Enphase Reports Strong Q3 Revenue but Disappoints on Q4 Guidance

Enphase is entering a new world of lower margins and more aggressive pricing.

Eric Wesoff November 04, 2015

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

Microinverter pioneer Enphase Energy reported revenue of $102.9 million for its third quarter, up 4 percent year-over-year and in line with guidance. Gross margin was also in line with guidance. The company shipped 950,000 microinverters for 219 megawatts (AC), up 28 percent year-over-year.

Enphase inked a deal with SolarWorld to develop AC modules in Q3 and also introduced the new Envoy device to control its home energy product. The company even made a little bit of profit.

And that covers the good news from the Q3 earnings call.

The less-than-good news was Enphase's guidance for the fourth quarter -- which was significantly below expectations.

"We expect revenue for the fourth quarter of 2015 to be within a range of $62 million to $70 million," stated Kris Sennesael, CFO of Enphase. Street consensus was $111 million, a big miss.

Sennesael added, "The fourth-quarter revenue decline is driven by a correction of higher inventory levels in our distribution channel and softer overall market demand. We expect gross margin to be within a range of 23 percent to 26 percent, as a result of a more aggressive pricing strategy."

Avondale Partners notes, "Gross margins of 23% to 26% imply meaningfully lower pricing (we estimate $0.40-0.42/W). Shipments appear to be down 25% to 30% quarter-over-quarter in a quarter that is seasonally up 10% to 20%," adding, "Elevated inventories have plagued ENPH throughout FY15."

"The fourth quarter of 2015 is more challenging than expected," said Paul Nahi, Enphase CEO. "In order to accelerate the expansion of our business, we have adopted a more aggressive pricing strategy. However, we are confident in our ability to drive our product costs down significantly over the next 24 months, improving our competitive position. In addition, we expect to drive new revenue streams from our AC battery storage system, as well as the Enphase Home Energy Solution."

In an increasingly competitive inverter and module-level power electronics market, Enphase will have to be more aggressive with pricing to keep its market share.