Enphase Energy Lighting It Up

(IgorGolovniov)
(IgorGolovniov)
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Enphase ($ENPH) reported earnings last Tuesday after hours on Feb 8th. Immediately following the release, the stock skyrocketed over nearly 25% in after-hours trading to $180 per share. Over the next week, the stock has seen weakness along with the rest of the market and is currently trading at ~ $164 per share.

Our Renewable Energy coverage analyst, Kamran, covered the earnings release and helped produce this morning’s write-up. Keep up with renewable energy news in the Renewable Energy channel on the ROIC portal. For a quick background on Enphase, check out his short post here on the portal.


Key Takeaways

See the earnings release here and supplemental data here.

  • Revenue grew 64.9% YoY, analyst estimates projected 52.2% growth
    • $413M actual v $396M expected
  • Gross Profit increased 121.1% YoY versus analyst estimates of 110.4% growth
    • $166M actual v $156M expected
  • Gross Margins increased 121.1% YoY versus analyst estimates of 110.4% growth
    • 40.2% actual v 39.3% expected
  • Net Income increased 121.1% YoY versus analyst estimates of 110.4% growth
    • $84M actual v $83M expected
Line ItemAnalyst Estimate (Q4)Actuals (Q4)Beat / Miss %
Revenue$396$4134.1%
Diluted EPS$0.58$0.7325.9%
Gross Profit$156$1666.4%
Net Income$83$841.8%
Div./Shr (Paid)000%
Gross Margin39.3%40.2%2.2%

Company Overview

  • Enphase Energy (ENPH) is an energy technology company.
  • It supplies microinverter-based solar and battery systems to use the sun to make, use, save, and sell power.
  • The Enphase Home Energy Solution with IQ platform using a single platform for management the whole solution.

Q4 Earnings Highlights

Operational

  • Shipped approximately 3 million microinverters and 100.2 megawatt hours of IQ batteries
  • Started production shipments of IQ8 microinverters for customers in North America during Q4
  • Q4 NPS was 69% compared to 67% in Q3.
    • North America NPS was 73% compared to 71% in Q3

Financials

  • Revenue | $413 million, +56% YoY
  • Gross Profit | $166 million, +56% YoY
  • Gross Margin | 40.2%, +0 bp YoY
  • Operating Expenses | $68 million, +99% YoY
  • Operating Income | $98 million, +35% YoY
  • Net Income | $103 million, +44% YoY
  • Diluted EPS | $0.73, +43% YoY
  • Capex | ($13.2 million)
  • Cash + Cash Eq + Marketable Sec | $1.0 billion, +49.6% YoY

Guidance

  • “We exited the fourth quarter at approximately 40, 17, 24. This means 40% gross margin, 17% operating expenses and 24% operating income, all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35, 15, 20.” — Badrinarayanan Kothandaraman, CEO

Management Commentary

Badrinarayanan Kothandaraman, President, CEO & Director

On manufacturing

  • “Our operations team did a great job flexing manufacturing as 2021 played out. The global supply chain is still under a little bit of stress.”
  • “Given our strong demand, we added a fully automated line in Q4, bringing quarterly capacity to 2.25 million microinverters in Mexico. We had already added a second fully automated line earlier in 2021 at our contract manufacturer, Salcomp in India, bringing that quarterly capacity to about 1.5 million microinverters.
  • “Along with our existing capacity in China, we can now do a little more than 5 million microinverters per quarter in total for all microinverters worldwide. We are also planning to add a contract manufacturing facility for microinverters in Europe by the end of this year. We see rapid growth in the region and would like to service customers better.”

On batteries…

  • Our 2 sources for battery cell packs have increased their capacity to 180 megawatt hours per quarter from 120. Our existing cell pack suppliers are capable of adding even more capacity if needed. And we are continuing discussions with additional cell pack suppliers as well.
  • Our lead times for batteries are still long today at approximately 14 to 16 weeks primarily due to logistics challenges, which are global. The lead time should come down once global shipping and port conditions improve.

On new products…

  • We started production shipments of IQ8 microinverters for customers in North America in Q4. IQ8 can form a microgrid during a power outage, using only sunlight, providing backup power even without a battery. We expect to introduce IQ8 microinverters internationally in the second half of 2022.

On ClipperCreek…

  • Acquisition completed in Q4. ClipperCreek offers EV charging solutions for residential and commercial customers in the U.S. They have been a pioneer in the EV charging market since 2006 and have sold more than 110,000 Level 2 charging stations since inception. The business is very healthy, and the gross margins are in line with Enphase. The ClipperCreek brand has a reputation for high quality and great service which we like a lot. We plan to transfer manufacturing to our contract manufacturing facility in Mexico by the end of this year so that we can rapidly scale the business and support demand.

On Grid Services…

  • In December, we announced our participation in Arizona Public Service, APS, residential battery grid services program. The program offers homeowners who install Enphase batteries in APS’ territory the chance to participate and earn money through one time upfront incentives.

Valuation + Analysis

  • Since the earnings release on 2/8/2022, the stock has risen all the way to $183 and has seen lows of $118, but is currently trading at $164 per share.
  • At this level, Enphase is hovering around a $22 billion enterprise value.
  • ENPH has grown revenue over 400% in the last 3 years while maintaining impressive margins for a hardware business. Using forward estimates from analysts, the company is trading for ~45x forward EBITDA.

KA: Enphase is a dominant business in the space of residential/small commercial solar, and sells high margin parts (inverters, batteries). It will soon integrate vehicle charging infrastructure into the mix. Furthermore, they could offer the future optionality of grid services/resource aggregation as a higher-margin business opportunity as the energy market and its regulations continue to evolve.

KR: Enphase looks to be killing it over the past several years with great top-line growth and meaningfully expanding margins. The company has maintained high ROICs over the course of the last few years as well. It may deserve to trade at a premium, but at 45x EBITDA it’s too expensive for us today.

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