One, it looks like despite sort of your 6% to 14% guidance for ASP declines, prices are hanging in there pretty well. At least if I do the quick math.

Is there anything we should know about that sort of supporting pricing? it looks like it was only down what, 1% or 2% Q over Q? is it a Gen 4 mix or is it just demand is supporting the current pricing?

Just to clarify one thing. The 6% to 14% is actually not guidance. That is all historical

Understood

But in reference to your question, it is combination. We have been able to continue our path of cost reduction. The value proposition is resonating.

We have been able to maintain a relatively stable ASP. The product mix, the geographies have been in our favor. Again, and we are very proud of what we have done so far, and the results have been outstanding. Having said that, going forward, you may see a quarter or two where there are variations in gross margins because we cannot time the cost reduction to the price reduction, but the overall trend which you have seen over the past number of years, again we feel confident will continue.

Great. And then just a question on the US trade case. Are you guys seeing from any of your partners sort of any federation projects into Q2 before the June and I think the case has gotten delayed until July, but any acceleration of projects or shipments for you guys in the Q2 ahead of trade case or sort of I will sort of status quo is persisting?

I say in general, it is more status quo than not. We have heard of some incidences where some things have been expedited , but for the most part, we have not seen any significant change in demand related to the trade case.

Great. And then one last question. Just on the Hawaiian market. It looks like the Public Utilities Commission there is finally going to make HECO actually, let project proceed on a regular basis now. When do you guys sort of expect sort of that I guess turn into more shipments in the Hawaiian market? They have been sort of stalling a lot of folks with these interconnection studies, but it looks like that is going to be sort of -- that is going to subside a little bit at least it sound like.

So we are actually very close with HECO. We are working with them on several issues right now, and again it would be very hard to predict when they decide to make any particular change. What we are working with them on is are ways to go help them stabilize their grid with the concentration of solar that they have.

There are a lot of technologies that are required to make this happen. We have several programs going on - - ongoing with them as we speak. I believe that HECO has very much the right intention. They are wrestling with sort of the dynamics of the existing -- of their existing grid and the advent of solar on that grid. But I am optimistic that in the long term we are going to get through a lot of these technical issues, and Hawaii will resume a very rapid growth.

Great. Thank you, guys. Great quarter.

Thank you.

Thank you. Our next question is from Colin Rouche with Northland Capital. Your line is open.

Thank you, guys. If you are looking at the diversity of markets, you are making some good headway in the UK as well as Australia. Can you give us an update on where we are at with Japan, and how you see the back half of the year playing out in Emeia?

Sure. So address Japan first. As I had mentioned a bit earlier, we are and will continue to be very active in our global expansion. What we have seen over the past 12, 18 months is that the value proposition of an Enphase microinverter system really does not change depending on the geography that you are in.

Being able to provide better return on investment for the owner of the system. Being able to provide a simpler and easier design and installation methodology resonates. Japan is a very challenging market for an American company to break into. We know that.

A lot of us on the executive team have had experience working in Japan. So we are doing the right thing which is working with right now potential partners to find that right engagement that will help accelerate our entrance into the Japanese solar market, and we are working with the appropriate regulatory agencies, Jet and others to make sure that we abide by any of the local rules required for microinverter systems.

I am confident long term that we are going to be a big player in the Japanese market. Given some of the challenge there, it is a little harder to predict when that is going to happen, but there is a lot of work within Enphase to make that happen as quickly as possible. In terms of the rest of continental Europe, we certainly recognize that Germany and Italy are very big markets, and again we do not preannounce the launch of a particular geography before it happens, but having said that, we have made it very clear that we expect to be in every significant solar country across the world over time, and we are going to do it in a way that continues our profitable growth strategy.

Can you talk about the dynamics around monetizing the grid stability and the communications, functionality that you guys have. It seems to me that there is a lot of value that you're providing that you are not necessarily monetizing. Were some parties just given sales channels work. Can you talk about efforts on demonstrating those values and being able to pick up some of the monetization on that.

You are exactly right. We have a tremendous amount of data on all the grids that we are in. In fact in many cases I would not be surprised if we have more detailed information on any particular grid than the local utility does. In terms our plans for monetization of the software, of the data that we have, I cannot get into specifics right now, but we definitely recognize that data is needed and wanted by multiple constituents. Putting it in a format that makes sense,finding a biz model that makes sense may take a little bit of time, but we do believe that every day as we collect 400 gigabytes of data every day, we are adding to a database that will absolutely be able to help utilities stabilize the grid and know what is happening in any particular area. Hopefully that will also provide an easier way for more and more concentration of solar as well.

Great. I will take the rest of it off-line. Thank you so much, Paul.

Thank you.

Thank you. (Operator Instructions). Just one moment while we wait for questions. All right. I am not showing any further questions at this time. Please proceed with any closing remarks.

Thank you all for joining our call. 2014 is off to a great start. We are encouraged by the positive industry outlook for the balance of the year and believe this outlook reflects the improving dynamics for the global solar industry as the true economics of solar power are becoming more fully appreciated. We remain bullish on the industry and are confident on Enphase's ability as an industry leader to create shareholder value. Thank you, and we look forward to speaking with you again next quarter.

Thank you, ladies and gentlemen. Thank you for participating in today's conference. This does concluded the program and you may all disconnect. Everyone have a great day.