Solar microinverter maker Enphase Energy reported fourth-quarter and annual 2017 results Tuesday that beat analyst expectations. Lower revenues for the year were counterbalanced by cost-cutting and streamlining efforts as Enphase seeks to maintain market share against rival panel-level power electronics maker SolarEdge.
The Petaluma, Calif.-based company reported fourth-quarter revenue of $79.7 million, at the higher end of analyst guidance, with 755,000 microinverters, or about 221 megawatts-DC of capacity, shipped in the quarter. Gross margins of 23.8 percent showed an improvement over the same quarter in the previous year, and GAAP operating loss stood at $2.1 million, or 3 cents per share.
On an annual basis, Enphase recorded lower revenues than the prior year, but also reduced operating losses significantly to reduce its net annual loss to $45,192, or 54 cents per share. That compares to 2016’s annual loss of $67,462, or $1.34 per share. The company ended the quarter with a cash balance of $29.1 million.
Enphase created the market for microinverters as an alternative to central inverters for rooftop solar systems, and rode high on the stock market for some time after its 2012 IPO. It branched into the nascent behind-the-meter energy storage market with an integrated inverter-battery system of its own, and offered grid data and services from its microinverter fleet.
But competition from rival SolarEdge and incumbent string inverter makers such as SMA, Fronius and ABB has cut into the company’s market share over the past several years, pushing its shares into sub-$1 territory and forcing it to issue several “going concern” statements in its 2016 earnings reports.
Enphase underwent a restructuring that led to it laying off about 18 percent of its workforce in January 2017. In August 2017, founding CEO Paul Nahi was replaced with Chief Operating Officer Badri Kothandaraman.
Enphase has stripped back much of its broader push into energy storage and grid services to concentrate on the basics -- in this case, its latest inverter technology, the IQ 7. Enphase began shipping IQ 7 microinverters to customers in the United States in the first quarter of 2018, and expects it to be phased into worldwide markets throughout the year.
Enphase also offered the following guidance for the first quarter of 2018:
- Revenue to be within a range of $65 million to $70 million
- GAAP and non-GAAP gross margin in a range of 22 percent to 25 percent
- Non-GAAP operating expense in a range of $17.5 million to $18.5 million
- GAAP operating expense in a range of $19.5 million to $20.5 million
The company’s goal for 2018 is dubbed 30-20-10 -- 30 percent gross margin, 20 percent operating expenses and 10 percent operating income by the fourth quarter of this year. Back in September, Kothandaraman described his job for the next 18 months as, “improve gross margins, slow and steady; keep our operating expenses in check; make sure we become profitable beginning Q4 of this year, then make steady progress from there onward.”
Enphase is also banking on the idea of integrating its microinverters into solar panels, starting with last summer’s partnership with LG. Earlier this month, Enphase landed its second big inverter-solar panel integration partner, Panasonic North America, which will develop high-efficiency AC modules using the 320-watt IQ 7X microinverter.
Enphase shares, which fell and then rose on Tuesday’s news, have regained ground from their sub-$1 range in early 2017, but the company has continued to go to out-of-market investor-owners to shore up its finances.
Earlier this month, Enphase raised $20 million in private equity, or a price of $2.10 per share, to an “entity affiliated with Isidoro Quiroga, a prominent Chilean entrepreneur and investor.” Quiroga, who sold a successful kiwi fruit and grape farm to seed his start in the Chilean stock market, is now valued at close to a billion dollars, according to reports from the country’s newspapers. Quiroga or a designee will hold a board observer position as part of the investment.
Earlier fundraising efforts include a secondary offering of common stock in 2016 that resulted in net proceeds of approximately $16.2 million. And in 2017, the company saw a $10 million investment from John Doerr and T.J. Rodgers, net proceeds of approximately $11.3 million under its At Market Issuance Sales Agreement, and an extension and refinancing of its term loan facility from $25 million to $50 million.
Enphase’s struggles stand in contrast to the relatively sunny prospects offered by module-level power electronics maker SolarEdge in its fourth-quarter and annual earnings report last week. The Israel-based company had a great 2017, managing its way through a component shortage and rising competition from China to exceed Wall Street analyst expectations for revenue growth in the U.S. and abroad, with 2017 revenues of $607 million and GAAP net income of $84.2 million, up 33 percent from $63.5 million in the prior year.
Competitors in the field include traditional centralized inverters from companies such as ABB, Tabuchi Electric, Fronius, SMA and others. On the microinverter side of things, new entrant Huawei has long been rumored to be coming out with a less costly alternative to both Enphase and SolarEdge, a prospect which earned some disparaging comments from SolarEdge CEO Guy Sella during the company’s earnings call earlier this month.
“We are starting to see products from a Chinese manufacturer that has recently introduced an optimizer with a reduced set of features and relatively high pricing in Australia,” he said. “There have been market rumors about this for some time now, and we have heard the product will be introduced in Europe as well. From what we have seen so far, the products have only basic functionality and lack communication features and a safety mechanism.”