Dylan Nassano

Dylan Nassano asked for clarification on the Q4 underperformance due to manufacturing delays, specifically what changed since the last call, and sought an update on the new domestic cell supplier's capacity and payment terms.

Answer

President and CEO Julian Nebreda and CFO Ahmed Pasha explained that the Arizona enclosure facility's underperformance was due to underestimated staffing challenges, which are now largely resolved with increased personnel and optimized workflow, improving production from 1.5 to 5 enclosures per day. Ahmed Pasha added that the new cell supplier provides sufficient capacity for the next couple of years without material deposit commitments, securing future business.

Dylan Nassano asked for an update on the Q4 revenue underperformance, specifically inquiring what changed regarding manufacturing delays at the Arizona facility since the last earnings call, as it was previously indicated that issues were being resolved. He also asked for more details on the new second cell supplier, including incremental capacity, prepayment terms, and whether it provides net additional capacity for the U.S. market.

Answer

President and CEO Julian Nebreda expressed disappointment with the Q4 shortfall, attributing it to underestimating the staffing ramp-up for the Arizona enclosure manufacturing facility. He noted that staffing is now largely complete, and operational changes have improved production from 1.5 to 5 enclosures per day. CFO Ahmed Pasha added that despite the revenue miss, profitability commitments (margin and EBITDA) were met. Regarding the new cell supplier, Ahmed Pasha confirmed it provides enough capacity for projected loads for the next couple of years, with no material deposit commitments, and payments made upon delivery.

Dylan Nassano of Wolfe Research, LLC asked about Fluence's engagement with the data center market, specifically whether the company is working more directly with operators and if any contracts have been signed for this emerging segment.

Answer

President and CEO Julian Nebreda confirmed that Fluence is engaging with leading data center operators to address the unique, volatile power demands of AI workloads. He described this as an emerging need requiring highly responsive battery solutions but clarified that while a pipeline exists, no specific agreements have been signed yet. He emphasized this opportunity showcases the expanding applications for battery storage.

Dylan Nassano from Wolfe Research, LLC inquired about the availability of alternative battery cell supply from global markets outside of China and the U.S. He also asked for an update on the three large Australian projects that were delayed in the previous quarter.

Answer

CEO Julian Nebreda stated that alternative cell supply outside of China is limited, with some production in Korea, Southeast Asia, and Japan, but the industry remains heavily dependent on Chinese manufacturing. Regarding the Australian projects, Nebreda confirmed that the company expects to sign two of the three delayed projects in the current fiscal quarter (Q3) and the third in Q4, indicating they are progressing well and were not part of the Q2 order intake.

Dylan Nassano asked for the confidence level in signing the delayed Australian contracts, why they were initially included in guidance, and about the company's exposure to the 2026 Section 301 tariffs.

Answer

President and CEO Julian Nebreda expressed high confidence the contracts will be signed for fiscal 2026 revenue, attributing delays to unforeseen minor permitting and site prep issues. He stated the 2026 tariffs are already factored into their plans and manageable due to their domestic content strategy.

Dylan Nassano asked about the confidence in the $21 billion pipeline value amid a deflationary pricing environment. He also inquired if the strategic upgrade to 530 AMP power cells would be accretive to gross margins.

Answer

President and CEO Julian Nebreda confirmed the pipeline value is continuously adjusted for price changes and largely reflects the current market. Regarding the new cells, he stated that while it's too early to specify margin accretion, the product would fall within the guided 10-15% range. He emphasized the strategic importance of bringing state-of-the-art technology to the U.S. market.

Dylan Nassano asked about potential further OpEx reductions heading into Q1 2026 and the OpEx model Enphase is considering for 2026 given demand uncertainty. He also followed up on the O&M service for the prepaid lease, asking if it's expected to be an enhanced revenue stream and for insights into potential margins or contribution.

Answer

President and CEO Badri Kothandaraman highlighted Enphase's consistent OpEx management, noting a non-GAAP run rate of $80 million per quarter. He stated the company would look to trim spending to track revenue without compromising innovation or customer experience. Regarding O&M, Mr. Kothandaraman said it's too early to quantify revenue or margins but emphasized Enphase's expertise in O&M for its equipment, which is attractive to TPO partners, and mentioned Solargraf integration for PPL sales.

Dylan Nassano asked if Enphase Energy anticipates further OpEx reductions heading into 2026 given the Q1 outlook and demand uncertainty, and sought color on the OpEx model for 2026. He also inquired if the O&M service for prepaid leases (PPL) is expected to be an enhanced revenue stream and, if so, what its potential margins or contribution could look like.

Answer

Badri Kothandaraman, President and CEO, highlighted Enphase's consistent OpEx management, noting Q3 2025 OpEx was 19% of revenue with 30% operating income. He stated the current non-GAAP OpEx run rate is $80 million per quarter and confirmed they would look to trim spending to track revenue without compromising innovation or customer experience. Regarding O&M for PPL, Mr. Kothandaraman stated it's too early to provide numbers but explained that Enphase, as the equipment provider, is best suited for O&M, which TPO partners find attractive. He mentioned it helps structure partnerships and could involve incentives, also highlighting SolarGraph's role in TPO integration and PPL sales.

Dylan Nassano requested more detail on the TPO partners Enphase is in discussions with, such as their size and geographic focus. He also asked about potential challenges in transitioning long-tail installers to lease financing, including whether some might prefer to continue selling cash-only systems even without the tax credit.

Answer

President & CEO Badri Kothandaraman confirmed that Enphase works with every TPO and is currently in safe harbor discussions with about 80% of them. He acknowledged that installer strategies for 2026 are mixed. Based on weekly roundtables, he noted that while some installers are pivoting to lease and PPA models, others, particularly in markets with strong solar economics like California, are confident in their ability to continue selling cash and loan systems.

Dylan Nassano asked about market share trends across different segments, including battery markets, solar-only systems, and specifically among third-party ownership (TPO) players.

Answer

Chief Products Officer Raghu Belur and CEO Badrinarayanan Kothandaraman did not comment directly on market share figures. Instead, Raghu highlighted the competitive advantages of the upcoming fourth-generation system, which will reduce installer costs by up to $300/kWh, making Enphase highly competitive in backup scenarios. Badri suggested consulting third-party reports for specific market share data.

Dylan Nassano asked about Enphase's progress in gaining share within the TPO market and its strategy for managing the sales channel ahead of the fourth-generation battery launch.

Answer

President and CEO Badri Kothandaraman confirmed Enphase works with all TPO providers and is now shipping its domestic content microinverters, a key product for that channel. He explained the transition to the Gen 4 battery will be smooth, as the Gen 3 product will continue to ship to international markets while the U.S. ramps Gen 4. This avoids a disruptive 'hard cutover' and potential channel inventory issues.

Dylan Nassano of Wolfe Research, LLC asked what assumptions for project delays are embedded in the updated annual guidance and confirmed if the guidance still requires no additional 'go-get' business to hit the midpoint.

Answer

CEO Kevin Hostetler clarified that the Q2 revenue beat was due to strong operational execution and customer-requested acceleration, not a change in assumptions about delays. He confirmed that even at the higher guidance range, the company does not need any additional 'go-get' business to achieve the midpoint, as it is fully supported by the existing order book.

Dylan Nassano of Wolfe Research asked how Sunrun can lower customer acquisition costs without sacrificing volume growth. He also inquired about the strategy for balancing safe harbor equipment purchases with demand visibility and whether the company is diversifying its supply chain.

Answer

President & CRO Paul Dickson explained that cost reductions are driven by a differentiated product offering and new revenue from grid services, which carries no acquisition cost. CFO Danny Abajian stated that the safe harbor plan is achievable with their existing vendor mix and the full strategy will be finalized after Treasury guidance is released.

Dylan Nassano asked how Sunrun is achieving market share gains while maintaining financial discipline, given past commentary. He also sought clarification on the expected blended ITC level for the remainder of the year.

Answer

President and CRO Paul Dickson explained that market share gains are driven by product differentiation, such as the Flex offering, and a focus on service and reliability, rather than competing on price alone. CFO Danny Abajian confirmed they still expect the full-year blended ITC rate to be around 45%, anticipating it will level off for the rest of the year.

Dylan Nassano asked about the drivers behind lower sales and marketing costs, specifically regarding commission trends, and also questioned Sunrun's potential exposure to future tariffs.

Answer

President and CRO Paul Dickson attributed commission leverage to a superior operational experience and a product mix focused on higher-value storage systems. CFO Danny Abajian addressed tariffs by stating the potential impact would be a manageable 4% increase to overall creation costs, much of which is already factored into expectations and mitigated by safe harbor purchases.

Dylan Nassano asked about the domestic content qualification rate, inquiring what it could reach in Q4 and what the lowest hanging fruit is to increase it. He also asked for an estimate of current annual revenues from Grid Services, given the stated lifetime value of $2,000 per customer.

Answer

CFO Danny Abajian projected a 'meaningful pickup' in the domestic content qualification rate to around 90% or higher by early next year, driven by qualifying more equipment, particularly for solar-only installs. Regarding Grid Services, he confirmed the $2,000 lifetime value is a present value figure based on an assumption of a 'few hundred dollars per year per customer' and stated that current revenue generation is 'in line with that assumption.'

Dylan Nassano of Wolfe Research, LLC followed up on the use of promotional pricing, asking about the expected 'stickiness' of new customer relationships and the timeline to convert them to higher-margin sales.

Answer

CEO Brandon Moss stated the goal is to migrate these new customers to higher-value BLA solutions, noting they are already seeing success with some recent wins adopting their premium products. CFO Dominic Bardos added that some new products increase wallet share but have inherently lower margins, and efficiency gains on newer product lines will improve margins over time.

Dylan Nassano from Wolfe Research asked for an update on the percentage of the current backlog expected to ship over the next 6-8 quarters. He also inquired if Nextracker plans to expand its EVOS (Bentech) product line to compete more directly with market leaders.

Answer

CFO Chuck Boynton confirmed that a 'high 80s, low 90s' percentage of the backlog is expected to ship over the next eight quarters, a stable metric the company no longer regularly discloses. President Howard Wenger added that they are actively working with Bentech to develop new products and scale production to match Nextracker's volume, signaling significant growth potential for the EVOS business.

Dylan Nassano asked about a Q4 step-up in 45X credits, the tariff assumptions in the 2026 guidance, and the potential guidance impact from changes to the proposed Republican tax bill.

Answer

An executive attributed the Q4 45X increase to minor one-time benefits and guided for 45X to be roughly 11% of U.S. revenue in fiscal 2026. He confirmed the guidance takes a 'prudent approach' on tariffs. CEO Dan Shugar and President Howard Wenger added that potential policy changes are unlikely to impact the current fiscal year as it is 'pretty baked' and customer pipelines are secure.

Dylan Nassano asked about Nextracker's safe harbor strategy in the event of an accelerated demand pull-forward resulting from potential changes to the IRA.

Answer

Dan Shugar, CEO, stated that the company's supply chain strength and geographic positioning allow it to respond very quickly to customer needs, whether for normal schedule acceleration or a safe harbor event. Howard Wenger, President, added concisely, 'we're open for business. If a customer wants a safe harbor, we'll work with them.'

Dylan Nassano of Wolfe Research referenced a competitor shipping modules to warehouses for customers not ready for delivery. He asked if Nextracker has seen similar project impacts in its backlog and what contractual recourse the company has to enforce delivery rights.

Answer

President Howard Wenger stated that while individual project schedules can shift, they are not seeing a material, concerted trend of delays. He noted that on the whole, the company's diverse project and customer base allows it to manage these flows, and shipping schedules have actually shown more stability this quarter compared to the last.

Dylan Nassano from Wolfe Research sought clarification on whether the announced cost reductions were included in the original 2025 guidance and asked for the key drivers behind the strong Q1 gross margin performance.

Answer

CFO and EVP Spencer Hole clarified that the executed cost savings, with a dollar reduction in the high 30% range, significantly exceeded the 20% reduction previously discussed. He attributed the strong Q1 gross margin outperformance to a favorable product mix with less OEM hardware and more high-margin software and services, noting this aligns with the company's new strategic focus.

Dylan Nassano inquired if operating cost reductions were the primary driver for the 2025 outlook, given similarities in revenue and gross margin to 2024, and asked for details on expected seasonality.

Answer

CEO Arun Narayanan confirmed that operational cost savings are a key driver, citing the elimination of inefficiencies like duplicated software and high cloud computing costs. CFO Doran Hole outlined seasonality, stating software and services revenue would be fairly ratable with a slight back-half weighting, while hardware revenue would be heavily weighted to the second half of the year, possibly Q4.

Asked about the negative cycle of slower financing leading to lower originations, how the company plans to break out of it, and whether the likelihood of needing an equity raise to address corporate maturities has changed.

Answer

Management explained that slowing originations was a deliberate and prudent response to the pace of capital inflow. With new capital secured, including a term loan and existing tax equity capacity, they expect originations to increase significantly. Regarding an equity raise, they stated the need hasn't changed, as the value is in their contracted cash flows, and the strong performance of the asset-level market is helpful for refinancing the corporate debt.

Asked for clarification on potential offsets in the cash generation guidance and whether Sunnova has an appetite to increase its market share in California following a competitor's exit.

Answer

The cash generation impact from ITC adders is a rule of thumb that largely flows to the bottom line, with some working capital effects. Regarding California, Sunnova has already been increasing its market share and expects that trend to continue.

Dylan Nassano asked for quantification on how much of the Q1 revenue guidance is attributable to safe harbor agreements.

Answer

CFO Ariel Porat and CEO Yehoshua Nir both declined to disclose the specific financial impact of safe harbor agreements, citing customer confidentiality. Porat noted that safe harbor would have an impact in the first half of the year, while European inventory clearing would benefit the second half.