Source: Enphase Energy.
Selling a record 195 MW of microinverters, Enphase Energy (ENPH -5.56%) reported a solid quarter earlier this month. Although shares popped about 10% after the earnings release, they have come down since, trading just 6% above 52-week lows. Let's take a look at some of the more important details that were revealed in the quarterly earnings report and see if the company looks any closer to sustained profitability.
The bottom line on the top line
Growing revenue by 25% year over year, Enphase reported $102.1 million in total revenue for the second quarter. More importantly, though, Enphase was able to grow its revenue in spite of Vivint Solar's decreasing presence.
One of the nation's largest residential installers, Vivint Solar, who had previously sourced its inverters solely from Enphase, decided to expand its options, entering into an extended supply agreement with Enphase's competitor, SolarEdge (SEDG 1.92%).
The important question was, how would this affect Enphase? Vivint accounted for 30% of Enphase's total revenue in the second quarter of 2014, and Vivint only accounted for 14% of Enphase's total revenue in the second quarter of 2015. Evidently, the company transitioned well. Revenue from Vivint decreased 40% year over year, but revenue excluding Vivint grew 50% year over year.
Source: Enphase Energy Q2 2015 earnings.
As Enphase is still in growth mode, it's imperative the company continue to see big top-line growth, and for the past quarter, it did. Management has stated its intent to expand into numerous international markets in order to maintain its strong growth trajectory, and with a presence in 97 countries, it has certainly achieved a global presence -- a presence it continues to grow successfully: International revenue improved 37% year over year.
Moving into storage
At the moment, Enphase's main narrative revolves around microinverters, but energy storage appears to be another area Enphase is interested in pursuing.
Currently, the company offers customers a cloud-based energy management platform, Enlighten, which management suggests would pair well with its energy storage solution: "Our AC battery with its modular architecture and seamless integration into Enlighten will be unique in its simplicity, its ease of installation, performance and cost effectiveness."
But, this may just be the tip of the iceberg. According to management, its AC battery could be retrofitted to solar systems that do not feature Enphase microinverters.
On the conference call, Paul Nahi, Enphase's CEO, said:
Obviously new installs will likely be a total Enphase solution, but there are plenty of installs out there that don't use Enphase that could benefit [from] storage, and because we are not coupled to the solar [system], we can augment those solutions.
Effectively, anyone with a residential solar system, regardless of whether the system includes Enphase hardware, is a potential customer. That's a pretty significant market opportunity! Nahi points to Australia, specifically, as an example of where "the excitement is really quite palpable for this solution.
The excitement over the micro inverters is pretty palpable, too -- second-quarter revenue grew nearly 200% year over year in Australia and New Zealand, and industry analysts validate the opinion that Australia is a likely market for energy storage. Kobad Bhavnagri, the head of Bloomberg New Energy Finance in Australia, predicts 33GWh of battery storage and 37GW of solar PV in Australia by 2040.
Moving forward, it will be interesting to see how successful Enphase is in penetrating the energy storage market. It won't be easy, of course. Nipping at its heels, again, is SolarEdge, who is adept at partnering with major players -- like Tesla Motors. The two companies have joined together to provide a back-up power solution for residential photovoltaic systems. According to the battery/automotive manufacturer, the system "is designed for efficient, outdoor installation and includes remote monitoring and troubleshooting to keep operations and maintenance costs low."
Margin call
Enphase's management, in the past, has been less than clear about how it plans to improve upon its operating margin, and I believe this is an issue which needs to be followed closely; however, following this earnings call, I'm willing to give a little more latitude to the company.
Source: Enphase Energy Q2 2015 earnings.
The company has managed to stabilize its operating expense at around $30 million. This doesn't show improvement, but it seems acceptable as long as the company continues to grab global market share and, more importantly, grow revenue.
If the energy storage market is as lucrative as Enphase says it is, the customer acquisition costs will be a worthy investment since the infrastructure is already laid out for the energy storage systems to be delivered. Again, Nahi acknowledges that, "With hundreds of thousands of customers already using Enlighten, the path toward total energy management for Enphase customers has already been paved."
The company is planning for a market launch of its AC batteries in early 2016.
Final Foolish thoughts
Introducing its first microinverter in 2007, Enphase has currently shipped over 9 million units worldwide in almost 100 countries. Though not consistently profitable, I believe this quarter (among the previous ones) demonstrates that the company is on the right track toward profitability. It's a competitive landscape, though, and with companies like SolarEdge representing a pervasive threat, Enphase will have to continually innovate if it hopes to succeed.
