When Enphase Energy (ENPH 1.40%) released fourth-quarter and full-year 2018 operating results earlier this year, management expected the business to start off 2019 with a bang: Investors were told first-quarter 2019 revenue would be in the neighborhood of $92.5 million, equivalent to a 32% year-over-year increase. But as it turned out, management was way off -- the business actually performed even better.

The world's leading supplier of microinverters for the solar market reported quarterly revenue of over $100 million, the first time that milestone has been achieved. Profit margins improved. Operating income soared. And the company significantly reduced its debt balances.

Here are the main takeaways from Enphase Energy's stellar start to 2019.

A team planning a solar project.

Image source: Getty Images.

By the numbers

Solar energy continues to experience rapid growth globally, thanks in part to Chinese policy weighing down panel prices and in part to the fact that generating electricity from the sun is increasingly competitive economically. In the United States alone the amount of energy generated from solar increased 51% year-over-year in 2018 according to the U.S. Energy Information Administration. While that impressive growth is from a small base, solar is poised to grow at a double-digit clip for the foreseeable future.

That trend is certainly friendly to Enphase Energy. Past investments in technology upgrades have paid off handsomely, as the latest-generation IQ 7 microinverters represented 94% of all shipments in Q1 2019. That's up from 84% in the fourth quarter of 2018. The superior-performing, higher-margin product has played a significant role in the company's swift rise to profitability in recent quarters. In addition to landing a valuable supply deal with solar panel manufacturer SunPower, the profits flowing in from the seventh-generation product are setting the stage for IQ 8 technology in development today.


Q1 2019

Q1 2018

Year-over-Year Change


$100.1 million

$69.9 million


Gross profit

$33.3 million

$18.3 million


Gross Margin



27% (relative)

Operating expenses

$26.2 million

$20.8 million


Operating income

$7.1 million

($2.5 million)


Operating margin




Net income

$2.7 million

($5.1 million)


Cash flow from operations

$17.1 million

$3.3 million


Data source: Enphase press release.

All the more impressive is the fact that Enphase Energy delivered incredible year-over-year growth despite experiencing (expected) component shortages. The business said that new capacity, originally funded in May 2018, came online during the quarter. More is on the way in the next three quarters.

A sharp rise in gross margin and well-managed operating expenses enabled a significant boost to operating income. Investors will note that there's still room for improvement, as management's original long-term target for operating income margin was 10%.

With the target in sight, management didn't let the newfound financial flexibility go to waste. A combination of cash on hand and operating cash flow was used to reduce debt balances by over $41 million from the end of 2018. That should significantly reduce interest expenses, and lead to a further improvement in net income over the remainder of 2019.

A toy man looking through binoculars atop the tallest of three cylinders.

Image source: Getty Images.

Looking ahead

Enphase Energy says the momentum will spill over into the second quarter of 2019. Revenue is expected to be in the neighborhood of $120 million at a gross margin of at least 32%. Operating expenses are expected to remain relatively flat at $26 million, which, when coupled with the sharp rise in revenue, suggests that operating income and operating margin could be significantly higher than the most recent quarter.

Meanwhile, progress continues on new product launches and development. The Enphase IQ 7X microinverter is available in a new solar module from Panasonic as of late March 2019. The business also secured a supply of new high-voltage power transistors starting in the second half of this year, and enrolled over 2,500 homeowners in its Enphase Upgrade Program, which will allow them to switch to the newest technology from the company. That could allow Enphase Energy to hit the ground running with its residential energy storage products, which are nearing commercial launch in late 2019 or early 2020.

A fast-growing solar stock delivering the goods

It's one thing when management tells investors revenue will grow 32% year-over-year in the next quarter. It's another when even that optimism proves to be an underestimate. Enphase Energy has deftly managed a series of headwinds, driven by both the market and its own financial position, to turn around operations in the last year. Wall Street has rewarded the progress by sending shares 177% higher in that span. Given the expectations for continued revenue growth and margin expansion, the stock might be capable of rising higher still.