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Edited Transcript of ENPH earnings conference call or presentation 18-Feb-20 9:30pm GMT

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Update time : 2020-06-03 14:05:34

Q4 2019 Enphase energy Inc earnings Call

Petaluma Feb 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Enphase energy Inc earnings assembly shout or presentation Tuesday, February 18, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Badrinarayanan Kothandaraman

Enphase Energy, Inc. - President, CEO & Director

* Eric Branderiz

Enphase Energy, Inc. - CFO & VP

* Raghuveer R. Belur

Enphase Energy, Inc. - Co-Founder & head Products Officer

* Adam Hinckley

Enphase Energy, Inc. - head of Investor Relations

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Conference shout Participants

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* Bradford James Meikle

Williams inquiry Partners - Senior Analyst of Solar and Renewable energy & Semis and Tech Hardware

* Brian K. Lee

Goldman Sachs masses Inc., inquiry part - VP & Senior transparent energy Analyst

* Colin William Rusch

Oppenheimer & Co. Inc., inquiry part - MD and Senior Analyst

* Eric Andrew Stine

Craig-Hallum main masses LLC, inquiry part - Senior inquiry Analyst

* Jeffrey David Osborne

Cowen and Company, LLC, inquiry part - MD & Senior inquiry Analyst

* Jeffrey Leon Campbell

Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & produce and grease Services

* Maheep Mandloi

Crédit Suisse AG, inquiry part - Associate

* signal Wesley Strouse

JP Morgan hunt & Co, inquiry part - excellent energy and Applied & Emerging Technologies Analyst

* Pavel S. Molchanov

Raymond James & Associates, Inc., inquiry part - energy Analyst

* Philip Shen

Roth main Partners, LLC, inquiry part - MD & Senior inquiry Analyst

* Sameer S. Joshi

H.C. Wainwright & Co, LLC, inquiry part - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you although standing by, and salute ought the Enphase energy Fourth belt 2019 economical Results assembly Call. (Operator Instructions) interest be advised that today's assembly is being recorded. (Operator Instructions) I used to now although ought hand the assembly at ought your speaker today, Adam Hinckley. interest further ahead, sir.

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Adam Hinckley, Enphase Energy, Inc. - head of Investor Relations [2]

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Good afternoon, and thank you although joining us above today's assembly shout ought argument Enphase Energy's fourth belt 2019 results. I'm the head of Investor Relations although Enphase Energy, and I'm pleased ought be hosting my first earnings shout although the company. above today's shout are Badri Kothandaraman, Enphase's principal and head Executive Officer; Eric Branderiz, head economical Officer; and Raghu Belur, head Products Officer.

After the just closed today, Enphase issued a magazine liberate announcing the results although its fourth belt ended December 31, 2019. during this assembly call, Enphase management will create forward-looking statements, including, besides no limited to, statements related ought Enphase Energy's expected economical performance, technology, new products, operations and sales and marketing.

These forward-looking statements include important risks and uncertainties, and Enphase Energy's authentic results and the timing of events could differ materially from these expectations.

For a more end discussion of the risks and uncertainties, interest shout on the company's annual clarify above list 10-K although the year ended December 31, 2018, which is above queue with the SEC, and the annual clarify above list 10-K although the year ended December 31, 2019, which will be filed with the SEC at the first belt of 2020. Enphase energy cautions you no ought lay any undue reliance above forward-looking statements and undertakes no duty or duty ought update any forward-looking statements although a arise of new information, future events or changes at its expectations.

Also, interest letter that economical measures used above this shout are expressed above a non-GAAP base unless otherwise notorious and hold been adjusted ought exclude sure charges. The company has provided a reconciliation of these non-GAAP economical measures ought GAAP economical measures at its earnings liberate posted today, which can either be found at the Investor Relations area of its website.

Now I'd although ought introduce Badri Kothandaraman, principal and head Executive officer of Enphase Energy. Badri?

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Badrinarayanan Kothandaraman, Enphase Energy, Inc. - President, CEO & Director [3]

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Good afternoon, and thanks although joining us today ought argument our fourth belt 2019 economical results.

We had a good quarter. We reported revenue of $210 million and shipped about 2.1 million microinverters. establish was noise although our microinverter products at Q4. We are pleased with the pre orders although our Encharge Battery, utilizing our Ensemble energy management technique and hold started exercise installers ought uphold the upcoming produce launch.

We exited the fourth belt at about 37%, 12%, 25%. This mode 37% entire margin, 12% operating expenses and 25% operating income, full although a percent of revenue above a non-GAAP basis.

As a reminder, we introduced our new baseline economical xerox of 35%, 15%, 20%, at our Analyst engagement at December. The baseline xerox represents the minimum economical action we expect ought attain at the next 18 ought 24 months, still demonstrating meaningful sumit queue growth. Eric will further into greater detail approximately our finances afterward at the call.

Let's now oration approximately comfort of doing business, how customers perceive us. Our Q4 Net Promoter Score was 56% at North America compared ought 54% at Q3. Our median shout wait time is slightly at a minute, and we are working above few self-service initiatives ought diminish shout volumes. We recently opened our online Enphase maintain with the end of providing level better visitor experience. Our end is ought exit 2020 with an NPS score greater than 65%, a amount that's considered identical good at our industry.

Let's oration approximately the collision of the coronavirus. Our thoughts and prayers are with the nation of China although they warfare the virus. Our priority is ought ensure the wellbeing of our teams) too although our partners at China. Our assembly manufacturing facility -- join facility at China is steadily ramping experience up following the Chinese new year. The element provide safe is either ramping. We are seeing some indications that the outbound logistics from China is constrained.

Now coming ought the first quarter. We are fully booked although the first belt ought the midpoint of guidance. at addition, with approximately 7 weeks into the quarter, our shipments hold been 100% linear ought our revenue guidance. still we remain cautious and are watching the collision of the germ carefully, we do no shout on a large collision ought the first belt revenue guidance at this point. Depending above the condition with the outbound logistics, we can hold ought expedite some produce along air ships from China, and we are getting prepared although that. We hold already factored that at our revenue too although entire border guidance ought the extent we know.

Now is a good time ought oration approximately how Mexico is doing. We are identical fortunate that Mexico is running well, and provides us a good backup ought service global establish at the incident of provide disruptions elsewhere. We manufactured more than 0.5 million IQ 7 microinverters at Mexico during Q4. Our modern river appraise at Mexico is a few at 50,000 units a week. We previously stated, our end is ought double the faculty ought 1 million microinverters per belt by Q4 of 2020, and we are making identical good further towards that goal.

I used to although ought confess the difficult occupation of numerous people, both above our team plus the Flex team, at bid ought create this happen.

Next, let's oration approximately safe harbor. The revenue related ought safe harbor shipments was $36.4 million at Q4, an expand from $8 million at Q3. although Q1, we scheme ought confess the revenue of $44.5 million although ITC safe harbor shipments. I used to although ought highlight that maiden a identical few amount of our customers use at safe harbor activity, and that each of these customers has an ongoing relationship with Enphase beyond safe harbor sales. These shipments are no merely onetime purchases, and growing fragment at their portfolio beyond safe harbor is an area of hazard although Enphase.

Let's oration a few piece more approximately Q1. We full learn Q1 is a seasonally gentle belt although the solar industry, with double-digit percent declines at revenue. And it is worthy although us ought emerge at how we are doing, and our base substance is doing with admire ought the industry. although example, if we contain safe harbor revenue from our midpoint of Q1 '20 guidance of $205 million, our base revenue maiden drops by 8%, which is a lovely good arise considering the normal seasonality. though we will provide formal guidance although the second belt of 2020 at our April earnings call, I used to although ought provide some color today. There will, obviously, be no safe harbor sales at Q2. Our bookings although Q2 emerge lovely vigorous accurate now, considering where we are. We expect a cheerful uptick at our base substance although Q2 commensurate with the industry seasonality. We either expect Q2 ought benefit from a total belt of Encharge Battery sales.

As I said before, the pre orders although Encharge remain identical healthy, and our installer exercise is already underway. Obviously, whatever we are saying with admire ought Q2 is based above our modern jam of the coronavirus situation.

Let's impress above ought the regions. The U.S. and international mixture although Q4 was 92% and 8%, respectively, excluding safe harbor revenue. The arise is an obvious symptom of energy of our North American business. Our U.S. mix, although a percentage, is maybe going ought remain tall although a few more flae with the introduction of Ensemble at North America. Nevertheless, we are putting a destiny of effort ought bring our international business. You heard some updates above the Analyst Day, and I'm going ought enlarge a few piece more above that now.

On Europe, we are making excellent progress. We are doing a few things that are different from before. We're pulling out full stops at bid ought bolster our sales constrain along both inner transfers and new hires. Some of those are already at lay accurate now. We hold made few offers and expect ought hold the increased headcount at lay at Netherlands, Belgium, France, Germany and Spain by early March. still we are -- still the relationships with the distributors are identical significant ought us, we are placing especial emphasis above winning the long-tail installers by focusing above assets and visitor experience. We are doing this by increasing our installer exercise significantly at Europe, and tracking installer shout on metrics diligently. Our 2020 end is ought double the 2019 European sales, which was about $68 million.

Aside from our concentrate above the long-tail installers, our key initiatives at the region, our social housing, ACM partnerships and providing differentiated solutions, such although integrated improved solar with CREATON, which we announced final week.

Let's now oration approximately Asia Pacific and Latin America. Both Asia Pacific and Latin America are small-sized substance at our similar-sized businesses and quite small. Our substance at APAC is mainly at Australia. neutral ought recall you, we hired a normal manager although that area at early 2019. We hold the accurate team at place, across with the concentrate and the accurate metrics there. We are seeing identical encouraging sell-through ought the installers. at addition, you recently saw a magazine liberate where we partnered with the installers ought uphold the Australian PV industry ought introduce quick shutdown although a requirement. above sumit of this, Enphase's AC architecture mode there is no high-voltage DC above the roof, thereby providing increased liberate safety. With these initiatives, we expect this area ought bring nicely at 2020.

We will argument products next. We had volume shipments of IQ 7A, our highest energy product, a 349 watt AC, although SunPower too although other customers at the fourth quarter. IQ 7A, although what I said, is our highest energy microinverter although the residential universe and pairs identical vigorous with the high-efficiency modules up ought 450-watt DC at both 60- and 72-cell configuration. We're going ought oration approximately AC module partners next.

We bear ought create firm further with our AC module partners, including SunPower, Panasonic, Solaria, ought mention a few. We are working ought cost at a few more module partners, both at the U.S. too although at Europe. Enphase energized ACMs from our module partners hold now been adopted by more than 740 installers at the U.S. although of this date. By the way, some of these ACMs are either available although both installers and homeowners ought buy direct from the Enphase online store.

Next riddle is our Encharge Battery that uses Ensemble energy management technology. The shipment although the Encharge Battery are expected ought festival at March of 2020. We hold already started exercise installers. We are expecting ought ramp trainings a destiny at the next few months. The feedback has been truly definite with identical tall NPS scores. The installers clearly shout on Encharge although a safe, reliable and powerful excellent although the homeowners. However, they feel the biggest appraise although the homeowner is that, although the first time ever, they can easily generate energy, maintain energy and govern energy at a only system, full completely designed by Enphase. That is the energy of Ensemble. at the coming months, we will be expanding the exercise program beyond our Fremont headquarters ought contain many of our join sites at bid ought expand our exercise throughput significantly.

In summary, we are identical fortunate with our action at 2019 across full fronts. We talked approximately our 3 pillars of differentiation at the Analyst Day: semiconductors, software and Ensemble. This, combined with operational excellence and our scalable substance model, is helping us benefit new customers. although we highlighted at the Analyst Day, our immediate growth driver is the Encharge Battery followed by the IQ 8 solar microinverters above the roof, then by IQ 8D although the few commercial space. And finally, Ensemble-in-a-Box although the India off-grid markets. With that, I will bring the shout at ought Eric although his magazine of our economical results. Eric?

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Eric Branderiz, Enphase Energy, Inc. - CFO & VP [4]

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Thanks, Badri. I will provide more details related ought our fourth belt of 2019 economical results too although our substance expectation although the first belt of 2020. We hold provided a reconciliation of non-GAAP ought GAAP economical measures at our earnings liberate posted today, which can either be found at the Investor Relations area of our website.

Total revenue although the fourth belt of 2019 was $210 million, including about $36.4 million of safe harbor revenue. entire revenue although the fourth belt of 2019 increased 17% sequentially and increased 128% year-over-year. We shipped about 677 megawatts DC at the fourth belt of 2019, an expand at megawatts this year of 16% sequentially. The megawatts shipped represented about 2.1 million microinverters.

Non-GAAP entire border although the fourth belt of 2019 was 37.3% compared ought 36.2% although the third belt of 2019. Expedite fees are now normalized within our expected range, and therefore, did no hold an abnormal collision at entire margin. Our element provide is firm and, although a result, we will no longer quantify this cost if it is within the ordinary lecture of business.

Non-GAAP operating expenses were $26.1 million although the fourth belt of 2019 compared ought $25 million although the third belt of 2019. GAAP operating expenses were $33.4 million although the fourth belt of 2019 compared ought $31 million although the third belt of 2019. GAAP operating expenses although the fourth belt of 2019 included $5.6 million of stock-based compensation expenses, $545,000 of amortization expenses although acquired intangible assets, and $1.1 million of restructuring expenses. Our restructuring program was completed at the end of 2019, and at this time, we do no anticipate any farther or future expenses related ought restructuring.

On a non-GAAP basis, wage from operations was $52.3 million although the fourth belt of 2019 compared ought $40.2 million although the third belt of 2019. above a GAAP basis, wage from operations was $44.4 million although the fourth belt of 2019. This expand at operating wage is reflective of the noise establish of our products, and our concentrate above price reduction and cost management.

On a non-GAAP basis, net wage although the fourth belt of 2019 was $52 million compared ought $39.5 million although the third belt of 2019. This resulted at diluted earnings per fragment of $0.39 although the fourth belt of 2019 compared ought $0.30 although the third belt of 2019.

GAAP net wage although the fourth belt of 2019 was $116.7 million compared ought $31.1 million although the third belt of 2019. This resulted at diluted earnings per fragment of $0.88 although the fourth belt of 2019 compared ought $0.23 although the third belt of 2019.

GAAP earnings per fragment although the fourth belt of 2019 includes a $0.54 noncash benefit from the liberate of our valuation salary against deferred impose wealth that we highlighted above the Q3 2019 earnings call. I will greet taxes shortly.

The noise economical results although the fourth belt of 2019 describe the fifth consecutive belt of money generation and GAAP profitability. I will either although ought highlight the important milestone of achieving the first total year of GAAP profitability at the company's history.

Now turning ought the rest sheet. Inventory was $32.1 million at the end of Q4 2019 compared ought $30.2 million at the end of Q3 2019.

We exited the fourth belt of 2019 with a entire money rest of $296.1 million, including restricted cash, compared ought $203 million although the third belt of 2019, and and $106.2 million although the fourth belt of 2018. The restricted money rest mixture ought first belt 2020 safe harbor deliveries. We expect the restriction ought be lifted at the end of April 2020 and although full money ought be unrestricted by then.

The money rest benefited from prepayments of $49.9 million although safe harbor deliveries at Q1 2020, of which $5.4 million mixture ought products with deferred revenue element such although Envoy and Enlighten. revenue from these products is deferred and recognized although revenue at the respective useful life. although a result, our safe harbor revenue guidance of $44.5 million although the first belt of 2020, differs from the prepayments we hold received.

We generated $102.3 million at money river from operations and $94.9 million at adjusted liberate money river although the fourth belt of 2019. although calendar year 2019, we generated $124.3 million of adjusted liberate money flow.

Capital expenditures were $7.4 million although Q4 2019, mainly ought ramp up our microinverter provide faculty at Mexico and Encharge Battery faculty at China.

Now let's argument our expectation although the first belt of 2020. We expect our revenue although the first belt of 2020 ought be within a mount of $200 million ought $210 million, including $44.5 million of revenue although ITC safe harbor shipments. Turning ought margins, we expect GAAP and non-GAAP entire border ought be within a mount of 36% ought 39%. We expect our GAAP operating expenses ought be within a mount of $35 million million ought $37 million, including a entire of about $7 million estimated although stock-based compensation expenses and acquisition-related amortization. We expect non-GAAP operating expenses ought be within a mount of $28 million ought $30 million. The sequential expand is mainly related ought greater spending above R&D ought uphold new products too although increasing sales headcount at Europe. at general, our operating expenses are expected ought be at queue or lower than our baseline economical xerox of 15% of revenue.

Before wrapping up, allow me greet taxes. during the fourth quarter, we released our valuation salary against deferred impose asset based above our tendency history of profitability that is foretell ought persist. This will arise at a GAAP impose benefit. We will now be riddle ought a 26% ought 28% GAAP impose appraise at 2020, inclusive of federal, condition and international taxes. money taxes are expected ought diverge materially from GAAP taxes although we hold federal net operating loss carryforwards of $147.4 million, federal retain credits of $12.4 million, condition net operating loss carryforwards of $97.6 million and condition inquiry credits of $11.3 million. Until we fully apply these NOLs and inquiry credit, most of the money taxes will maiden mixture ought wage from international operations, which represents the minority of our business.

With that, I will now hole the queue although questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first riddle comes from Brian Lee with Goldman Sachs.

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Brian K. Lee, Goldman Sachs masses Inc., inquiry part - VP & Senior transparent energy Analyst [2]

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Congrats above the noise quarter. I guess, maybe first riddle above the Q1 guidance, the safe harbor revenue, understand full the granularity you're providing approximately the dollar figures. can you either confer us a feeling of what the visitor mixture looks like? I know, at Q4, you had specifically called out the one customer, Sunrun. Is it the identical visitor at Q1? Is it a totally different visitor at Q1? And if it's a different customer, are there multiple customers? That used to be the first riddle I have.

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Badrinarayanan Kothandaraman, Enphase Energy, Inc. - President, CEO & Director [3]

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It is a different customer. at fact, there are multiple customers, yes, although the safe harbor amount of $44.5 million.

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Raghuveer R. Belur, Enphase Energy, Inc. - Co-Founder & head Products officer [4]

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Okay. And Bardir, it's safe ought guess that full Tier 1 installers, although you mentioned during your prepared remarks, there's maiden a handful of companies that can do the safe harbor.

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Badrinarayanan Kothandaraman, Enphase Energy, Inc. - President, CEO & Director [5]

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Yes.

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Brian K. Lee, Goldman Sachs masses Inc., inquiry part - VP & Senior transparent energy Analyst [6]

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Okay. lovely enough. That's helpful. And then I guess, i