Enphase Energy Inc (ENPH) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Enphase Energy's second quarter 2014 financial results conference call.

At this time, all participants will be in a listen-only mode, but later there will be a chance to ask questions and instructions will be given at that time. (Operator Instructions)

And as a reminder, today's conference is being recorded.

And now I would like to turn it over to your host, Christina Carrabino.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second-quarter results for the period ended June 30th, 2014. This call is also being broadcast live over the web and can be accessed in the investor section of Enphase 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 its second quarter ended June 30th, 2014. We are providing an accompanying presentation with our earnings call that you can access in the investor section of our company's website.

During the course of this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to Enphase Energy's financial performance, market demands for its microinverters, advantages of its technology, market trends, and future financial performance.

These forward-looking statements are based on the Company's current expectations and inherently involve significant risks and uncertainties. Enphase Energy's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties.

Factors that could cause results to be different from these statements include factors the Company describes in its press release of today, especially under the section entitled forward-looking statements, as well as those detailed in the section entitled risk factors of the Company's report on form 10K for the year ended December 31st, 2013. Copies of these documents may be obtained from the SEC or by visiting the investor section of the Company's website.

Enphase Energy cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in its expectations.

Also, please note that certain financial measures used on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. The Company has provided reconciliations of these non-GAAP financial measures to GAAP financial measures in its earnings release posted today, which can also be found in the investor relations section of its website.

Now I'd like to introduce Paul Nahi, Chief Executive Officer of Enphase Energy. Paul.

Good afternoon, and thanks for joining us today to discuss our second quarter 2014 financial results. As usual, I'll start with my opening remarks and touch on some key highlights for the quarter, and then Kris will take us through the second-quarter financials and the outlook for the third quarter. After that, we'll open up the call for Q&A.

We are very happy with our financial results for the second quarter of 2014. We reported record revenue of $82 million, an increase of 41% year- over-year, and up 42% sequentially. This top-line performance was mainly driven by surging demand and strong business momentum in our core U.S. residential market, where Enphase is the leading inverter company, as well as market share gains in the residential and commercial solar markets in the U.K. and Australia.

The non-GAAP gross margin for the second quarter was also a company record at 33%, representing a 490 basis point improvement over the second quarter of 2013. The combination of accelerated top-line growth and further gross margin expansion resulted in another quarter of positive non-GAAP operating income for Enphase.

Kris will review the fine points regarding our second-quarter financial results. But I will say that I'm extremely pleased with our continued progress and momentum. The second quarter's financial results reflect a growing demand for Enphase microinverter systems and our ability to execute on the key initiatives critical to our success.

These key initiatives include providing superior technology, reducing system costs, growing market share, expanding our geographic presence, and continuing to chart our path to profitability and sustainable positive cash flows.

I'm pleased to share tangible evidence of the progress we're making in these areas, and I'm very proud of the entire Enphase team for their continued hard work and dedication.

During the second quarter of 2014, we shipped 132 megawatts, an increase of 54% year over year. Since inception, we've shipped over 1.2 gigawatts of Enphase microinverter systems. We're the highest volume inverter company in the world, with more than 5.7 million units shipped, and Enphase systems have produced over two terawatt hours of clean energy.

The global demand for solar continues to grow rapidly and is expected to be 49 gigawatts in 2014, an increase of over 30% compared to 2013. The U.S. solar market is especially robust. According to GTM Research, 2014 is expected to be another year of significant growth in the U.S., with a forecast of 6.6 gigawatts of PV installed, up 39% over 2013, and nearly double the market size in 2012.

As for Enphase, our second-quarter U.S. revenue was up 50% year over year. In our core U.S. residential market, we saw significant customer demand for our microinverter system, with our current and new customers from the larger third-party finance companies to the smaller professional solar installers.

Recently, a GTM Research report named Enphase the number one North American residential PV monitoring company. According to the report, Enphase is noted as the fastest growing residential PV monitoring provider in the world. We currently monitor over 160,000 systems globally and collect over 500 gigabytes of performance data daily.

The Enphase system combines advanced hardware and software solutions to give solar professionals a competitive edge in their business. And sellers are leveraging our Enlighten software to streamline the installation process, provide billing information, monitor their sites, as well as optimize operations and maintenance through automated fleet management.

We made tremendous progress in many areas of our U.S. business during the second quarter, as we continued to support our existing customers, as well as look to new partners and markets and channel expansion as ways to accelerate our growth.

We're very proud of our existing partnerships with the leading solar installers and financing companies. They've been doing an amazing job in driving solar adoption by providing clean, renewable energy, [saving] the consumer money every month.

The solar financing landscape is evolving rapidly, and Enphase is supporting our installers by developing partnerships with the most respective and innovative financing companies in the world. We're helping our residential and commercial installers by working with companies offering many different solar financing options, including leases, loans, and innovative programs that offer system owners even more choices.

For the U.S. commercial solar market, we recently announced our partnerships with Technology Credit Corporation, a financial products and services firm, to offer financing packages for installer integrators and customers in the small- to medium-size commercial solar PV market.

Financing for the small- to medium-size commercial market can be challenging and has been underserved. TCC's experience in providing attractively-priced, creatively structured financial packages to commercial installers and customers, helps fill a notable gap in the market.

The new home market is another example of a relatively untapped channel in which Enphase is thriving. Lennar Homes' 20/20 program is a big success, and they're now expanding it into more Lennar communities.

In addition, we're partnering with other installers to address this growing market. For instance, Leonard Roofing, a regional California roofing and solar PV contractor, partnered with Bischoff Homes in Grover Beach, California, and with California Home Builders, a southern California real estate development company, to install Enphase microinverter systems in their new housing developments.

Projects such as these are further evidence that solar and Enphase systems are being incorporated as a standard new-home feature alongside LED lighting and energy-efficient appliances.

The reliability and ease of installation makes our microinverter system uniquely suited to non-traditional markets as well. We're partnering with local installers and financing companies in many island regions to promote the deployment of Enphase microinverter systems in those areas.

As an example, we expanded our partnership with Sunnova by launching into the U.S. Virgin Islands, where Enphase microinverters will be Sunnova's exclusive inverter for this region. We're proud to work with Sunnova to be the first to bring affordable energy to homeowners in the U.S. Virgin Islands.

We recently formed a strategic agreement with North State Solar Energy, naming the company as an Enphase American Pride partner for the installation of Enphase's new American Pride microinverters in commercial and residential solar installation within key agricultural counties throughout northern and central California.

As an American Solar success story ourselves, we value North State Solar's commitment to local communities and community job preservation.

An important attribute of our microinverter system is our ability to generate more energy than traditional inverters, providing our customers with a better return on their investment. This advantage has been recognized across the solar industry and is embedded in many solar calculators.

As another example of this, we worked with ModSolar in a new partnership to further increase efficiency in the solar industry. Their software will incorporate Enphase Energy's production calculations into the ModSolar platform so that proposals will reflect the production boost their customers can achieve by installing an Enphase system. This partnership is yet another way to advance solar growth, as our technology makes the solar installation more productive and easier to manage.

Turning to our international business, we continue to be pleased with the top-line contribution as revenue in Canada, Europe, and Australia was up 38% sequentially. During the second quarter, we started offering our fourth generation Enphase system, the M250 microinverter, to the U.K., our core European markets, and Australia.

By leveraging the successful introduction of our fourth generation system in the U.S. last year, we continue to raise the bar for inverter quality, performance, and reliability in these regions.

In Europe, we increased our market share and presence by leveraging existing partnerships and developing new ones. During the second quarter, I visited with several customers in Europe and came away more confident than ever that Enphase is poised for success. Our market share continues to increase and the Enphase brand is becoming very well known and respected in every market we're in.

In Australia, we made great progress and posted strong second quarter results. Revenue in Australia was up 184% sequentially, and we gained market share with some major residential installers and expanded our distribution channel by partnering with some well-regarded industry players, including Australian Micro Inverters and Solar+Solutions, a subsidiary of L&H Group.

We place great importance on our distribution strategy and are pleased to partner with companies such as these who have the commercial breadth and depth needed to support our increasingly sophisticated installer network.

Our market-leading technology has been well received in both the Australian and New Zealand markets, with our products being installed in a host of high-profile sites, such as the Richmond Football Club's iconic Punt Road Stadium and a national New Zealand landmark, the Auckland War Memorial Museum.

I'll close my Q2 comments by acknowledging our outstanding financial results. Our quarterly top-line growth of 41% year over year, record gross margin, and a healthy balance sheet, highlight the success of our business model and our ability to execute.

We have long believed that our high technology business model, world-class products, and superior customer support, will help sustain our long-term growth, margin expansion, and allow us to continually develop new and innovative products and systems.

Now I'll 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 second quarter of 2014, and then I will turn to the business outlook. As a reminder, the financial measures that I'm going to provide are on a non-GAAP basis, unless otherwise noted.

During the second quarter, we saw explosive growth in the solar market, resulting in accelerated demand for Enphase microinverter systems. Total revenue for the second quarter of 2014, was $82 million, exceeding the high end of our revenue outlook of $69 million to $73 million that we provided last quarter.

Revenue for the second quarter of 2014, increased 41% compared to the second quarter of 2013. On a sequential basis, revenue was up 42% from the first quarter of 2014.

As Paul mentioned, the large year-over-year and sequential revenue growth, was driven by strong, overall demand for solar in our core U.S. residential markets, as well as the growing demand for Enphase microinverter systems and increased contributions from our international markets, including the U.K. and Australia.

We shipped 132 megawatts AC, or 152 megawatts DC, during the second quarter of 2014, which is an increase of 54% on a year-over-year basis. The 132 megawatt shipped represents approximately 598,000 microinverters, of which over 85% was our four-generation microinverter system. We have now completed the switch to the four-generation system in the U.S., and started the transition process in Europe and Australia as well.

The U.S. market accounted for 85% of our total revenue in the second quarter, while international revenue was approximately 15% of total revenue. We saw nice growth in the international markets, especially in the U.K. and Australia, but currently our business in the U.S., driven by the strong business momentum in the residential market, is growing slightly faster than our international business.

Gross margin for the second quarter of 2014, was a company high of 33%, an increase of 490 basis points compared to the second quarter of 2013, and an increase of 30 basis points compared to the first quarter of 2014, as our product cost reductions continue to outpace price reductions.

Operating expenses during the second quarter of 2014, were $27 million. R&D expenses were $10.4 million, sales and marketing expense were $9.8 million, and G&A expenses were $6.8 million.

The increase in operating expenses was mainly driven by higher R&D project expenses and compensation-related costs, including an increase and catch up of incentive accruals, as well as certain new hires in support of the acceleration of our top-line growth and consistent with our balance profitable growth strategy. These non-GAAP excluded $2.3 million in stock-based compensation expenses.

Our non-GAAP operating income for the second quarter was $6,000, resulting in our second quarter of positive operating income and inline with our breakeven model that we introduced one and a half years ago.

For the second quarter of 2014, the net loss was $400,000, or a net loss of $0.01 per share, compared to a net loss of $4.8 million, or $0.12 per share, in the second quarter of 2013. On a GAAP basis, the net loss for the second quarter of 2014, was $3 million, or a net loss of $0.07 per share.

Looking at the income statement on a year-over-year basis, I'm very pleased with our top-line growth and gross margin improvements, as well as a significant improvement to our bottom line.

Turning to the balance sheet, cash flow from operations during the second quarter was almost breakeven, while our net cash flow was negative $2.3 million. Day sales outstanding was 52 days, and inventories on hand was 26 days.

Capital expenditures during the second quarter of 2014 were $2.2 million and depreciation and amortization was $2 million. We repaid approximately $1.3 million of our existing term debt.

We exited the second quarter with a total cash balance of $37.6 million, and $6.5 million of term debt. As a reminder, our working capital facility remains undrawn.

We remain confident that our cash position and credit facility combined with our focus on working capital management and drive towards profitability provides adequate liquidity to support the growth of our business.

Now let's discuss our outlook for the third quarter of 2014. We believe the strong demand for our microinverter systems and favorable industry conditions provide the foundation for a strong third quarter. We expect revenue for the third quarter to be in the range of $93 million to $98 million.

At the midpoint of the revenue outlook range, revenue would be up 54%, compared to the third quarter of 2013. We expect gross margin to be within a range of 32% to 34%. And we expect non-GAAP operating expenses to be approximately flat to up 4%, compared to the second quarter of 2014, as we continue to invest in the Company's growth.

And now, I will open the line for questions.

(Operator Instructions) We do ask that all callers asking questions limit their questions to one root question and one follow-up. If we get through all the initial questions, you are more than welcome to re-queue by pressing star one again and placing yourself back into the queue.

Philip Shen from Roth Capital Partners.

Congrats on a great quarter.

Thanks very much.

So you guys provided some great Q3 guidance. What do you see in Q4 and how do you see it evolving, given your discussions with your customers today?

Well, Phil, as you know, we only provide one quarter at a time guidance. So I'm not really going to provide guidance here for the fourth quarter.

Having said that, just in general, if you look at the last couple of years and at the normal seasonal trends, we have seen anywhere -- fourth quarter is kind of like a flattish quarter in terms of sequential growth compared to the third quarter. Sometimes it has been down 5% sequentially, sometimes it has been up 5% sequentially. And so again, I'm not providing any specific guidance for the fourth quarter. But that's a normal seasonal trend.

Okay. Great. And this one's for Paul. Thank you, Kris. Paul, can you walk us through your vision of how Enphase shapes and molds solar financing? What is your view of how the no-money-down loan, for example, shapes the demand in the industry as we go forward here?

Sure. What I think is important to remember is that, first of all, Enphase is completely neutral as to the forms of financing. We encourage all forms of financing available and are encouraged by the different unique and creative products that are out there.

One of the advantages of an Enphase system is that we provide more energy for the owner of the system. So whether its' a residential owner or a lease owner, the return on investment is simply going to be better with Enphase.

The other advantage of an Enphase system as it relates to alternative forms of financing, let's say non-lease or PPA forms of financing, is that the O&M, the operations and maintenance associated with Enphase, is much lower than it would be with a traditional inverter. As a result, it's well within reach of a lot more people.

As an example, the most recent announcement we made or one of the most recent announcements we made with Mosaic, included EES or Enphase Energy Services, which is where we will actually provide the support, the O&M support for the customer.

But our view, our long-term view, and this is true not just domestically, but internationally, is that we will see a variety of financing options and they will likely change post the ITC expiration. And what's important for us is to make sure that we support each and every kind to make sure that our customers have every option available to them.

Great. One more, and I'll jump back in queue. Changing gears to the international exposure that you have, can you talk about the market share that you had in U.K. and Australia in the quarter?

So it's too early for us to talk about specific market share numbers in those countries. What I can say is that they are increasing. We feel very good about the progress we're making in terms of market share, in terms of brand recognition, in terms of our reach towards installers and distributors. What's becoming very clear is that the value proposition that is resonating so well in the United States resonates equally with customers in the APAC region or the EMEA region.

So we remain more confident than ever of our ability to succeed and perform in these countries.

Okay. Thank you. Colin Rusch from Northland Capital.

Could you walk us through what's going on with these accrued liabilities? It's a pretty big jump there. Would love to get some detail on what's happening there, as well as with accounts receivable growing so much quarter over quarter.

All right. So first on the accrued liabilities, as you can see, our operating expense came in at $27 million. That included some catch up on incentive accruals that end up in the accrual line. I think that was driving most of the increase there.

In terms of receivables, obviously, our top line was up 42% sequentially. That, of course, results in a higher receivable balance as well. It's slightly more up than the 42% sequentially, the receivables. Some of the sales was in the second half of the quarter, as the business continued to grow.

We don't see any collection issues with our world-class customers that we have. So I think it's part of growing so fast. We will have to continue to invest in working capital going forward.

Okay. And then as you continue to invest in R&D and the platform, can you talk a little bit about what you're expecting to see come out of those efforts and that spend, obviously, up 20% on that R&D spend. Can you talk a little bit about the cost of that program and the cadence that you're expecting out of that and how that is going to impact your gross margins going forward? And then what other programs you have on the horizon that you can talk about now.

Sure. So it's important to remember that we are, first and foremost, a high technology company in the solar space. As a result, innovation and creation, this is very much part of our DNA.

What we have in the R&D pipeline right now are products that are very much along the lines of the microinverter itself as it's applied to the commercial space, as it's applied to the utility space. We obviously have next-generation microinverters for the residential space that add features and functions as well as reducing cost.

So there is a tremendous amount of work going on in all of these areas. All of it's very, very exciting. And then there is a lot more that I am not at liberty to talk about at this moment. But what we'd love to do is just invite everybody to the Solar Power International Trade Show that's occurring at the end of October, where we will be announcing some new products and introducing some new services.

But it is, it's a mix of products along the lines of cost reduction, performance and feature enhancements, and looking at new areas, new spaces that round out energy management.

Okay. Perfect. I'll follow up offline. Thanks, guys.

Josh Baribeau from Canaccord.

Obviously, given the strong the guidance, it doesn't look like you're seeing any push-outs of projects from the anti-dumping or countervailing measures that have come out. Just curious to hear your general thoughts on that and how it may affect you going forward?

Sure. So clearly, pricing going up is not good for anybody in the industry. We all have a responsibility to continue to reduce prices to make solar more affordable and more available to more and more parts of the world. However, what's happening right now is certainly being recognized by Enphase and the entire solar industry.

I think what's important to note here is that the industry in the United States is very robust, it has tremendous momentum, and, while it might be slightly affected by some of these numbers, I think overall we should not expect a very material difference to demand.

Based on the latest data that we have, we think that the effect of these pricing changes could mean somewhere in the neighborhood of $0.10 a watt on the module side, which, while meaningful, is very likely not catastrophic.

So we need to work hard to continue to reduce prices, all of us, all the actors in this space. But I think, again, the industry and the companies are mature enough and have enough momentum that they can withstand something like this.

Great. And back towards some of the discussions you were having on the different types of financing. Do you have the level of visibility to either quantify the risk premium or, ideally, the decrease in the risk premium and the interest rates of Enphase Solar Systems? Do you have that level of granularity?

I don't have that level of granularity available offhand right now. What I can say is that in many of these cases the fact that Enphase produces more energy allows for a better rate of return for both the owner of the system, whoever that may be, either the lease provider or the actual -- the consumer.

And because of the reliability which we have embedded many times with some of the largest financing companies in the world, allows for a better financing option and better financing terms for an Enphase system.

So I think we're in very, very good shape, but I can't quantify it exactly as you're asking for.

Got you. All right. That's it for me. I'll pass it on. Thanks.

Vishal Shah from Deutsche Bank.

This is Jeremiah on the line for Vishal. Congrats on great results, guys.

Thank you.

I just wanted to touch again on the international side of things. It sounds like you're progressing well there. Would your focus going forward be more along the lines of expanding market share in the existing international markets or potentially expanding the TAM?

Both. Both. We're very focused on establishing and growing the beachheads we currently have in the APAC region in Australia, as well as in EMEA, which is both in the U.K., as well as France. We're going to be expanding our market share in all the countries we're currently in.

But we really just started our expansion into continental Europe. There are many countries, significant countries that we're not in, so we're going to continue that geographic expansion as well.

It's important to note that continental Europe especially is a bit of a challenge to the solar environment right now. So you're going to see some ups and downs there. However, we very firmly believe in the long-term potential of that market. So we are going to continue to invest and grow the infrastructure there while we gain share, grow markets, and then we can take advantage of the growth that we see coming in the next few years.

Okay. Thanks. And I guess sort of along the same lines, you guys have started to get involved more in commercial. Could you speak to the opportunity there and kind of the time horizon?

I can speak to part of that. So we definitely see a very large opportunity for Enphase in the commercial market. We already have a very sizeable market share in the small commercial market. We have not really entered the large commercial market yet. Although we do have some large commercial installations, those, and even the small commercial installations are effectively being done with our residential product.

What we have said several times now is that we are well underway in the development of a purpose-built commercial microinverter, and not just the hardware itself but the entire system to support the commercial market. We have not announced the timing of that yet, but initial discussions with potential installer partners, as well as the progress we're making in engineering, are both very positive.

That's great. Thanks, guys.

Paval Molchanov from Raymond James.

I know that you're not breaking out revenue by product or by segment. But can you give us a sense of kind of what percentage of your mix currently is hardware versus software or the new O&M revenues?

So we don't break that out. And part of the reason we don't break that out is because we view it as a system, that when you're buying an Enphase system, you're buying the hardware, you're buying the monitoring platform, and, in many cases, for the installer, they're leveraging our monitoring platform for their O&M infrastructure, for billing, for a whole host of different reasons.

So we don't separate the two right now. We view it as a single system. And if you're referring to Enphase Energy Services, that is still very young and in development. And as that progresses, we'll provide more data on that.

Okay. And along the same lines, I know you've talked directionally in the past about potentially having some kind of additional revenue opportunity from selling analytics to utilities, that kind of thing, big data. What's kind of the latest on that front?

So there's actually a lot of work going on there. Again, it's interesting to note that at 500 gigabytes of data every day, Enphase collects and manages more data on a daily basis than Twitter does. So we actually have a tremendous IP infrastructure to support the data collection and analytics, as well as the data itself. And we are exploring multiple ways to leverage that data into new customers and new markets.

Again, it's a bit too early to have that discussion. But I can say there's a lot of internal work going on to leverage this tremendous resource that we have.

Okay. So in other words, you haven't monetized it yet, but you hope to in the future?

Again, I would qualify that. I think that the data is being monetized every day through the microinverter itself. But if you're referring to the data only, that's exactly correct.

Okay. Appreciate it.

Sure.

Thank you. Pierre Maccagno from Dougherty.

Congratulations on the really good quarter.

Thank you.

Do you have any comments on possible penetration into China?

So our first target in that region will very likely be Japan, and we are still early in the exploration of that market itself. We're working through the technical issues. We're working through the go-to-market and partnership issues. We're feeling very confident, but we're not ready to make any specific announcements there yet.

We do not, as of now, have any direct plans to get into China. Clearly, over time that will be an important market for us. But in the foreseeable future, there's a lot of other low-hanging fruit that we'll be going after first.

Okay. And then any comment on the Solar City? I understand they don't use microinverters. And can you expand on the possibility of this changing in the future? Or what are your thoughts there?

That sounds more like a question for Solar City than it does for Enphase. What I can say is that we have the majority of the largest, most successful, the fastest growing companies in the U.S. and in the world right now use Enphase microinverter systems. They use it because it generates more energy, because it simplifies the installation process. They can become more efficient. And, of course, in all the O&M ease of doing business on the operations and maintenance side as well.

So we're very, very comfortable with the growth in customers that we have, the breadth of customers that we have, and, candidly, the quality of customers. When you look at what we're doing with very large vertically integrated installers that are just doing tremendously, it's very exciting.

We have a two-tier distribution strategy, and our distribution partners are also doing very, very well. Interestingly, electrical distribution is really doing well. It's really taking off. And that's addressing the small- to medium-size installers, which is growing also. So it's a very wide and broad market and we are, I think executing quite well and being able to attract the best from all these different segments.

Thanks. So and my last follow-up, regarding -- touching again on the [anti-dumping] duties, have you gotten any type of feedback from customers, apply any pricing pressure, or these conversations? I mean, are they taking place at all or not?

Are you referring to pricing pressure with Enphase or with the modules?

For Enphase microinverters.

So we have pricing discussions with all of our customers every day.

Okay.

That's been going on for seven, eight years now. So is there anything new happening there? No. The dynamics change year to year, quarter to quarter. But the fact is that we have to continuously work to reduce our cost. We recognize that as our responsibility. And if you look historically, we've been able to significantly reduce our prices somewhere in the neighborhood of 10%-plus on a year-over-year basis.

So we take that responsibility seriously and we feel very good about our ability to maintain the pricing level that our customers are demanding.

So as of now, there's no effect of the anti-dumping duties then?

Again, I'm not sure how to answer that question. I think that there is very likely an effect. How big an effect, that is probably question. And how big of an effect that would have on overall demand is, yet again, different than how much of an effect that would have on Enphase.

As far as we're concerned, as I mentioned earlier, I do think that prices going up is not good and could have an effect on demand. However, the industry is robust and strong, and I think we can overcome this.

Okay. Thank you very much.

Thank you, sir. (Operator Instructions) Steve [Baumann] from [Riverstar] Capital.

Kris, just a quick one. What's the diluted share count going to be next quarter? It looks like you guys are probably going to be even GAAP profitable.

Right. So the basic share count is more like 42 million shares. If you add in the dilutive impact of equity instruments which are out there, you're looking more to like 47 million shares.

Great. That's it for me. Thanks very much.

Okay. And at the moment, that actually concludes our Q&A session for today. I'd like to turn it back to the host for any concluding remarks.

Okay. Thank you all for joining our call. All of us at Enphase are committed to developing successive generations of microinverter systems, expanding our technology, leadership position, growing our business in our core markets. All of us are looking forward to expanding into new geographies, new segments, and exploring untapped market opportunities.

Enphase is going to be exhibiting exciting new products at the Solar Power International Trade Show in Las Vegas on October 20th through the 23rd, and we hope to see you there.

Thank you, and we look forward to speaking with you again next quarter.

Ladies and gentlemen, at this time, this concludes our conference for today. Everyone have a great day. You may now disconnect.