Sonoma County:  News and Notes

Today we take a look at the earnings of Enphase.  Yesterday the company reported about $90M in Revenue and $0.21 per share loss.  These numbers were at the low end of the range that the company projected at time of reporting its Q3 results.  A bit more troubling is that the company has given guidance for Q1 that is essentially flat with last year and a linear decline from Q4.  On a brighter note, Inventories declined over $7M year over year.  On the other hand, Accounts Receivable went up significantly.  This leads to a bit of concern that there is too much product shipped at the end of the quarter to get paid.

But let us turn our attention to the conference call.  There are several points that I want to highlight here and I think they should lend some light on the path forward.  I have already noted on several occasions that this stock is at high risk.  Nothing on that front has changed.  The question is:  Are there indicators that it will change in the future?

First, the company has issued a claim that it will turn cash flow positive later this year.  Indications would be in the Q3 timeframe, but nothing that specific has been given.  Enphase just had another layoff and claims that this will save about $4.5M per quarter in cost.  This would place Operating Expenses (OPEX) at about $20M.  If we assume that there will not be great expansion of Gross Margins, this would put break even at about $100 - $120M per quarter.  This is not inconceivable with the existing business.

Second, there was a question about competition and this led to a comment about Huawei.  Entry of Huawei into the Solar Business should be considered highly troubling.  One can examine their track record in Telecom and only express concern.  Huawei has driven many competitors out of business by being able to compete at extremely low margins.  Any investor should be alarmed if Huawei enters a market that they are involved in.  Even if they become nothing but a stalking hos, prices are likely to be negatively impacted.

Third, the drop from Q4 to Q1 is blamed on the weather in California.  This is interesting because it is about a 1/3rd drop in the entire business.  The US market accounts for 80% of Enphase's business and California a large chunk of that.  If the statements are correct, we can now pretty accurately judge the impact that California makes on the overall business.

Finally, I think this last bit should also show the current state of the battery business inside of Enphase.  The company talks regularly about how well received the products are.  But there seems to be little to no financial impact of them on the total company.  This implies that the actual sales are quite small.  As an example, Australia is noted as the leading market and its population is less than that of California.  So, we can only take this as leading indicators.  Once the battery business is significant on its own (10% or so of total revenue) then it should have its own reporting line in the quarterly numbers.  Since Storage is not separated out, we have to assume that this is less than $9M of Business quarterly.

So, there it is.  Q2 guidance will be critical as will be any announcements from Huawei.  This is still a high risk play but I hope this gives you some thoughts on how to judge possible futures for the company.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

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