Enphase posts lower Q1 23 earnings, comments on NEM 3.0 market adaptation

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Enphase Energy, a residential inverter and energy storage systems producer, posted revenues slightly lower Q1 2023 revenues of $726 million, below the market consensus forecast of $732 million.

The company shipped 1.96 GWdc of microinverters in the first quarter, a 90% increase compared to 1.03 GWdc shipped in Q1 2022. IQ battery shipments of 102 MWh in Q1 2023 were down 15.3% compared to 120.4 MWh shipped a year ago.

Microinverter sales in the U.S. were 21% less in Q1 23 compared to the last quarter of 2022, while California sales were down only 9% lesser in the same timeframe.

As a result of the slight earnings blip, Enphase’s stock traded down 24% today, from $220 per share yesterday to $166.98 per share today.

Lower guidance

Enphase’s management sees Q2 2023 guidance to revenue of $700 million to $750 million, compared to market consensus of $773 million, and expects to ship 80 MWh to 100 MWh of battery storage in Q2 2023, which is noticeably lower compared to 132.4 MWh batteries shipped a year ago.

In prepared remarks, CEO Badri Kothandaraman said there was some impact due to weather in early Q1 2023, “but the NEM 2.0 rush in Q1 more than compensated for it.”

“California installers took advantage of the NEM 2.0 rush and have built up a solar backlog for the next three to four months,” Kothandaraman said. “We believe when the stockholders aren’t expanding their crews to accelerate installation, they’re laser focused on their cash flow due to the high interest rate environment and are looking clarity — for clarity on the NEM 3.0 demand,” he said.

Enphase battery sales were down 23% in Q1 2023 versus Q4 2022, as installers focused on rolling out new solar systems. The CEO said he expects this trend to continue in the next quarter. “After that, we see NEM 3.0 as a net positive for California and expect strong demand to resume for solar plus storage.”

Kothandaraman said Enphase’s third generation IQ battery has a higher charging and discharging rate compared to previous models, which is  “uniquely beneficial for NEM 3.0 systems in California through its ability to generate revenue by exporting into the grid at the appropriate time.”

“We think our battery is going to be perfect for NEM 3.0, because the increased power of the battery will give the ability to export more energy during the time when the grid needs it in August and September, and people can get paid handsomely for it,” Kothandaraman said in response to a question about battery volume declines by Oppenheimer analyst Colin Rusch.

NEM 3.0 installer base

Enphase provided additional comments on recent forecast changes the company has made due to NEM 3.0 for solar design and software as it applies to its installer base.

In December 2022, the California Public Utilities Commission pulled the plug on the state’s previously lucrative net energy metering framework, voting to cut the average export rate in California from $0.30 per kWh to $0.08 per kWh, with the cuts taking effect on April 15.

Enphase said solar- plus-storage systems under NEM 3.0 can achieve a payback period between six and eight years, depending on the utility. The higher power of its third-generation IQ battery helps to export more energy to the grid and maximize savings,  Kothandaraman said in prepared remarks.

“Selling from NEM 2.0 to NEM 3.0 requires installers to adapt. And now the storage attach is going to be a lot more, it is a change in selling,” Kothandaraman said in response to a California NEM 3.0 question by Deutsche Bank analyst Corinne Blanchard.

“It is a change they are not used to yet. So the next three to four months will be probably well spent in training the installers on how to sell NEM 3.0, because with NEM 3.0 now the consumption of the homeowner is important,” Kothandaraman said.

“My personal opinion is NEM 3.0 — of course, it requires a lot of evangelizing, a lot of selling, but NEM 3.0 will be a catalyst for solar-plus-storage,” Enphase’s executive said.  “Like Germany, if you go look at Germany. Germany, the solar market is over 2 gigawatts, maybe 3 gigawatts right now. The attach rate is over 80%,” he said.

Capacity expansion

Enphase posted 25% higher revenues from its European business, while the U.S. was down 9% in Q1 2023.  The company meanwhile posted to capacity expansion from both sides of the Atlantic, taking stock of both European increase in distributed generation systems in the residential market as well as incentives from the Inflation Reduction Act in the U.S.

During Q1, the company began shipping microinverters from contract manufacturer Flex in Romania. At the Flex factory Enphase increased global capacity to 6 million microinverters per quarter, enabling improved delivery times to European customers, while addressing the region’s rapid growth and demand for residential solar.

New inverter shipments include to customers in France, Germany and Austria.

In April, Enphase began shipping IQ batteries to new customers in France, the Netherlands, and Switzerland, expanding its European presence.

Starting in the Q2 2023, Enphase is adding additional U.S. manufacturing capacity due to the global demand for our products and incentives related to the IRA, which will bring total global quarterly capacity to more than 10 million microinverters exiting 2023.

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