Enphase Energy Inc. (ENPH, Financial) is an energy technology company based in the United States that develops and sells software-driven home energy solutions. The product is an integrated solar, storage and energy management service that oversees the entire solution using a single technological platform, allowing solar generation, home energy storage and energy monitoring and control.
The company is uniquely positioned in the fast-growing solar power generation industry, and with the growing relevance of climate change concerns and the shift toward sustainable energy sources, the company seems to have a lot of room to grow. Last year, Enphase faced a production slowdown caused by the pandemic and the company has been trying to resolve supply chain issues ever since by increasing manufacturing capacity in Mexico and ensuring access to sufficient input material supplies. The company seems to be moving in the right direction from this front, which is evident from strong earnings in the last couple of quarters.
Enphase announced the IQ8 microinverter for the North American market on Oct. 25, which can provide sunlight backup power during an outage without the usage of batteries. The company also launched solar power system integration technology for use with home standby AC generators during power outages and remains focused on introducing innovative solutions to stay ahead of the innovation curve.
Earnings recap
On Oct. 26, Enphase released third-quarter financial results, reporting revenue of $351.5 million for the quarter, up 96.9% year over year, aided by increased shipments of Enphase Storage systems and high demand for its microinverter systems. Enphase Storage system shipments increased by about 51% in the third quarter compared to the second quarter of 2021 and the company shipped approximately 2.6 million microinverters. The company's Load Control feature, which can provide extended backup duration and save energy by shedding non-essential loads during an outage, saw widespread adoption as well. For the third quarter, the revenue mix in the United States and internationally was 76% and 24%.
The company had record sales in Europe in the third quarter, with strong growth in The Netherlands, France, Germany and Spain. Enphase also expanded its geographical base to Italy in September, offering the IQ7 series of microinverters to home installers, Q-Relay safety devices and Enphase Envoy communications gateways to residential installers across Italy. The company also entered the Brazilian solar market last October and started shipping IQ7+ microinverters for residential and small commercial installers across Brazil. On Oct. 18, Enphase announced it had begun shipping its Encharge battery storage solution to Belgian customers, boosting the product's availability in the European solar industry. Revenue in the Asia Pacific area, on the other hand, declined owing to continued lockdowns in Australia.
Enphase is extending its product line as the demand for cleaner energy continues to increase, and its business is booming. However, like every other technology company, Enphase is also experiencing supply chain issues. During the quarter, the company approved alternate suppliers to ensure timely delivery, including air transportation, which resulted in considerable cost increases. To keep up with the costs, Enphase decided to raise product prices and intends to hike prices once more in the fourth quarter, believing these price hikes will offset rising expenses. Additionally, the company plans to improve customer support by reducing call wait times to under a minute and increasing the number of field service teams in the U.S. and Europe to provide on-site help to installers.
Although the company is optimistic about the overall supply outlook for the fourth quarter, the company is establishing a fully automated plant in Mexico, raising quarterly capacity to around 2.2 million microinverters. In the second quarter, Enphase added a second completely automated line to its contract manufacturing partner in India, bringing the total quarterly capacity in India to over 1.5 million microinverters. With its current capacity in China, the company expects to easily meet its global capacity target of 5 million microinverters per quarter by the end of the year.
Meanwhile, Enphase is planning to add more suppliers in 2022 to achieve global diversification goals. In the last earnings call, management said that due to global logistics issues, lead times for storage systems have increased to around 14 weeks. Despite these headwinds, the company anticipates microinverter channel inventory to remain manageable, storage channel inventory to improve, and Enphase storage system shipments to expand by around 45% sequentially in the fourth quarter.
New developments
To strengthen its footing in the clean energy market, the company has taken many initiatives, including partnering with Grid Alternatives, a national nonprofit organization that provides access to solar technology, solutions and jobs to economic and environmental justice communities. On Aug. 26, the company renewed its partnership with Grid and will continue to donate its industry-leading microinverter technology to assist the company in achieving its goal of rapid and equitable transition to a world powered by renewable energy. On Sep. 21, the company announced its participation in the Hawaiian Electric's Battery Bonus grid services program, which provides a new incentive for Oahu homeowners who install a new home battery. In addition, the company intends to enter the booming electric vehicle market and, on Nov. 16, announced it has agreed to acquire ClipperCreek, a leader in the electric vehicle supply equipment industry that provides residential and commercial customers in the U.S. with electric vehicle charging systems.
The outlook
The global shift toward greener energy sources is here to stay, and Enphase Energy's products are in great demand, resulting in robust revenue growth. Solar companies are the apparent beneficiaries of the predicted energy transition boom. Therefore, the company has more room for expansion. According to the U.S. Energy Information Administration, renewables will account for 42% of U.S. power output in 2050, up from 21% in 2020, with solar being the main source of renewable energy in the U.S. by 2040. Enphase will also be able to expand its product line and reach a wider market because of its entrance into the EV industry. The acquisition of ClipperCreek is expected to enable the bi-directional charging capability for vehicle-to-home and vehicle-to-grid applications. Enphase will be able to expand its position in home electrification as EV sales in the United States are expected to grow by more than 40% annually over the next five years.
Takeaway
Enphase is the world's leading provider of micro inverter-based solar and battery systems. Given the industry's expected growth, the demand for the company’s products and technology is likely to remain at elevated levels in the foreseeable future.
