Enphase Energy’s Q3/2023 Revenues Impacted

• Enphase Energy has blamed macroeconomic conditions for the decline in its Q3/2023 revenues 
• The US market was pulled down by net metering changes in California, while European business was impacted by high inventory levels 
• Its Q4/2023 guidance is quite conservative with a revenue forecast of $300 million and $350 million 

US-based global solar microinverter supplier Enphase Energy saw its Q3/2023 financials impacted by macroeconomic conditions in the US and Europe as its revenues dropped over 22% YoY to $551.1 million. The US accounted for 64% and rest of the world 36% of the revenues during this quarter. 

In the US, its revenues came down by around 16% QoQ and 22% YoY, driven by the Californian market compared to the previous quarter. Even Europe was a drop of close to 34% QoQ but an improvement of 26% YoY due to high inventory at its distribution partners 'following a softening in demand' in its key markets of the Netherlands, France and Germany.  

Recently, Israeli solar inverter maker SolarEdge lowered its Q3/2023 financial guidance citing unexpected cancellations and pushouts of existing backlogs from European distributors (see Israeli PV Inverter Maker Adjusts Q3/2023 Guidance). 

The company shipped close to 3.9 million microinverters and 86 MWh of batteries with IQ8 microinverters making up 86% shipped. 

With all 3 of its contract manufacturing units online by Q3—Flex in South Carolina, Foxconn in Wisconsin and Salcomp in Texas—it shipped 531,000 microinverters to customers. In Q4, Enphase expects its US facilities to ship around 1 million microinverters. 

Enphase currently has 2 cell pack suppliers, both in China, with a combined manufacturing capacity of 300 MWh/quarter. By mid-2024, it targets to bring IQ battery manufacturing to the US. 

GAAP gross margin for the reporting period improved to 47.5% compared to 45.5% in Q2/2023 and 42.2% in Q3/2022. It exited Q3 with 48% gross margin, 18% operating expense and 30% operating income. 

Strategy 

Calling California a wild card, Enphase President and CEO Badri Kothandaraman said the company is preparing for any shortfall here in the near future expecting Europe to pick up in Q1/2024. Till then its strategy is to undership to Europe till inventory normalizes, which it expects in Q2/2024. 

Speaking to analysts following its Q3/2023 financial results announcement, Kothandaraman said utility rate hikes in France are helpful for solar. It also sees huge opportunity in the Netherlands as well where 2.2 million homes out of around 8 million homes currently use solar power. A net metering resembling that of California is what it expects for the Dutch market where it expects potential for solar and storage 'in all 7 million homes.'  

During Q3/2023, Enphase entered into several new markets, namely Greece, Sweden, Denmark and the UK with both IQ8 microinverters and IQ batteries which together represent more than 1.5 GW of residential solar opportunity for the company. 

Guidance 

A cautious management is guiding for conservative revenues in Q4/2023, even lower than Q3. It now forecasts revenues between $300 million and $350 million with a gross margin of 46% to 49% including net IRA benefit and 38% to 41% before net IRA benefit. The net IRA benefit is likely to be between $26 million and $28 million with an estimated shipment of 1 million units of US manufactured microinverters. 

GAAP operating expenses are estimated to fall within the range of $142 million to $146 million. Both GAAP and non-GAAP annualized effective tax rate with IRA benefit is expected to be within 21% to 23%. 

It will target shipments of 80 MWh to 100 MWh of IQ batteries during the last quarter of the year.  

Roth MKM's Philip Shen expresses concern with pricing since Enphase does not give any indication of an intention to lower prices to clear up the inventory. Shen said with the Tesla inverter-only product ramping, there may be greater risk to pricing going forward.