Solar microinverter maker Enphase Energy has spent the past two years struggling to survive in the market it helped create, giving it little opportunity to keep up with big competitor SolarEdge in expanding into ancillary grid edge services like energy storage.
But according to this week’s fourth-quarter and fiscal year 2018 financial results, Enphase is on a rebound, giving it a chance to retake some ground in solar-integrated battery systems in the coming year.
On Tuesday, Enhpase reported fourth-quarter net income of $709,000 on revenue of $92.3 million, an important shift back to profitability compared to losses of $3.47 million in the third quarter and $2.94 million in the fourth quarter of 2017. In Tuesday’s conference call, CEO Badri Kothandaraman described it as a “solid quarter,” upping the adjective ante from his previous descriptions of the second quarter as “reasonable” and the first quarter as “decent.”
While the Petaluma, Calif.-based company still reported a GAAP loss of $11.62 million on revenues of $316 million for fiscal year 2018, that’s better than 2017’s loss of $45.2 million on revenues of $286.2 million. And with $102 million in cash on hand at year’s end, and “now that we are financially stable, a large portion of our time is spent on profitable top-line growth,” Kothandaraman said.
Enphase shares, which had fallen to sub-$1 territory in the summer of 2017, have risen to trade between $5 and $7 throughout 2018. This week’s earnings report drove up shares to the $9 range, giving the company a market capitalization of about $900 million. That’s still far less than SolarEdge’s nearly $2 billion market cap, however, illustrating the distance that’s opened between Enphase and its chief competitor in solar panel power electronics.
SolarEdge has used its capital to acquire a series of companies serving other parts of the distributed energy landscape — primarily energy storage through its purchase of uninterruptible power source company Gamatronic and South Korean battery manufacturer Kokam, and more recently with its purchase of a majority stake in Italian EV drivetrain firm SMRE.
Enphase’s chief path to recovery has been its IQ 7 line of microinverters, which have grown to about 83 percent of its shipments in the fourth quarter, up from less than 10 percent in the first quarter. While component shortages have led to delays and reduced operating margins and top-line revenues in the fourth quarter, new supply agreements are expected to mitigate these pressures through the course of 2019, Kothandaraman said.
Enphase is also seeing profitable growth from its new microinverters for higher-power solar panels, as well as its AC modules, or solar panels that come integrated with its microinverters, driven by its surprise acquisition of Sunpower’s microinverter business and subsequent AC module partnership last year. “We're not going to break out the percentage shipments, but AC modules have been increasing slowly and steadily,” Kothandaraman said in Tuesday’s conference call.
Enphase is also “extremely excited about storage,” he said, highlighting the company’s return to battery-integrated solar and microinverter systems that it first rolled out in 2014, but put on the back burner through the dark years of 2016 and 2017. “Storage represents a significant opportunity for us to increase the revenue potential for home from $2,000 to $10,000,” he said, highlighting the improved economics for solar-storage systems.
Of course, over the time that Enphase has shelved its storage plans, almost every solar and inverter maker has rolled out a solar-battery combo system, including SolarEdge, putting Enphase in the position of playing catch-up. Enphase’s new storage system, dubbed “Encharge,” is designed to out-perform that competition on a number of fronts, Kothandaraman said.
The units, which will come in 3.3-kilowatt-hour, 1-kilowatt-hour and 13.2-kilowatt-hour configurations, will have a higher charging rate than the typical residential battery, and will use lithium-iron-phosphate batteries which are both considered less fire-prone than other varieties, and don’t use cobalt as a key ingredient.
“Most importantly, it's going to use IQ 8 and the same IQ 8 microinverter,” Kothandaraman said — part of the company’s next-generation technology, dubbed “Ensemble,” that integrates controls for both off-grid and grid-tied solar-storage systems. This system also includes an “Envoy” gateway and a cloud-based control software, dubbed “Enlighten.”
Delivery of the Ensemble technology, initially set for mid-2019, has been pushed back to the end of the year, however. “We are working hard on each of these four components of the IQ 8 system," Kothandaraman said. “There are over 100 engineers working on the project across multiple time zones."
"However, given the high complexity of the technology in terms of hardware and software, we are running a little bit late," he added. "We believe in making the right decisions for the long term and getting the customer experience right. Therefore, we now anticipate introducing Ensemble in a phased manner starting in the fourth quarter of 2019.”
While Enphase is primarily targeting the grid-connected market opportunities in the United States, it’s also sampling its off-grid technology with a lead customer in the fourth quarter of 2018, and expects to ship “significant quantities” in the first quarter of this year, largely for markets such as India and Africa, he said.
As for Enphase’s current reliance on U.S. versus international markets — a ratio that stands at 77 percent to 23 percent today — the company is seeking to grow its European and Asia-Pacific market share to rough parity with its U.S. business over time, Kothandaraman said.
“But having said that, the U.S. business is the strongest at this point in time, especially with the SunPower [partnership], especially with financial stability, with the long tail of customers coming back because of our product quality, because of our customer experience," he added. "The U.S. is really firing on all cylinders right now.”
Chinese telecommunications giant Huawei, the world's largest solar inverter maker, has become a major solar microinverter competitor to both Enphase and SolarEdge in international markets, as well as in the U.S. with commercial and utility-scale products. But its long-promised U.S. launch of its FusionHome system, with integrated solar inverters, optimizers, smart energy controls and battery storage compatibility, may well be stymied by efforts by Congress to limit Huawei's activity in the U.S. due to its ties with Chinese intelligence services.