Residential solar power generation has been evolving quite a bit in recent years, and Enphase Energy (NASDAQ:ENPH) wants to be leading the evolution going forward. Investors began to really take notice after its first quarter earnings report, when the stock jumped almost 30% in response. Since that pop, shares have surged an additional 160% since then, bolstered by strong results in the second quarter as well.
Enphase aims to supply a full-platform solution to power generation, and its new microinverters, which convert energy at the solar panel, combined with storage, network, and software technologies, are catching on with customers. Let's look back at what drove the latest results and see how the company envisions the future of residential solar with its upcoming Ensemble platform.
A decade of solar
Enphase began as PVI Solutions in 2006 and changed its name to Enphase Energy the following year. The company summarizes its business as follows:
We are a global energy technology company, delivering smart, easy-to-use solutions that connect solar generation, storage and communications management on one intelligent platform. We revolutionized solar with our microinverter technology and produce the world's only truly integrated solar-plus-storage solution.
In Aug. 2018, the company purchased the microinverter assets of Sunpower Corporation's business. The transaction included intellectual property, technology, and a five-year agreement with Sunpower. Sunpower will acquire its module level power electronics and related equipment being used in the United States residential market from Enphase.
Solar system of choice
The home energy solution platform from Enphase is called IQ. According to the company, IQ "brings a high technology, networked approach to solar generation plus energy storage, by leveraging our design expertise across power electronics, semiconductors and cloud-based software technologies."
In essence, it allows a homeowner to acquire a full solar solution, making it a simple process from installation through monitoring with its easy to use cloud-based monitoring platform called Enlighten. This allows one to know if a solar panel isn't working properly in real-time, as well as to track the productivity of the system.
The company began shipping its latest iteration of the system, IQ 7, in the first quarter of 2018 to U.S. distributors and to Europe, Australia, and New Zealand in the second quarter. Year over year revenue increased 43% in the first quarter of 2019 and 77% in the second quarter. With supply constraints being addressed by additional capacity starting up, the revenue growth of approximately 34% sequentially for the second quarter was well ahead of its earlier estimate of 20%. While the company continues to ramp up IQ 7 to satisfy demand, it's already looking to the future with IQ 8 and the Ensemble solution.
The future of energy
The company bills its new Ensemble technology as the future of energy. It wants to see the tech's integration into smart homes and communities both on the grid or in isolation. By integrating solar, storage, and the power grid into a user-friendly system, it gives the homeowner the choice of how to source, store, or sell back energy.
This approach is resonating with customers, as noted above with recently-reported results. Enphase is also managing this success to drive profitability. On July 1, 2019, it announced the first IQ 7 shipments manufactured in Mexico as part of a manufacturing agreement with Flex Ltd. as a way to help mitigate tariff expenses as well as increase supply. Overall expanded capacity will result in a supply of approximately two million microinverters by the fourth quarter, compared to the almost 1.3 million shipped in second quarter.
The increased sales have been coming with improving profitability, too. The chart below shows the company's improving gross margin trends, and Enphase expects a further improvement to a midpoint estimate of 34.5% for the third quarter.
Going off the grid
With the 8th generation microinverter, Enphase stresses that reliability is built in from all the experience developing these systems. For example, it's meant to optimize energy generation and thus save money during normal times, as well as giving the ability for off-grid generation during power emergencies with the Encharge battery. Its Enpower switch automatically isolates the home during blackouts, allowing power to flow from storage. And the IQ Combiner enables connection to the cloud for troubleshooting, while the Enlighten cloud software provides for real-time monitoring of generation, energy usage, connection to the grid, and battery usage.
The initial phase of release in Dec. 2019 of Ensemble will be the Encharge battery for storage and the Enpower switch to control the system. These will be compatible with systems using IQ 6 and IQ 7. The full IQ 8 release will occur next year.
Enphase Energy has made much progress with their microinverter technologies, as can be seen by the strong adoption of IQ 7. The company isn't resting on this success, however. The coming release of Ensemble will offer more residential customers the opportunity to adopt solar, making the entire process seamless, all while providing shareholders increasingly profitable growth.
Even after the stock price increase this year, investors should remain bullish as product demand has been outstripping supply. With the company addressing that bottleneck and mitigating costs in the process, it should lead to continued, profitable growth. A successful adoption of Ensemble will establish if the future of energy will also be a source for the future success of some of your investment dollars.