Enphase Energy: High Interest Rates Bite Into Solar Sales
On April 25, Enphase Energy, Inc. (NASDAQ: ENPH), the world’s leading supplier of micro inverter-based solar and battery systems used in solar power generating systems, reported solid 1Q 2023 results. Revenues reached US$726 million, up 65% from the year-ago period.
Adjusted diluted EPS (which adds back stock-based compensation expense and excludes one-time items) similarly jumped to US$1.37 in 1Q 2023 from US$0.79 in 1Q 2022. However, the company issued weaker 2Q 2023 revenue guidance than expected and noted that the sell-through of micro inverters in the U.S. slowed much more than seasonal norms in the first quarter of 2023 from the fourth quarter of 2022.
This news was enough for investors to sprint to the exits; the stock plunged US$57, or 26%, on April 26 to close at US$164.
ENPHASE ENERGY INC.
| (in thousands of US dollars, except for EPS and shares outstanding) | Twelve Months Ended Mar. 31, 2023 | 1Q 2023 | 4Q 2022 | 3Q 2022 | 2Q 2022 |
| Revenue | $2,615,577 | $726,016 | $724,652 | $634,713 | $530,196 |
| Fully Diluted EPS – Recurring Operations | $5.20 | $1.37 | $1.51 | $1.25 | $1.07 |
| Operating Cash Flow | $888,706 | $246,332 | $253,714 | $188,010 | $200,650 |
| Free Cash Flow (Operating Cash Minus Capex) | $832,062 | $223,756 | $237,285 | $179,062 | $191,959 |
| Cash & Marketable Securities – Period End | $1,778,397 | $1,778,397 | $1,612,843 | $1,417,296 | $1,247,801 |
| Debt – Period End | $1,292,391 | $1,292,391 | $1,290,447 | $1,288,281 | $1,284,215 |
| Fully Diluted Shares Outstanding (Millions) | 145.5 | 146.0 | 146.3 | 146.0 | 143.7 |
The issue for the company seems to be that high interest rates are making the installation of solar systems on homes less rewarding for homeowners. The payments received for selling power into the grid are insufficient compensation for the upfront outlay, as well as the higher annual financing costs. The company specifically cited the approximate US$0.13 per kilowatt-hour (Kwh) rate received for selling solar-generated power into the grid in Texas as being too low.
A bigger issue was likely the 2022 decision by California regulators to implement a less generous net metering rule in the state. Under net metering, some percentage of the energy which a customer’s solar panel system produces but does not use in the home is credited back to the ratepayer. Such credits to California homeowners can be especially large as residential electric rates are in the range of US$0.30 to US$0.40 per Kwh.
Under the revised rules, homeowners who install new solar systems receive 20% to 30% less for selling excess power into the grid than they would have under the prior pricing mechanism, according to ClearView Energy Partners. Homeowners with existing solar systems were grandfathered in; they are still able to receive the richer payouts for the excess electricity they generate.
Not surprisingly, other solar panel installation companies like Sunrun Inc. (NASDAQ: RUN) and SunPower Corporation (NASDAQ: SPWR) sold off sharply on the Enphase news. Those stocks each fell around 9% on April 26.
The adverse revenue trends impacting solar panel installers due to consumers’ tighter economic conditions are quite similar to the difficult conditions in another high-profile energy technology sector, the electric vehicle (EV) industry. EV makers, led by industry leader Tesla, Inc. (NASDAQ: TSLA), are forced to cut prices to attract buyers in these tougher economic times. These lower prices are translating into lower gross margins and lower operating cash flow.
Enphase Energy, Inc. last traded at US$164.20 on the NASDAQ.
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
