Image source: The Motley Fool.
Enphase Energy, Inc. (ENPH -5.56%)
Q2 2022 Earnings Call
Jul 26, 2022, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Enphase Energy's second quarter 2022 financial results conference call. [Operator instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Karen Sagot.
Please go ahead.
Karen Sagot -- Head of Investor Relations
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter 2022 results. On today's call are Badri Kothandaraman, our president and chief executive officer; Mandy Yang, our chief financial officer; and Raghu Belur, our chief products officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 30, 2022. During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to our expected future financial performance, the capabilities of our technology and products and the benefits to homeowners and installers.
Our operations, including manufacturing, customer service and supply and demand, the anticipated growth in sales in the market, new product introductions and regulatory matters. These forward-looking statements involve significant risks and uncertainties and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to play any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations.
10 stocks we like better than Enphase Energy, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Enphase Energy, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of June 2, 2022
Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release posted today furnished with the SEC and which can also be found in the investor relations section of our website. Now I'd like to introduce Badri Kothandaraman, president and chief executive officer of Enphase Energy. Badri?
Badri Kothandaraman -- President and Chief Executive Officer
Good afternoon, and thank you for joining us today to discuss our second quarter 2022 financial results. We had a good quarter. We reported record revenue of $530.2 million, achieved non-GAAP gross margin of 42.2% and generated free cash flow of $192 million, And 37% of our Q2 microinverter shipments were IQ8. We exited Q2 at approximately 42%, 13%, 29%.
This means 42% gross margin, 13% operating expenses and 29% operating income, all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35%, 15% 20%. Mandy will go into our financials later in the call. Let's now discuss how we are servicing customers.
Our Q2 Net Promoter Score or NPS worldwide was 68%, the same as in Q1, and our North American NPS was 71%, compared to 74% in Q1. Our average call wait time increased to 4.7 minutes in Q2, compared to 3.2 minutes in Q1, primarily due to an increase in call volume related to the growth in the business. During Q2, we added customer service agents and field service technicians in U.S., Europe, and Australia. We remain focused on customer service and ensuring that we are easy to do business with.
Let's talk about our microinverter manufacturing. Our supply chain situation is quite stable due to diligent supplier management as well as qualification of alternate suppliers. With the growing demand for our products, we remain vigilant regarding the global supply chain and logistics challenges. Our quarterly capacity across all contract manufacturing facilities is around 5 million microinverters today.
We are on track to begin manufacturing and flexes factory in Romania starting in Q1 '23. This will enable a capacity of 6 million microinverters per quarter for us globally. We are also working on reducing manufacturing costs by adding more fully automated lines instead of semi-automated lines. Let's talk about IQ batteries.
We are on track to add an additional cell pack supplier early next year for our third-generation battery. Our lead times or batteries are still around 14 to 16 weeks due to global logistics challenges. Let's move on to the regions. Our U.S.
and international revenue mix for Q2 was 80% and 20%, respectively. We experienced strong growth in the U.S. and even stronger growth in Europe. In the U.S., revenue increased 15% sequentially and 66% year on year.
We are pleased to report record quarterly revenue in the U.S. and record sell-through for our microinverters in Q2. We continued to win both large and small solar and storage installers. Our microinverter channel inventory was at a healthy level at the end of Q2, while our storage channel inventory was a little elevated due to longer installed times.
In Europe, the revenue increased 69% sequentially and 89% year on year, led by strong demand for our microinverters in Netherlands, France, Germany, Belgium, Spain, and Portugal. We are starting to see good demand for our IQ batteries in Germany. Homeowners want self-consumption as the region not only faces energy prices that are rising, but also a growing demand for home electrification driven both by electric vehicles proliferation as well as natural gas shortages. We plan to introduce IQ batteries into a few more European countries later in the year.
We also expect to ship our IQ8 family of microinverters into Netherlands and France later this year. Sector coupling is the latest buzzword in Germany, and it denotes the integration of three sectors: the heating and cooling sector, the transport and mobility sector, along with the power producing renewable sector. All three of them are required to achieve full home electrification. We are working toward sector coupling by making our solar plus battery systems seamlessly work with third-party EV chargers and heat pumps, and providing a single interface for homeowners to monitor and control their energy through the Enphase act.
Bottom line, we are quite happy with our progress in Europe. We are aggressively expanding the team. We expect this momentum to continue. Supply is tight.
The channel inventory continues to be below normal levels. We are working hard to get supply into the region. In Q3, we expect to grow revenue more than 40% compared to Q2. In Latin America, revenue increased 22% sequentially and 61% year on year.
We had steady growth in our solar plus storage business in Puerto Rico during Q2. Now I'll provide some color on Australia, Brazil, and India. In Australia, we are starting to see the market beginning to recover from COVID interruptions as well as federal election. We remain optimistic about our growth in the country and expect to introduce IQ batteries in early 2023.
As for Brazil and India, we continued to ramp IQ7 A microinverters in Q2 and are starting to see a steady increase in demand quarter-on-quarter. Let's discuss the overall bookings for Q3. Our customer demand for Q3 is very robust and exceeds the higher end of our guidance range. The component availability is certainly better than what we have experienced in the last 18 months.
This has enabled us to meet the growing demand, but there are still global logistics challenges that are not unique to Enphase. Let's discuss batteries. We introduced IQ batteries into North America two years ago in the third quarter of 2020. Since their introduction, we have grown battery shipments by an average of 28% per quarter over the last two years.
We have certified more than 1,600 installers worldwide till date, and we are continuing to win around 15 new installers a week in the U.S. In the second quarter of 2022, we shipped 132.4 megawatt hours of IQ batteries, a 10% increase from the first quarter of 2022. In addition to North America, we are also ramping up batteries in Germany and Belgium. We have learned a lot in the last two years.
We have made several improvements to both the installer and the homeowner experience. Currently, our installers in North America are experiencing two-plus hours of commissioning time, which we would like to cut down by half. We are also updating the device firmware at both our distribution centers as well as in the channel to avoid updates by installers on site. We expect the commissioning time of 90 minutes as we exit Q3 and 60 minutes as we exit Q4.
We also plan to release several software improvements for homeowners during Q3 for enhanced outage performance. For Q3, we expect to ship between 130- and 145-megawatt hour of IQ metals. I recently visited the top installers in Puerto Rico in May. And in Puerto Rico, the storage attached is 100%.
I came away extremely excited about how our IQ batteries as well as IQ8 microinverters can provide a very highly differentiated solution compared to the competition. Both the Sunlight Jump Start feature and the unlimited solar to battery ratio are really valuable to our installers, particularly in Puerto Rico, where outages are quite frequent. Our focus is to meet the installer and homeowner experience seamless throughout these outages. While we are focused on providing a great experience with our current IQ batteries, we expect to introduce our third generation IQ battery starting in North America in early 2023.
We expect this battery to deliver double the power, enabling homeowners to start heavy loads. The product will also use the robust wired can protocol for seamless connectivity. We expect this third-generation battery to have simple installation leading to an improved customer experience. Let's now talk about our small commercial product.
As previously discussed, we piloted IQ8D with a few installers in the second quarter in order to receive feedback. The product has been working well, and the feedback that we got was quite useful. The installers have told us that the module power for the small commercial business significantly higher as manufacturers are moving rapidly to the larger format cells. Given this, we are going to increase the AC power of the microinverter in order to avoid potential flipping.
We think it is prudent to do this now and introduce the product in early 2023. We understand this is a few more months of delay, but we are confident it's the right long-term decision. We are extremely bullish about the small commercial market. where we can add tremendous value to business owners and installers with our high-quality, rapid shutdown capable and micro grid farming capability of our microinverter systems.
Let's discuss EV chargers. We acquired Clipper Creek in December of 2021, and the team is now fully integrated. We shipped more than 8,250 chargers in Q2 at a healthy gross margin, and the business is quite profitable as well. We introduced EV chargers to our solar distributors and installers in Q2, and we also strengthened our digital marketing efforts to consumers.
We are on track to manufacture Enphase branded EV chargers at our contract manufacturing facility in Mexico this quarter. This will help us scale capacity and drop costs. As for new products, we expect to introduce smart TV charges to customers in U.S. and Europe in the first half of '23.
This will provide connectivity to the cloud through WiFi as well as local connectivity to the home energy management system, allowing homeowners full visibility into monitoring and control of their Enphase solar plus storage plus EV system. As I have stated before, our strategy is to build a best-in-class home energy systems and deliver them to homeowners through our network of distributors and installers, enabled by our installer platform. So far, we talked about the key products on this call, microinverters, IQ batteries, EV chargers. Let's now talk about the installer platform.
Before that, some background. We acquired a total of five companies in the last six quarters. Four of those companies are geared to help installers become efficient. The companies we acquired provide lead generation services, solar design software, proposal and permitting services and the O&M software platform for our installers.
Our latest acquisition we did in March is solar lead factory, which provides lead generation services for installers. We want to provide high-quality leads to our network of installers in a cost-effective manner. Currently, the quality of the leads in general in the solar industry is not very good. We, therefore, think we have a tremendous opportunity to improve the situation as it is a big pain point for the U.S.
installs. We acquired a company called Softdesk in January of 2021, 18 months ago, which provided us with solar design software capability. Our software business now has the record customer count in Q2 with approximately 950 installers using the Solar Grab software. We are making improvements to the software based on installer feedback and are implementing new features, including shading and 3D modeling for better accuracy, adding batteries and EV chargers into proposals and integrating electronics nature capabilities for contracts.
We acquired a business in Noida in April of last year. This gave us the capability to provide proposal and permitting services to installers. Today, we service large installers and most of the work here is highly manual. We'd like to change that and are working on automation to scale the business and provide these services to our entire network of installers.
The next one, in December 2021, we acquired a company in Arizona called 365 Pronto. The company's software platform enables a two-sided marketplace. The buyers are customers consisting of installers, asset owners or original equipment manufacturers. The sellers are service providers consisting of technicians and third-party installers providing services for residential and commercial solar storage and EVs.
Our vision is to simplify maintenance for our installer network by using the software platform and getting them access to a labor marketplace. With these acquisitions now in-house, we have the right tools that we are combining into one platform to offer our installer network. We recognize the problems that the installers face such as soft costs, disparate tools and manual processes and are committed to building the platform to help minimize those. Let me now give you a quick update on our Enphase installer network EIN.
We have onboarded approximately 1,200 installers to our EIN worldwide through a highly selective process focused on installed quality and an exceptional experience to homeowners across the globe. Next, let's talk about policy. I'd like to comment on a recent policy issue that is impacting the solar industry. As it pertains to NAM 3.2 in California, we submitted our comments to the proceeding in late June.
We hope the CPUC will review the feedback from all stakeholders and eliminate the grid participation charge while providing a glide path for the solar only market and incentivizing the solar plus storage market. With regarding the federal reconciliation package, despite the recent setback, we will be actively engaged over the next couple of months to continue pushing for a climate deal that includes a solar ITC extension and the new storage ITC. In summary, we are happy with our performance for the first half of 2022 and the strong demand for our microinverters and batteries. Our markets in North America and Europe are growing at a tremendous rate as reflected in our numbers.
We remain focused on our products and platform to deliver a superior customer experience for our installers, distributors and homeowners. With that, I will turn the call over to Mandy for her review of our finances. Mandy?
Mandy Yang -- Chief Financial Officer
Thanks, Badri, and good afternoon, everyone. I will provide more details related to our second quarter of 2022 financial results as well as our business outlook for the third quarter of 2022. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q2 was $530.2 million, representing an increase of 20% sequentially and a quarterly record.
We shipped approximately 1,213 megawatts DC of microinverters and 132.4 in megawatt hours of actuators in the quarter. Non-GAAP gross margin for Q2 was 42.2%, compared to 41% in Q1. The increase was driven by favorable product mix. GAAP gross margin was 41.3% for Q2.
Non-GAAP operating expenses were $71.2 million for Q2, compared to $66.3 million for Q1. The increase was driven by increased investment in R&D, customer service, sales, and IT infrastructure. Group operating expenses were $125 million for Q2, compared to $115.1 million for Q1. Ship operating expenses for Q2 included $49.9 million of stock-based compensation expenses and $3.9 million of acquisition-related expenses and amortization for acquired intangible assets.
On a non-GAAP basis, income from operations for Q2 was $152.4 million compared to $114.5 million for Q1. On a GAAP basis, income from operations was $94 million for Q2, compared to $61.8 million for Q1. On a non-GAAP basis, Net income for Q2 was $149.9 million, compared to $109.7 million for Q1. This resulted in non-GAAP diluted earnings per share of $1.07 for Q2, compared to $0.79 for Q1.
GAAP net income for Q2 was $77 million, compared to GAAP net income of $51.8 million for Q1. This resulted in GAAP diluted earnings per share of $0.54 for, Q2 compared to $0.37 for Q1. We exited Q2 with a total cash, cash equivalents, and marketable securities balance of approximately $1.25 billion, compared to approximately $1.06 billion at the end of Q1. In Q2, we generated $200.7 million in cash flow from operations and $192 million in free cash flow, which is more than double from Q1 as a result of our record revenue and improved cash conversion cycle in Q2.
Capital expenditure was $8.7 million for Q2, compared to $12.4 million for Q1. Now let's discuss our outlook for the third quarter of 2022. We expect our revenue for the third quarter of 2022 to be within a range of $590 million to $630 million, which includes shipments of 130 to 145-megawatt hours of IQ batteries. We expect GAAP gross margin to be within a range of 38% to 41%.
And non-GAAP gross margin to be within the range of 39% to 42%, which excludes stock-based compensation expense and acquisition-related amortization. We expect our GAAP operating expenses to be within a range of $137 million to $141 million, including a total of approximately $60 million, estimated for stock-based compensation expenses and acquisition-related expenses and amortization. The estimated stock-based compensation expenses include approximately $4.9 million accrued for the earnouts that are tied to certain performance targets to be paid in the company's stock for the acquisition. We expect our non-GAAP operating expenses to be within the range of $77 million to $81 million.
With the year-to-date profit reported, we expect to utilize all of our net operating loss and research tax credit carryforwards in 2022 and become a U.S. cash taxpayer. As our non-GAAP tax expense reflects cash tax expense and reserves. We expect our non-GAAP tax expense for the third quarter of 2022 to be approximately 10% of our non-debt profit before tax and approximately 15% for Q4 '22.
We expect GAAP tax expense to be approximately 24% of profit before tax for both third and fourth quarters of 2022. With that, I will now open the line for questions.
Questions & Answers:
Operator
[Operator instructions]. And our first question today will come from Brian Lee with Goldman Sachs. Please go ahead.
Brian Lee -- Goldman Sachs -- Analyst
Hey, good afternoon. Kudos on the great execution here. First question I had was just on the gross margin guidance. It's the first time since 2020 that you've raised the non-GAAP gross margin range upwards to now 39% to 42%.
So just wondering how much of that is simply IQ8 mix and better margins on that product? Or are you also seeing better, I guess, battery storage margins versus expectations? And then maybe finally, is Europe also helping on the margins in terms of expansion, just maybe some of the puts and takes there on the gross margin guide and what's driving it? And then I had a follow-up.
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean, mainly, it is IQ8. It's as simple as that. and Europe margins and U.S.
margins are equivalent for us.
Brian Lee -- Goldman Sachs -- Analyst
OK. Fair enough. And then you're clearly doing well in Europe. It seems like you're gaining share.
Can you speak a little bit, Badri, as to kind of where you're seeing the share gains, who you're gaining share from? And then can you kind of talk about -- it sounds like the 69% sequential growth was microinverters as opposed to battery. And so -- is this a number where as batteries start to become a bigger part of the mix and given the higher ASPs, you could actually see another kind of tailwind in the region. I know you're talking about 40% sequential here into 3Q. But as we look beyond, I guess, the next couple of quarters, could you even see an acceleration once batteries become a bigger part of the mix in that region? Thanks.
Badri Kothandaraman -- President and Chief Executive Officer
Yes. A few answers here. The growth mainly came comes from Netherlands and Germany. And basically, you're right that Q2 growth is -- more growth comes from solar, but storage also grew quite well.
For Q3, it's actually quite balanced. We expect growth to be equally good on solar and storage. And what's happening in Netherlands, right? So Netherlands, we are quite strong there. We service the long tail of installers they like us because of our quality.
And many of the other suppliers have been unable to ship product in these times. And in addition, the utility rates are also rising, so there is a natural momentum in Netherlands and considering the geopolitical situation, it's even more accelerated. So we're extremely happy about Netherlands. And the name of the game for us is to get a lot more supply into the region.
That's why we embarked on building the flex plant in Romania, where we can have the micro inverters coming out in Europe versus getting shipped from elsewhere. On Germany, it's fascinating. We are quite small in Germany. Let me say that first.
But the German market is a big market. The last I heard is it's roughly two gigawatts residential time I'm talking solar. And I'm hearing 80% attached. So two gigawatts times 80% is 1.6 gigawatt hours of batteries.
That's the market. So very, very healthy market. And there, it's -- there are about 5,000 long tail installers in Germany. And what they need is they need high quality.
They need reduced installation time because they always have labor issues. And every installation is accompanied every solar installation is accompanied by a battery, by EV charger, which is virtually free due to the rebates and then normally heat pumps as well. So they require us to basically work with third-party EV chargers, third-party heat pumps, which we are working very hard to have that capability, and we expect to have that shortly So it's very similar to what we have told you for the U.S. We'd like to provide that single interface for the homeowner where everything choose up in its app solar, storage, home loads, EV, heat pumps, he has the capability to monitor and control the things he wants.
And with the utility rates being so high and feed-in tariff in Germany, the only option is self consumption. Self consumption means you utilize all solar. Figure out ways to utilize all solar, which is stored in a battery use it later, right? Do green charging for electric vehicles. Do green charging for heat pumps.
So lots of it, interesting opportunities, lots of work for us to do on home energy management. But I think this is our strength. And so this is where we have tremendous opportunity. And that's why we expect to grow disproportionately in that region.
And in fact, Germany is going to grow although the numbers are small, Germany, the numbers are quite big in terms of growth from Q2 to Q3, percentage growth is quite big. That's the story in Netherlands and Germany.
Brian Lee -- Goldman Sachs -- Analyst
That's great. Thanks for the color. I'll pass it on here.
Badri Kothandaraman -- President and Chief Executive Officer
Thank you.
Operator
And our next question will come from Phil Shen with ROTH Capital Partners. Please go ahead.
Philip Shen -- ROTH Capital Partners -- Analyst
Hey, everyone. Congrats on the strong results. Wanted to dig in deeper into Europe. Specifically, if you could talk through the FX headwind there.
In spite of that, you guys delivered an amazing guide. I just wanted to understand to what degree FX impacted Q2 and even the Q3 guide? Can you quantify that all that at all? And then can you talk through how you expect to manage that going forward as Europe grows over time? Thanks.
Mandy Yang -- Chief Financial Officer
Sure. So our FX exposure currently is very limited. Even we generate 80% of our revenue in the U.S. and 20% from international.
And also, if you look at our expenses, right, certain international expenses actually are in foreign currencies. So we have a little bit natural hedge there for our revenue. But with that said, we are actually evaluating FX hedging programs for our European revenue given we are growing very fast there. In terms of our Q3 guidance, we have factored in, in our Q3 revenue and gross margin guidance using a very conservative euro FX rate.
So we are good there. So all in all, our exposure currently is very limited.
Operator
And our next question comes from Julian Dumoulin-Smith. Please go ahead.
Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst
Congratulations, team, very nicely done again. If I can, just following up on some of the Q3 commentary here. Just looking at the storage numbers, 130 to 145, how are you thinking about the exit run rate at markdown earlier, 180 was kind of the earlier contemplated rate? How you think about that ramp here? Can you talk about some of the nuances that you alluded to in the script here earlier?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean we are incredibly excited about batteries, let me say that. We have grown at an average rate of 28% per quarter over the last two years. And we are proud of certifying more than 1,600 installers worldwide.
Long tail installers are our focus, and we continue to win 15 installers a week in the U.S. In the second quarter, we were 10% higher than the first quarter, we did about 132-megawatt hours. And we are shipping into three countries: North America, Germany, as well as Belgium. We've learned a lot.
We have made a lot of improvement. I would say it's still our commissioning times need to improve. We still have two-plus hours of commissioning time. And because of that, what happens is we do have a little bit more inventory in the channel than what I'd like.
So we are going to get to the bottom of it. We are confident of getting that under control, and we are going to unleash the demand back up again. And so we're extremely confident. I talked about our trip to Puerto Rico, and there's huge opportunities for us, and we expect to get our fair share of that.
So bottom line is we expect to grow in batteries. We expect to get the commissioning times fully under control in Q3. And although we don't guide to the 180 number that you talked about, that we expect to continuously grow.
Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst
Got it. It's a similar trajectory of that 28%.
Badri Kothandaraman -- President and Chief Executive Officer
We're not going to guide when you -- when you are from -- yes, let's say, for example, when you go from 10-megawatt hours to 20-megawatt hours, that's a 50% increase. But then the next quarter, you go from 20 to 30, that's only -- that's a lesser increase, basically, right? So you need to -- yes, you need to understand that even a 10% growth quarter on quarter is very healthy. That's 40% for the year. And I'm not saying we'll grow at 10% every quarter, it maybe more, maybe less.
But we love the business. We think we are well positioned. We -- our market is the long tail of installers. The moment we make it a lot easier for them in terms of commissioning time the flood gates will open, and we expect to continuously grow.
Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst
Hey, just a quick clarification to the earlier question here, just related to the gross margin. I mean, obviously, it just very impressive here. But as it pertains to IQ8 and where you are, I mean, I think you were not even at 40% on IQ8 deployment and you're already hitting this increasing gross margin trajectory. In the art of the possible, where can we go on gross margins here also considering obviously ramping geographies that could weigh here, et cetera.
But can you elaborate a little bit?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean we -- the IQ8 provides a lot of value. The things is Sunlight backup. It's basically when the grid is out, IQ8 continues to work and provides power, one.
No. 2, it removes any limit on solar to storage ratio, which is a limiter today. In other words, you can have a lot of solar with very tiny storage, and the extreme end being zero storage. That's No.
2. No. 3 is Sunlight jump start, which means that in other batteries when you completely drain the battery because you use it overnight and you accidentally drained it you accidentally drained it in the morning, IQ8 can come and independently jump start the batter because it can generate its own microgrid and kick start the battery. So there is three big differentiators.
And we do value-based pricing, which is -- since we are different since we add value, we expect to get the right price for it. Now so as the acute percentage increases in North America, we expect the margins to kind of track that, which is going up. The second thing is in Europe, for example, in Europe, the grids are quite stable. Like, for example, in Germany, installers aren't even -- weren't even interested in backup.
They only want it self consumption. So the value that they associate with Sunlight backup is a little bit less compared to the U.S. So there, we may not get as much value, but we'll get a little bit. So to answer your question, as the percentage of IQ8 become more and more, our gross margins will go up, and we will guide them appropriately.
That's why we increased up the gross margin by one point right now.
Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst
OK. Thank you, guys.
Operator
And our next question will come from Colin Rusch with Oppenheimer. Please go ahead.
Colin Rusch -- Oppenheimer and Company -- Analyst
Thank you so much, guys. Could you talk a little bit about the competitive landscape from a technology perspective around grid formation and the batteries? Obviously, that's been a point where you guys have led the market. But are you seeing folks start to catch up with you or find workarounds for some of that functionality?
Raghu Belur -- Chief Products Officer
So this is Raghu. The way -- again, what we provide is important, right? We are trying -- we have the home energy management solution that we have, we are providing a very comprehensive solution. This is not just about the solar part, not just about the battery part or just about the EV part or managing the heat pump, etc. Our goal is to provide a one-stop shop, a completely comprehensive solution and everything is managed from software with the home energy management system.
This is true in Europe and actually, and it's true here as well. So for us, our value add, when we think about relative to competition is not look at any one single piece, although we have to be better than them in every individual component that we are building but it is about looking at the overall solution. So the homeowner has a great experience where they have one app and they see they get unprecedented visibility into the performance of the entire system. Same thing true for an installer partners as well.
They get trained by one company to deliver all of the different components on how to install them, how to commission them etc. And if there is any problem, there's one phone call to make, there are warranty issues that they go to one company. So it's that entire end-to-end solution is where -- how we differentiate ourselves from everybody else. And we feel like we have done a good job vis-a-vis the competition.
Colin Rusch -- Oppenheimer and Company -- Analyst
All right. I'll take it offline. I want to just get in a little bit more specific on that. So my follow-up is really about new geographies in the U.S.
Can you talk about the number of installers that are -- that you're training in new geographies and how some of those emerging markets within the U.S. are developing and potentially driving growth on your core business here?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean, like what I said, we certify a lot of installers. I think the last earnings call, I said 1,300, I don't remember, and now it is 1,600. So we certify a few hundreds of installers a quarter.
We work with the long tail of installers in all geos, all regions in the U.S. Like what I said, Puerto Rico great market, very interesting market. Only when I went and saw there, it was quite a opening for me. On the number of times they had a power shutdown every day.
And there, the requirements, for example, are a little bit different from California, where the grid is by and large stable, right? So this basically gave us a completely new perspective on, hey, we need to make sure the homeowner experience through outages, the outage performance of our app needs to be flawless. And the installer experience and the homeowner experience has to be good. So those are the kinds of things we learn. And we do it across all the states.
We have sales people. We have FAEs. We have field sales technicians. They are the ones who will help these 300 installers that we certified.
By certification, we mean they have to do the training course plus they have to complete the first install. And we do have some challenges on the commissioning. So we do initial handholding with the help of our field service technicians. And then we unleash the installers.
And we got to get better like what I said. I would call Nirvana when I do a half an hour to commission, and I don't even need to train the installers. That's where we are trying to get to because we recognize that all of the installers will install batteries if they make money on betters. And in order for them to make money, we, Enphase needs to take the lead and help them with standardizing the workflow with streamlining the way the product works and take care of any problems they have immediately.
So we are doing all of them with upfront training and roundtables and field service technicians and FAEs and our salespeople.
Colin Rusch -- Oppenheimer and Company -- Analyst
OK. Thanks so much, Badri. Appreciate it.
Operator
And our next question will come from Kashy Harrison with Piper Sandler. Please go ahead.
Kashy Harrison -- Piper Sandler -- Analyst
Congrats on another strong update. Badri, you mentioned in Germany that sector coupling across heating, cooling transport power has become the topic du jour, obviously, core business is power, and you're now participating and expanding into the transport mobility side, the EV charging. But I was wondering if you could share any commentary on the heating cooling and the heating and cooling space. Do you see any opportunities for Enphase to add value within that sector? Or is that somewhere where it may not be as enticing to you at this point?
Badri Kothandaraman -- President and Chief Executive Officer
No. At this point, sector coupling is quite complex. We are scratching the surface here. by basically providing the capability for the solar plus storage system to connect to heat pumps and electric vehicles.
And for electric vehicles, there is a fairly reasonable standard called SOCPP, which we need to be compliant with and then we can connect to all third-party electric vehicles. On heat pumps, it is still a rudimentary standard card as SG ready standard. There are four months of operations. which are relatively trivial to implement.
All of them, the EV, the heat pump solar, storage room loads when you integrate all of them, then you provide the complete control to the homeowners at their fingertips. And we at least for now, we don't plan to go and do anything as far as the heating and cooling sector is concerned. We just want to make sure that we enable the sector coupling by achieving interoperability with EV chargers and heat pumps. That's what we are looking at now.
Kashy Harrison -- Piper Sandler -- Analyst
Got it. That makes perfect sense. And then as my follow-up, it's quite evident that you're showing excellent operating leverage in both 2Q results and 3Q guidance based on non-GAAP opex as a percentage of sales. I was just wondering if your views on the appropriate levels of non-GAAP opex investments are evolving as the company gains increasing scale.
And then maybe part and parcel of that, we've obviously -- it sounds like the labor market in Silicon Valley is cooling. Just wondering if you're seeing any opportunities to optimize that on the corporate G&A side. Thank you.
Badri Kothandaraman -- President and Chief Executive Officer
Right. Our baseline 35%, 15% and 20%. That 15% stands for operating expenses as a function of revenue, non-GAAP. We don't plan to deviate from that.
We are well under that. One of the advantages that we have is we are able to get talent that we are able to have the right people at the right places, which means we are able to get a lot of good talent in places like India, in places like New Zealand, in Austin, in China, we are able to get the talent that we need. And because we are growing fast we are able to keep our operating expenses under control. So we don't plan to deviate from the 15%.
We don't plan to compromise on any new products. We will get everything that is necessary. With regarding what you said on interesting opportunities created by the recent layoffs in Silicon Valley and other places. I mean, we are always looking for talent.
At the same time, we are always cautious. We don't like to go overboard. If we see people who are outstanding, we won't hesitate to pick it up. But it's easy to get fat here.
And we are very disciplined. You can expect us to always meet the 15% with margins and still not compromise in R&D because we are growing so fast.
Operator
And our next question will come from Mark Strouse with J.P. Morgan. Please go ahead.
Mark Strouse -- J.P. Morgan -- Analyst
Yes. Good afternoon. Thank you so much for taking the questions. Most of them have been asked.
First one, though, just given Europe is accelerating beyond what you were calling for just even a few months ago. Just curious if you can go back to kind of the manufacturing expansion there. So Romania is still on track for 1Q '23? I believe you've said that's about 750,000 micros. When do you think you need to make a decision to potentially increase that or move elsewhere in Europe? And kind of can you talk about the opportunities to expand your manufacturing in Europe but do it profitably, perhaps outside of Romania or Eastern Europe?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I think the decision is staring at our face. I mean, it's kind of obvious. We should get a lot more than 750,000 microinverters.
We are going to make that happen. But first, let's get our manufacturing and production done by Q1 '23, and I think we can immediately add another full auto line, and we can take it up to a couple of million units very quickly.
Mark Strouse -- J.P. Morgan -- Analyst
From Romania, OK. And then just a quick follow-up, Badri. I'm sorry if I missed this, but the -- previously, you've been talking about adding a third battery supplier in the second half of this year. You just time of magnitude.
Badri Kothandaraman -- President and Chief Executive Officer
Yes, today, we have two suppliers, the one, two, three and ATL, and we are on track to add a third supplier and for our third-generation battery, and that will start to ship hopefully in the first quarter of '23. And at that time, we will have a third supplier qualify.
Mark Strouse -- J.P. Morgan -- Analyst
OK. Thank you.
Operator
Our next question will come from Eric Stine with Craig-Hallum. Please go ahead.
Eric Stine -- Craig-Hallum Capital Group -- Analyst
Hey, everyone. Thanks for taking the questions. So you mentioned the supply chain is starting to show some improvement, but I know that as has been the case in past quarters, the 3Q guidance still well below demand. Just wondering if you're able to quantify that, how much below the demand level or at least how that's trending quarter over quarter?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. We usually don't quantify that. It's a matter of lead times. Basically, our battery lead times are 14 to 16 weeks.
That means if an order comes today, it's going to take us 16 weeks to service it. Our microinverter lead times are almost I would say, eight to 10 weeks. So that's a little bit better. Yes, I mean the balance for us is to make sure that we always look at channel inventory all the time for microinverters and storage and do not get ahead of ourselves.
The one place where I wish I could ship more to Europe because the channel inventory there is quite bright. And -- but it takes a cycle time for us to do that. We have to get product there without compromising our schedules to other customers, that's always a challenge. And we are very determined to not upset other customers who have already placed orders.
So we are very strict in all of that. Yes. That's how we work.
Eric Stine -- Craig-Hallum Capital Group -- Analyst
OK. That's helpful. And then maybe just on the manufacturing footprint. I know that when Romania comes on, you'll have the ability of targeting 6 million microinverters a quarter.
I think you did, what, 3.4 million in this quarter. I mean I know it's dependent on geography. But I mean, do you have kind of a time frame or maybe big picture, when you think you'll be pushing up against that 6 million and then potentially, obviously, need to add more.
Badri Kothandaraman -- President and Chief Executive Officer
Well, I mean, if you look at it -- if you look at our guidance midpoint of guidance for Q3, that's 610 million. And if you look at what is the percentage growth from Q2 530 million to 610 million. That's basically roughly around 15%. So you see you can -- that's a proxy for microinverter growth from Q2 to Q3.
So you correctly pointed out 3.3 million micros in Q2. So you apply 15%, that becomes something like 3.8 million, maybe 3.9 million micros in Q3. And of course, I mean, I'm not going to break out the future quarter's growth rate, but you can do the math. Within a few quarters, we will run up against the in like what I said, it's a no-brainer for us to basically make the decision on the Flex Romania plant to add one more line.
Of course, we are going to do that. We'd like to get some data from the plant on the current microinverters first and then we'll make those decisions. But I mean it's easy for us to -- we have sufficient time to make these decisions because we evaluate these every quarter. And we have options to add.
We can add in Chennai, Cellcom. We can add in Guad, Mexico for servicing U.S. customers, we can add in Flex Romania for servicing Europe customers, and we can also add in Fuyang, China for servicing Australia customers if we need. So everything is flexible.
Everything can be expandable and all we need to do is to make the decisions at the right times.
Eric Stine -- Craig-Hallum Capital Group -- Analyst
OK. Thanks.
Badri Kothandaraman -- President and Chief Executive Officer
Thank you.
Operator
And our next question will come from James West with Evercore ISI. Please go ahead.
James West -- Evercore ISI -- Analyst
Hey. Good afternoon, everybody. Badri, question on your EV charging business, the Clipper Creek EVs. You talked about two things.
One is moving to the contract manufacturer in Mexico. I'm curious how much scale you might be able to add to the production by doing that? And then secondarily, you're making the charges smarter, integrated them into your home energy management system. Curious on the timeline to achieve that.
Badri Kothandaraman -- President and Chief Executive Officer
Yes. Basically, we should be able to do several multiples of the number I gave you.
James West -- Evercore ISI -- Analyst
OK.
Badri Kothandaraman -- President and Chief Executive Officer
So that's why we are doing it, to achieve a lot of scale. And then with regarding the making the chargers smart, we expect that to be done by the first half of 2023 for both charges shipping into the U.S. and Europe.
James West -- Evercore ISI -- Analyst
OK. That's helpful. And then a follow-up for me on the cash balance this year. I mean great free cash flow during the quarter.
you've got $1.2 billion or so. What do you expect to do with that capital going forward? Is there more M&A on the horizon? Is there other return of capital to shareholders, things like that you're contemplating?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean, again, the answer are very similar to what I've given in the past. The first thing for us is take care of the needs of the business is if we need a different -- if we need an auto line, if we need something special on the batteries, if we need to buy software, take care of the needs of the business. That comes first, have plenty of cash to do that.
If we need to expand the facility, for example, in the U.S., we need to build a new reliability lab so I can go on and on. So that's No. 1 priority. No.
2 priority is evaluate continuous pipeline of acquisitions. The areas that we are interested are, for example, EV charging is a potential area we are interested mainly on the software. On the software side to get more software capability. No.
2, the second thing we are interested in as potential acquisition targets are anything interesting in batteries, right? Anything interest not manufacturing of batteries, but battery systems innovation that we are interested there. That's true. And then third is home energy management systems. The ability to not only network to things outside the home, such as EV chargers or heat pumps, the ability to network things inside the home to provide that comprehensive experience to the homeowner.
So these three are the things we will be continuously looking at. We might still do some more acquisitions on the platform side of things in order to round it up. That's my next priority to basically look at the acquisitions in those areas. And then the last one is if we take care of No.
1 and No. 2, which is have plenty of cash required for the business, have plenty of cash for M&A in the -- in certain key specific areas. If those two are taken care of, then we look at buying back shares. There, we look at is our share price.
Do we believe our share price is below a conservatively estimated intrinsic value. And it's not my idea. This is Warren Buffett has taught everybody. And so it's quite logical there.
And the key question is always, how do you how do you estimate your intrinsic value? How do you be conservative. So we have our own formula for that. And then if we feel that's the right time, we'll buy shares. If not, no.
James West -- Evercore ISI -- Analyst
OK. Very helful. Thanks, Badri.
Operator
And our next question will come from Ameet Thakkar with BMO Capital Markets. Please go ahead.
Ameet Thakkar -- BMO Capital Markets -- Analyst
Hi. Good afternoon. Congratulations on the quarter. Just one quick one for me.
I think on the third quarter earnings call last year, you guys talked a little bit about ocean freight being eight times more. It looks like some of the data suggest that ocean freight rates have actually come in a little bit. I was just wondering, have you guys seen any benefit in that? And was any of that reflected in the quarter? Certainly, your lead times haven't really shrunk yet, but just on the ocean freight rates.
Badri Kothandaraman -- President and Chief Executive Officer
Yes. The lead times have been shrunk, but you're correct. The ocean freight rates have gotten a little better, not a lot better. We are expecting them to continue through from now.
Ameet Thakkar -- BMO Capital Markets -- Analyst
All right. Thanks, guys.
Operator
And our next question will come from Maheep Mandloi with Credit Suisse. Please go ahead.
Maheep Mandloi -- Credit Suisse -- Analyst
Hey, good evening. Thanks for taking the questions. I think most of the questions have been asked. Maybe one on the policy side on the Section 301.
Are you hearing anything around that as we come to potential hearings against renewing that later this year? Any expectations on what would happen on that end?
Badri Kothandaraman -- President and Chief Executive Officer
No, there was -- no, we are not hearing anything specific. There's just some general news that we are hearing about, will there be some relief from tariffs given the situation, given the economic situation right now. But there is no specific action that we have come across that there'll be any specific relief on 301.
Maheep Mandloi -- Credit Suisse -- Analyst
Thanks. And just a last question for me on the revenue growth here. Could you talk about how much we're seeing from Europe, LatAm, or other regions versus U.S. in Q3? Like anything to help us understand the top line BTI.
Badri Kothandaraman -- President and Chief Executive Officer
Well, we -- so Maheep, are you asking about Q3? Are you asking about Q2?
Maheep Mandloi -- Credit Suisse -- Analyst
Q3.
Badri Kothandaraman -- President and Chief Executive Officer
In Q3, we already said, we already gave you specifically on Europe that we do expect to grow revenue in Europe by 40% compared to Q2. So basically, in the U.S., we will grow at very healthy levels. Our U.S. contribution, obviously, is a very high proportion of revenue.
So we will grow at very healthy levels in the U.S. In Europe, due to the geopolitical issues, utility prices that are rising, the and many of our competitors unable to supply, we have an incredible opportunity in Europe. And we grew 59% -- 69% from Q1 to Q2 in Europe, and we are forecasting to grow by at least another 40% from Q2 to Q3.
Maheep Mandloi -- Credit Suisse -- Analyst
Got you. Appreciate the clarification. Thanks a lot.
Badri Kothandaraman -- President and Chief Executive Officer
Thank you.
Operator
Our next question will come from Joseph Osha with Guggenheim Partners. Please go ahead.
Joseph Osha -- Guggenheim Partners -- Analyst
Hi, everybody. Coming back to the storage business. I know this might be a hard question to answer if you weren't supply constrained looking at the remainder of this year, just maybe the current quarter, how much do you think you could ship? I'm just trying to understand what you think underlying demand here is. And then I have a follow-up.
Badri Kothandaraman -- President and Chief Executive Officer
Well, I mean, like what I said, we are incredibly bullish about the demand, and our installers are incredibly bullish about using Enphase. The -- what we need to get under control is what I talked about. Our channel inventory is a little bit high. Our commissioning times are a little bit high.
We are going to work on them and this will unleash the demand. So we're not worried about demand. We are growing quarter-on-quarter. We expect to grow.
We continue to expect that the growth will be healthy in the coming quarters.
Joseph Osha -- Guggenheim Partners -- Analyst
So to be clear, it's really more about commissioning time and channel inventories than necessarily sell constraints per se. Is that a correct way of putting it?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean we do have longer lead times, 14 to 16 weeks, but we have made -- we don't think sell will be a constraint, and we have lined up the right capacity that we need for the future once we solve these issues.
Joseph Osha -- Guggenheim Partners -- Analyst
OK. Thank you. And then unrelated question, Badri, I think was kind of touching on this a little earlier. To what extent do you think BH or maybe even further down the road, B2G functionality might -- could become a part of your EV charging offering? And that's it for me.
Thank you.
Raghu Belur -- Chief Products Officer
Absolutely. It has to be a core part of our offering because we see that it brings a significant amount of value to the homeowner by doing that. So for example, in the case of where you're in a situation where you may have a grid outage, not only will you have, say, 10- or 20-kilowatt hours of stationary storage to help you through our outage, you will have IQ8 on the roof that will also support you through that outage. You have an additional 80- to 100-kilowatt hours of storage available to significantly expand out the outage period that can be supported.
So absolutely, B2H is going to be -- is a key part of our strategy. We want to bring that vehicle on to our Ensemble platform so that we can effectively manage it. With regards to vehicle to grid, we are the guys who really understand very well how to connect power systems to grids. Things such as grid profiles, things such as dynamic requirements around how grid profiles are going to change.
All of those things, we are extremely good at. And so with vehicle to grid, if we can, again, if the right structural business model and business structure is available where the homeowner can be compensated for allowing the car to be discharged on to the grid in order to provide things like grid services and grid support, absolutely, that's a good business model, and we will support it with all the technology. And like I said, we are absolutely the right guys to do it. Now in order to get there eventually to make that car completely bidirectional, there has to be some standards development were not necessarily technology development.
We feel we feel like the technology is available, whether that is done through a DC to AC conversion that occurs externally or onboard through by making the bidirectional -- by making the charger, the level two charger touch within the car by directional, we feel like we are very well positioned to do all of those. And with regard to standards, we are actually actively participating in the standards body to dry standards to allow for bidirectionality I think it's going to take some time, but we are actively involved. We are also engaging very closely with a number of EV manufacturers. We are working on some -- developing some pilots with them.
So we are very actively involved. That's part of our EV road map. But Badri mentioned, the connectivity part and the control part is just that smart EV charger. That's only the very first step on a much broader road map that we have for EV chargers.
Joseph Osha -- Guggenheim Partners -- Analyst
OK. Thank you very much.
Operator
Our next question will come from Gus Richard with Northland. Please go ahead.
Gus Richard -- Northland Securities -- Analyst
Yes. Thanks for taking the question. I think the guide for battery this quarter was 130-megawatt hours to 145. I was just wondering if you could talk a little bit about what would cause you to fall on the low end of that range and or the high end of that range? And that's it for me.
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean we are typically conservative in our guidance. We like to make sure that one of the things we look at is we look at channel, we look at we look at inventory, we are hawks at monitoring that we're extremely disciplined. So we gave ourselves a slightly wider range at this time.
But like what I said, we are incredibly bullish about our business. We -- the installers love using our product. We meet with 10 to 15 in every week. We take down all of the issues that they have and all of the things that Enphase needs to do in order to make sure their life becomes easier.
We take those actions, we go execute them. So yes, I mean, we are quite happy with where we are. We have grown at a 28% rate an average rate in the last two years, that's not too shabby. And we are forecasting a continuous increase.
Gus Richard -- Northland Securities -- Analyst
Got it. Thanks so much.
Badri Kothandaraman -- President and Chief Executive Officer
Thank you.
Operator
Our next question will come from Praneeth Satish with Wells Fargo. Please go ahead.
Praneeth Satish -- Wells Fargo Securities -- Analyst
Thanks. Obviously, very strong growth in Europe. I want to touch briefly on the Netherlands. I think there's some new net metering rules that are going to go into place there next year.
Can you talk about how that will impact Enphase, is that good or bad? And will you see an acceleration due to more battery deployment where it could attach rates go? Just curious for your thoughts on that.
Raghu Belur -- Chief Products Officer
Yes. So this is Raghu. As a means of clarification. It was -- net metering was supposed to -- there was a drive path out of net metering starting at the end of next year.
But right now, there are discussions that, that net metering could be pushed out by an additional couple of years. So the good and the bad there is, of course, we would -- of course, solar continues to expand. And if the net metering is a fantastic incentive program, and solar is going to continue to expand at the rate that's happening as we speak and for the reasons that Petri alluded to, which is a whole home electrification and the need for self-consumption. So the flip side to that, of course, is that we were expecting battery deployment in Netherlands to increase starting in 2023 in preparation for the sunsetting of net meeting, and I think that's going to get pushed out probably by another 12 to 24 months.
But all in all, Netherlands is growing at a we are very strong in the other end and Netherlands is growing at a very, very good rate for us. Center to around solar. And Netherlands, if you look at it, it's one subset of sector coupling in that it's the EV adoption is extremely high in Netherlands. And so it's a combination of solar and EV and now there is the pump adoption also increasing there as the government is pushing to sunset, the use of natural gas.
And of course, natural gas is obviously in shortage as well. So all in all, Netherlands is an excellent market for us with solar and then eventually and storage as well.
Praneeth Satish -- Wells Fargo Securities -- Analyst
Got it. And then just staying on Europe, I mean it sounds like you're gaining share partly because competitors don't have supply. So I guess what happens when competitors there rebuild supply? Do you think that will impact your growth? Or do you think once an installer tries an Enphase product, they don't go back to competitors? I guess just how durable is the growth?
Badri Kothandaraman -- President and Chief Executive Officer
We cannot be arrogant. We need to create -- meaning we need to provide value to the installers, which is high quality, which we think we are quite good there when compared to competition. So we are good there in terms of customer experience. We pride ourselves on Net Promoter Score and answering the call we need to continue to do that.
That's a big differentiator for Enphase. The last one is what -- is what I said, the sector coupling. -- making sure that we take care of the homeowner to not have disparate things in his home, which are unconnected. It is one experience, manage your energy ensure that things like EV chargers and heat pumps are connected seamlessly to the home energy management system.
Do that flawlessly, take care of customers, we need to earn that business. So I have no qualms that this business is here to stay. But we will focus on quality and customer experience. And usually, if we get that right, the customers will stick.
Praneeth Satish -- Wells Fargo Securities -- Analyst
Thank you.
Operator
And our next question will come from Jeff Osborne with Cowen & Company. Please go ahead. Jeff, your line is open.
Jeff Osborne -- Cowen and Company -- Analyst
Sorry about that. Thanks for squeezing me in. I appreciate the commentary so far. I was wondering if you can comment on the IQ8 mix over time.
Where do you think that can go? I know there's some customers like SunPower that are still using IQ7. Is there a possibility that, that can go to 80% or 100% over time? Or what's the ultimate destination in terms of mix?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. I mean we -- we're not going to comment on specific customers, but our target is to get to 90% by the second quarter of 2023.
Jeff Osborne -- Cowen and Company -- Analyst
Got it. And then a quick one for Raghu. Is there any progress that you can share on the gallium nitride development for IQ9?
Raghu Belur -- Chief Products Officer
Yes. I don't have any specific details to share. But in terms of technology, absolutely, we are continuing to develop the gallium based microinverter. So probably at the next Analyst Day, we may have more things to share.
But right now not much happening.
Badri Kothandaraman -- President and Chief Executive Officer
I'll give you some color. Yes, I'll give you some color. I think we understand home to work with. We are -- the devices come in a similar form factor that we are used to for the high-voltage fit today's silicon fits, which is great.
We need to do work on the transformers, which we understand, and it's well underway. We need to work on the gate drivers, which we understand that's well underway. So I think it is a matter of 12 to 18 months, and I think we are going to have the first gallium nitride product.
Operator
And our next question will come from Biju Perincheril with Susquehanna. Please go ahead.
Biju Perincheril -- Susquehanna International Group -- Analyst
Hi. Thanks for taking my question. I had a question on the U.S. Micros.
And so based on some of the checks that we've done, looks like the long tail installers are maybe able to control their costs a little better than some of the larger installers. So are you seeing any indications that the installers on EIN, are they gaining market share when you look at them as collectively, just wondering if that's a tailwind for the domestic business?
Badri Kothandaraman -- President and Chief Executive Officer
We don't see exactly what you said. We do see that the demand is very strong. We do see both installers doing well, the big installers as well as the small installers. The small installers, usually they understand their local, they understand what the homeowners, they understand about the area.
They can give more personalized service and that kind of business, the long tail of installers is where we add the most value because they don't want to be on calls reference to quality issues or service issues. So we add the most value there. But we aren't seeing one category versus the other category changing much right now.
Biju Perincheril -- Susquehanna International Group -- Analyst
OK. Got it. And I had a follow-up on battery shipments. I think in the past, you had some installers may be waiting on features like load control and things like that.
So is there sort of a similar dynamic now with in the five product I think still coming out second half of the year? And then you mentioned the next-generation battery coming out in next year?
Badri Kothandaraman -- President and Chief Executive Officer
Yes. The -- just to say that we already have low controllers that are available to our installers, first generation or controllers. We have generated a compatibility available to our installers. So all of those are fully available today.
The IQ battery 5P is our third-generation battery that's going to be available in the early 2023 is what I said. And that's the first quarter of 2023 is what I said. And that -- the focus for that battery is high power, double the power, both continuous and peak power and is to basically do some more improvements in overall commissioning and go to a wired form of connectivity versus wireless. Just you don't focus on removing any pain points for the installer and home more.
Operator
And our next question will come from Sophie Karp with KeyBanc. Please go ahead.
Sophie Karp -- KeyBanc Capital Markets -- Analyst
Hi. Good afternoon. Thank you for taking my question. I just wanted to follow up on the mix of [Inaudible] how -- what is -- can you elaborate on the strategy of how you are shifting that mix in the U.S.
and in Europe? In other words, is there more penetration of IQ8 in the U.S. versus Europe, vise versa?
Badri Kothandaraman -- President and Chief Executive Officer
All regions will move to IQ8 eventually. That's what I said. We will move to IQ8. 90% of our microinverters will be IQ8 by the second quarter of 2023.
We have gotten started with the U.S., 37% of our overall microinverter shipments this quarter was like were IQ8 and primarily into U.S., North America, but we are soon going to start introducing IQ8 microinverters into Europe later this year. We are going to start with -- we're going to start with Netherlands, France and then move on to Germany in the other countries. So our plan is to get to 90% by Q2 '23.
Sophie Karp -- KeyBanc Capital Markets -- Analyst
Got it. In the U.S., as you're rolling this out, have you seen any, I don't know, like pricing pushback on them from dealers? Maybe is there any risk at all that they may be losing share, if you transition to acuate based on pricing to some cheaper alternatives? Or how should we think about that?
Badri Kothandaraman -- President and Chief Executive Officer
Absolutely not. No share loss. -- it is that when we explain the value of IQ8 people, they do understand. And like what I said, there's sunlight backup, there is unlimited solar storage ratio and the concept of something like jump start when the battery is dead the concept of unlike Jump Start, which are highly differentiated features from competition.
So they do understand that. Now if they have a short-term problem in terms of conversion that we aren't able to ship IQ7 to them, for example, in the next few days, weeks, we do understand the situation, and we work with them so that the pricing is palatable for them for a short term until they then start paying the full price for IQ8.
Operator
And our next question will come from Cameron Lochridge with Stephens. Please go ahead.
Cameron Lochridge -- Stephens Inc. -- Analyst
Hey, good afternoon. I appreciate you taking my questions. I guess I wanted to start really just on European price cost dynamics. Badri, I think I heard you say earlier, Europe gross margins are at parity with the U.S.
And so I was just kind of wanted to unpack that a little bit. Is that -- are you able to comment on the pricing dynamics in Europe versus the U.S. that potentially allows you to maintain that gross margin parity? Is there something on the cost side that maybe comes out in Europe that enables that gross margin parity?
Badri Kothandaraman -- President and Chief Executive Officer
There's nothing on the cost side. It's basically -- we work with long tail installers in Europe, they care about a lot of things. They do care about price, but they care about quality and service even more. And we are able to get -- we are able to price them appropriately for the value we provide.
Cameron Lochridge -- Stephens Inc. -- Analyst
Got it. Thanks for that. Switching real quick to batteries. I think last quarter, you mentioned that your battery device is able to be paired with pretty much any inverter on the market.
And correct me if I'm wrong there. But I guess if you could comment on what percentage of your battery sales right now go to third party or pair with third-party inverter solutions versus your own and how you see that developing over time?
Badri Kothandaraman -- President and Chief Executive Officer
That was specific to Europe, where we -- what we did was we released. We made our IQ batteries comparable to third-party string inverters. And we are just getting started there. we don't have much statistics right now to give you.
But the name of the game was quite simple. Many of the homes in Germany and Belgium already had solar from string inverters. They were installed quite some time get some time ago, and they need batteries, and they were not getting batteries. So it was very popular.
It was a popular demand from the installers saying, why don't you make your batteries interoperable with other string inverters, and we did that.
Operator
And this will conclude our question-and-answer session. I'd like to turn the conference back over to Badri Kothandaraman, for any closing remarks.
Badri Kothandaraman -- President and Chief Executive Officer
Yes. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Karen Sagot -- Head of Investor Relations
Badri Kothandaraman -- President and Chief Executive Officer
Mandy Yang -- Chief Financial Officer
Brian Lee -- Goldman Sachs -- Analyst
Philip Shen -- ROTH Capital Partners -- Analyst
Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst
Colin Rusch -- Oppenheimer and Company -- Analyst
Raghu Belur -- Chief Products Officer
Kashy Harrison -- Piper Sandler -- Analyst
Mark Strouse -- J.P. Morgan -- Analyst
Eric Stine -- Craig-Hallum Capital Group -- Analyst
James West -- Evercore ISI -- Analyst
Ameet Thakkar -- BMO Capital Markets -- Analyst
Maheep Mandloi -- Credit Suisse -- Analyst
Joseph Osha -- Guggenheim Partners -- Analyst
Gus Richard -- Northland Securities -- Analyst
Praneeth Satish -- Wells Fargo Securities -- Analyst
Jeff Osborne -- Cowen and Company -- Analyst
Biju Perincheril -- Susquehanna International Group -- Analyst
Sophie Karp -- KeyBanc Capital Markets -- Analyst
Cameron Lochridge -- Stephens Inc. -- Analyst
