ENPH – Enphase Energy – June 09, 2022

Full home electrification is slowly but surely coming. Electric vehicle usage is ramping up as climate change, coupled with situations like the Ukraine, are forcing countries around the world to think hard about their reliance on oil, coal, and natural gas. While consumers are increasingly looking to lower power bills through energy independence.

Enphase Energy is making this shift possible with its smart, easy-to-use solutions that manage solar generation, storage, and communication on one platform. They have revolutionized the solar industry with microinverter technology and are producing a fully integrated solar-plus-storage solution. The Enphase system enables people to make, use, save, sell, and own their power. In addition to providing unprecedented data and control, it allows people to get paid for the clean energy they produce and share with their communities.

The integrated approach maximizes a home’s energy potential while providing advanced monitoring and remote maintenance capabilities. System owners can use the Enphase App to monitor their home’s solar generation, energy storage, and consumption from any web-enabled device. Unlike its competitors, Enphase’s technology also has built-in system redundancy in both energy generation and storage, eliminating the risk that comes with a single point of failure. Furthermore, its cloud-based, monitored system allows for remote firmware and software updates, enabling cost-effective remote maintenance and ongoing utility compliance.

To date, Enphase has shipped more than 45 million microinverters and over two million residential and commercial systems, which have been deployed in more than 135 countries. Today, if you see a home with solar panels on it, there’s a good chance it includes Enphase technology. With the solar industry now transitioning from solar-only systems to complete energy management solutions, Enphase’s strategy is highly geared towards this growing need.

Founded in 2006, Enphase transformed the solar industry with a revolutionary microinverter technology that turns sunlight into a safe, reliable, resilient, and scalable source of energy. In the aftermath of the 2001 telecom crash, Martin Fornage of Cerent Corporation was looking for new projects. When he saw the low performance of the string inverter for the solar array on his ranch, he partnered with fellow Cerent engineer, Raghu Belur, and they formed PVI Solutions. The two tapped Paul Nahi to be CEO at the end of 2006, and the trio formed Enphase Energy. Soon after, the first prototype microinverter was developed.

These microinverters can convert, manage, and monitor energy in each panel, rather than in an entire array of panels, providing significant size reduction advantages that allow it to be placed on the back of a panel. Such a system can be connected directly to a grid, contrasting with the traditional central inverters, where many panels are connected in series and then run en-masse to a single larger inverter.

By 2012, when the company went public on the Nasdaq, it had shipped more than 1 million inverters. Ten years later, Enphase is distributing the eighth generation of its technology, which is now present in virtually every solar panel made.

While co-founder Martin Fornage recently retired in April, Raghu Belur continues to direct the company as chief products officer, supporting president and CEO Badri Kothandaraman. Raghu has more than 25 years of experience in the clean energy and high technology industries and has been at the forefront of developing Enphase’s leading integrated system. Badri joined Enphase in April 2017, bringing over two decades of product development and general management experience in the semiconductor industry.

Enphase currently offers solutions targeting residential and commercial markets in the U.S., Canada, Mexico, Europe, Australia, New Zealand, India, Brazil, South Africa, along with other Central American and Asian markets. They sell primarily to solar distributors who combine the products with others, including solar modules and racking systems, which are then resold to installers in each target region.

In addition to these solar distributors, the company sells directly to select large installers, original equipment manufacturers (OEM), and strategic partners. OEM customers include solar module manufacturers who integrate microinverters with their own solar module products and resell to both distributors and installers. Finally, Enphase also sells certain products and services to homeowners, primarily in support of warranty services and legacy product upgrade programs, via the company’s online store.

Enphase’s core suite of products includes its seventh generation IQ7 inverter solution which covers a range of cell capacities, coupled with alternate versus direct current variations, catering to a wide range of power requirements. However, in October the company started shipping its eighth generation IQ8 products which can form a micro grid during a power outage using only sunlight, providing backup power even without a battery. This technology eliminates traditional ratio requirements between solar system size and battery size. As a result, the Sunlight Jump Start feature can start a home energy system using only sunlight, even after prolonged grid outages that may result in a fully depleted battery.

These products are complemented by the company’s range of IQ battery storage systems which created the world’s first grid-independent micro inverter-based storage system. The solutions feature an “always-on” capability that keeps homes powered when the grid goes down, and the ability to save money when the grid is up. Enphase has gradually expanded the backward compatibility of its storage systems, providing approximately 300k existing system owners with the possibility of achieving grid-agnostic energy resilience.

Furthermore, during the second quarter of 2021, the company introduced Load Control for IQ battery systems, allowing homeowners to decide what gets power in their homes in the event of a grid outage. Customers can choose up to four loads that will be on when the grid is present and shed automatically in the event of a grid failure.

Enphase also offers AC Module products which are integrated systems that allow installers to be more competitive through improved logistics, reduced installation times, faster inspection, and training. These are distributed via partners, including SunPower, Panasonic, LONGi Solar, and many more. In addition, the company recently announced that its home energy systems will soon integrate with most leading models of home standby AC generators, providing smoother transitions for homeowners during power outages as it eliminates the glitches that reset home electronic appliances when switching to generator power.

The solar industry is transitioning from solar-only systems to complete energy management solutions, which consist of comprehensive tools that facilitate total control and customization of customers’ energy demands. At its core, Enphase’s objective is to build best-in-class home energy systems supported by a robust digital platform to satisfy this secular trend. To achieve this, the company’s strategy is currently focused on delivering the best-in-class customer experience, growing market share worldwide, and expanding product offerings, while increasing product power, capacity, efficiency, and reducing costs.

Enphase’s revolutionary technology has enabled it to offer a unique value proposition with products that are reliable, smart, simple, and safe, while providing customers with complete energy independence, coupled with ubiquitous control and customization never seen before. On the service front, the company is extremely cognizant that its installer, distributor, and module partners maintain key relationships with end customers, therefore it continues to invest in ensuring these partnerships are equipped to maintain providing a superior experience. Efforts here were recently bolstered by the company’s acquisition of SolarLeadFactory which provides high-quality leads to solar installers in the U.S.

In recent years, Enphase has made considerable efforts to expand globally, building both manufacturing and distribution capabilities. They intend to capitalize on their market leadership by continuing expansion in core markets. They have a particular focus on increasing market share in Europe, Asia Pacific, and Latin America regions, as well as penetrating new and emerging markets, with new and existing products and local go-to-market capabilities. The company continues to see strong growth in existing markets in Europe, including the Netherlands, France, and Belgium, while sales in newer markets like Italy, Spain, and Portugal are quickly improving, putting them on target to boost revenue in the region by more than 40% in the next quarter. In Latin America, revenue more than doubled year on year as steady growth in the battery storage business provided a solid tailwind. Enphase’s latest generation of products is soon to be introduced into Australia, while progress is also being made in Brazilian and Indian markets.

While Enphase’s impressive suite of products already delivers cutting-edge technology at the forefront of the industry, they remain committed to investing in research and development to further improve components and solutions and maintain a best-in-class total experience for customers. Engineering teams are focused on continuing to increase average power conversion efficiency while reducing costs per watt. Increasing the energy density of battery capacity, reducing installation times, and reducing cost per kWh to make solutions more resilient, sustainable, and affordable for the masses is also a priority. Enphase plans to introduce its next new product, IQ Battery 5P later this year. This battery will deliver twice the power of its current battery at a lower manufacturing cost, enabling homeowners to start heavier loads.

Adding to its acquisition progress, in December, Enphase acquired ClipperCreek Inc, which offers electric vehicle charging solutions for residential and commercial customers in the U.S. The increasing penetration of electric vehicles has implications for home energy management, as households not only consume significantly more power with an EV, but also have a large battery that can be used for both backup and grid services. This acquisition leverages Enphase’s power conversion and software platform to manage loads and resources within the home.

After years of consistent revenue, Enphase has seen rapid growth since 2018, as total sales have surged from around $300 million annually to almost $1.4 billion in 2021.

In the opening quarter of 2022, the company reported a record quarterly revenue of $441.3 million. It achieved this after it shipped approximately 2.8 million microinverters including a strong ramp-up in the latest generation IQ8, coupled with 120.4-megawatt-hours of Enphase IQ batteries, which jumped 20% compared to the prior quarter. Thanks to reduced expedite costs, gross margins also improved to 41%, leading to an operating income of $114.5 million.

Looking ahead, Enphase is forecasting revenue to be within a range of $490 million to $520 million. This will contribute to a solid jump in full-year 2022 revenue, which consensus estimates have at $2.07 billion, representing solid year-on-year growth of 50%. Likewise, the consensus estimate for earnings per share is pegged at $3.45 for growth of 43%.

While ongoing global supply chain challenges are a key issue for Enphase, its current situation is stable due to supplier management and the qualification of alternate suppliers. With the growing demand for microinverters, the company remains vigilant regarding logistical challenges.

Government policy issues as they pertain to the U.S. solar industry are also a consideration as the U.S. Department of Commerce investigates the circumvention of antidumping and countervailing duties on some solar modules. This investigation creates some uncertainty in the marketplace as its findings could massively disrupt supplies and production of solar modules, albeit more dramatically impacting Enphase partners, given the company does not produce modules.

On the competition front, Enphase shares the inverter market with major names like SolarEdge Technologies, Fronius International, and Huawei Technologies among many others offering string inverters. However, Enphase’s technology offers significant advantages and competitive differentiation relative to traditional central or string inverter technology. While competitors in the storage market include Tesla, SolarEdge, LG Chem, Panasonic, and Schneider, among others, Enphase’s comprehensive suite of products again provides it with a considerable competitive advantage.

Enphase’s pioneering and market-leading technology has already provided the company with considerable growth traction in recent years. Yet with continued product development and a comprehensive strategy for further expansion and gains in market share, they appear very well-placed to capitalize on the trend toward full home electrification by delivering the holistic solutions the market is demanding.