Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  Enphase Energy, Inc.    ENPH

ENPHASE ENERGY, INC.

(ENPH)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

ENPHASE ENERGY : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/27/2020 | 03:21pm EST
Forward-Looking Statements
The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements reflecting our current
expectations and involves risks and uncertainties. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"intend," "potential" or "continue" or the negative of these terms or other
comparable terminology. Such statements, include but are not limited to
statements regarding our expectations as to the impact of the ongoing COVID-19
pandemic, future financial performance, expense levels, liquidity sources, the
capabilities and performance of our technology and products and planned changes,
timing of new product releases, our business strategies, including anticipated
trends, growth and developments in markets in which we target, the anticipated
market adoption of our current and future products, performance in operations,
including component supply management, product quality and customer service,
impact of current litigation on our business, results of operation, financial
position or cash flows, and the anticipated benefits and risks relating to the
transaction with SunPower Corporation. Our actual results and the timing of
events may differ materially from those discussed in our forward-looking
statements as a result of various factors, including those discussed below and
those discussed in the section entitled "Risk Factors" included in this
Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019.
Overview
We are a global energy technology company. We deliver smart, easy-to-use
solutions that manage solar generation, storage and communication on one
intelligent platform. We revolutionized the solar industry with our
microinverter technology and we produce a fully integrated solar-plus-storage
solution. To date, we have shipped more than 30 million microinverters, and
approximately 1.3 million Enphase residential and commercial systems have been
deployed in more than 130 countries.
We sell our solutions primarily to distributors who resell them to solar
installers. We also sell directly to large installers, OEMs, strategic partners
and homeowners. Our revenue in the first quarter of 2020 was positively impacted
by the scheduled phase-down of the investment tax credit for solar projects
under Section 48(a) (the "ITC") of the Internal Revenue Code of 1986, as amended
(the "Code"). The historical ITC percentage has decreased from 30% to 26% of the
basis of a solar energy system that began construction during 2020, 22% for
2021, and zero for residential and 10% for commercial if construction begins
after 2021 or if the solar energy system is placed into service after 2023. As a
result, several of our customers explored opportunities to purchase products in
2019 to take advantage of safe harbor guidance from the IRS published in June
2018, allowing them to preserve the historical 30% investment tax credit for
solar equipment purchased in 2019 for solar projects that are completed after
December 31, 2019. Safe harbor prepayments from customers in the fourth quarter
of 2019 resulted in $44.5 million of revenue recognized in the first quarter of
2020 when we delivered the product.
On March 9, 2020, we issued $320.0 million aggregate principal amount of our
Convertible Senior Notes due 2025 (the "Notes due 2025") in a private placement.
The Notes due 2025 are general unsecured obligations and bear interest at a rate
of 0.25% per year, payable semi-annually on March 1 and September 1 of each
year, beginning on September 1, 2020. The Notes due 2025 will mature on March 1,
2025, unless earlier repurchased by us or converted at the option of the
holders. Further information relating to the Notes due 2025 may be found in
Note 8, "Debt," of the notes to condensed consolidated financial statements
included in Part I, Item 1 of this Form 10-Q and below under the section titled
"- Liquidity and Capital Resources."




                   Enphase Energy, Inc. | 2020 Form 10-Q | 30

--------------------------------------------------------------------------------

Table of Contents


On March 26, 2020, the Office of the United States Trade Representative (the
"USTR") announced certain exclusion requests related to tariffs on Chinese
imported microinverter products that fit the dimensions and weight limits within
a Section 301 Tariff exclusion under U.S. note 20(ss)(40) to subchapter III of
chapter 99 of the Harmonized Tariff Schedule of the United States (the "Tariff
Exclusion"). The Tariff Exclusion applies to covered products under the China
Section 301 Tariff Actions ("Section 301 Tariffs") taken by the USTR exported
from China to the United States from September 24, 2018 until August 7, 2020.
Accordingly, we sought refunds totaling approximately $39 million plus accrued
interest on tariffs previously paid from September 24, 2018 to March 31, 2020
for certain microinverters that qualify for the Tariff Exclusion. The refund
request is subject to review and approval by the U.S. Customs and Border
Protection; therefore, we have assessed the probable loss recovery in the three
and nine months ended September 30, 2020 is equal to the approved refund
requests available to us prior to issuance of the financial statements on
October 27, 2020.
As of September 30, 2020, we have received $16.0 million of tariff refunds and
accrued for $7.0 million tariff refunds that were approved, however, not yet
received on or before September 30, 2020. As of both the three and nine months
ended September 30, 2020, we have recorded $23.0 million as a reduction to cost
of revenues in our condensed consolidated statements of operations as the
approved refunds relate to paid tariffs previously recorded to cost of revenues;
therefore, we recorded the corresponding approved tariff refunds as credits to
cost of revenues in the current period. The tariff refund receivable of $7.0
million is recorded as a reduction of accounts payable to Flex Ltd. and
affiliates ("Flex"), our manufacturing partner and the importer of record who
will first receive the tariff refunds, on the condensed consolidated balance
sheet as of September 30, 2020. Potential tariff refunds not recorded as of
September 30, 2020 totaled approximately $16.0 million plus accrued interest and
will be recognized as a reduction to cost of revenues if and when approved.
Although we feel the requests for refunds are supportable, we cannot be sure
such requests will not be challenged by the government. We are also unable to
predict the timing of receipt of any amounts approved.
The Tariff Exclusion expired on August 7, 2020 and those microinverter products
now are subject to tariffs. We continue to pay Section 301 Tariffs on our
storage and communication products and other accessories imported from China
which are not subject to the Tariff Exclusion.
Impact of COVID-19
The ongoing COVID-19 pandemic ("COVID-19") continues to cause disruptions and
uncertainties, including in the core markets in which we operate. The COVID-19
pandemic has significantly curtailed the movement of people, goods and services
and had a notable impact on general economic conditions including but not
limited to the temporary closures of many businesses, "shelter in place" orders
and other governmental regulations, and reduced consumer spending. The most
significant near-term impacts of COVID-19 on our financial performance are a
decline in sales orders as future residential and commercial system owners are
canceling sales meetings with system installation professionals or postponing
system installations. As the purchase of new solar energy management solutions
declines as part of the impact of COVID-19 on consumer spending, many businesses
through which we distribute our products are working at limited operational
capacity. The extent of the impact of COVID-19 on our future operational and
financial performance will depend on various future developments, including the
duration and spread of the outbreak, impact on our employees, impact on our
customers, effect on our sales cycles or costs, and effect on our supply chain
and vendors, all of which are uncertain and cannot be predicted, but which could
have a material adverse effect on our business, results of operations or
financial condition. Further information relating to the risks and uncertainties
related to the ongoing COVID-19 pandemic may be found in Part II, Item 1A "Risk
Factors" of this Form 10-Q, as well as in the "Risk Factors" section in our 2019
Annual Report on Form 10-K that could be heightened due to duration and spread,
among other impacts of the pandemic.
Products
We design, develop, manufacture and sell home energy solutions that manage
energy generation, energy storage and control and communications on one
intelligent platform. We have revolutionized the solar industry by bringing a
systems approach to solar technology and by pioneering a semiconductor-based
microinverter that converts energy at the individual solar module level and,
combined with our proprietary networking and software technologies, provides
advanced energy monitoring and control. This is vastly different than a central
inverter system using string modules, with or without an optimizer, approach
that only converts energy of the entire array of solar modules from a single
high voltage electrical unit and lacks intelligence about the energy producing
capacity of the solar array.



                   Enphase Energy, Inc. | 2020 Form 10-Q | 31

--------------------------------------------------------------------------------

Table of Contents


The Enphase Home Energy Solution with IQ™ platform enables self-consumption and
delivers our core value proposition of yielding more energy, simplifying design
and installation, and improving system uptime and reliability. The IQ™ family of
microinverters, like all of our previous microinverters, is fully compliant with
NEC 2014 and 2017 rapid shutdown requirements. Unlike string inverters, this
capability is built-in, with no additional equipment necessary.
Our integrated approach to energy management helps to facilitate ease of
installation and optimizing a home's energy usage. Enphase's Always-On connected
system also provides advanced monitoring and remote maintenance capabilities.
The Enphase Home Energy Solution with IQ uses a single technology platform for
seamless management of the whole solution, enabling rapid commissioning with the
Installer Toolkit™; consumption monitoring with our Enphase Combiner 3C™ that
includes the Envoy™ Communications Gateway, Enphase Enlighten™, a cloud-based
energy management platform, Enphase IQ Combiner 3C™, designed to provide an
uninterrupted connectivity to Enphase Enlighten, and our Enphase AC Battery™.
System owners can use Enphase Enlighten to monitor their home's solar
generation, energy storage and consumption from any web-enabled device. Unlike
some of our competitors, who utilize a traditional inverter, or offer separate
components of solutions, we have built-in system redundancy in both photovoltaic
("PV") generation and energy storage, eliminating the risk that comes with a
single-point of failure. Further, the nature of our cloud-based, monitored
system allows for remote firmware and software updates, enabling cost-effective
remote maintenance and ongoing utility compliance.
The Enphase IQ 7™ microinverter and Enphase IQ 7+™ microinverter, part of our
seventh-generation IQ™ product family, support high-powered 60-cell and 72-cell
solar modules and integrate with alternating current ("AC") modules. Our IQ 7X™
product addresses 96-cell PV modules up to 400W direct current ("DC") and with
its 97.5 percent California Energy Commission ("CEC") efficiency rating, is
ideal for integration into high power modules. Our IQ 7A™ microinverters are for
solar modules up to 450 W, targeting high-power residential and commercial
applications. Our customers should be able to pair the IQ 7A microinverter with
monofacial or bifacial solar modules, up to 450 W, from solar module
manufacturers who are expected to introduce high-power variants of their
products in the next three years.
AC Module (ACM) products are integrated systems which allow installers to be
more competitive through improved logistics, reduced installation times, faster
inspection and training. We continued to make steady progress during the third
quarter of 2020 with our ACM partners, including SunPower, Panasonic Corporation
of North America, LONGi Solar, Solaria Corporation, Hanwha Q CELLS, and Maxeon
Solar Technologies. We announced during the third quarter of 2020 a strategic
partnership with Sonnenstromfabrik (CS Wismar GmbH), one of Europe's most
modern, high-quality manufacturers of solar modules, to develop the first
high-efficiency Enphase Energized™ ACM for the European residential solar
market. These ACMs are available in Germany, Belgium, France, and the
Netherlands.
Our next-generation battery in North America is Enphase Encharge 10™ or Encharge
3™ storage systems, with usable and scalable capacity of 10.1 kWh and 3.4 kWh,
respectively. Enphase Encharge™ storage systems feature Enphase embedded
grid-forming microinverters that enable the Always-On capability that keeps
homes powered when the grid goes down, and the ability to save money when the
grid is up. These systems are compatible with both new and existing Enphase IQ
solar systems with IQ 6™ or IQ 7™ microinverters and provide a simple upgrade
path for our existing solar customers. We started production shipments of
Enphase Encharge storage systems to customers in North America during the second
quarter of 2020.
Our next-generation IQ 8™ system is based upon our Always On Enphase Ensemble™
energy management technology. This system has five components: 1) energy
generation, which is accomplished with the grid-agnostic microinverter IQ 8; 2)
energy storage, which is achieved by the Encharge™ battery with capacities of
10.1 kWh and 3.4 kWh; 3) Enpower™ smart switch, which includes a microgrid
interconnect device (MID); 4) communication and control via the combiner box
with the Envoy gateway; and 5) Enlighten, which is the internet of things, or
IoT, cloud software.



                   Enphase Energy, Inc. | 2020 Form 10-Q | 32

--------------------------------------------------------------------------------

Table of Contents


Results of Operations
Net Revenues
                Three Months Ended                              Nine Months Ended
                  September 30,             Change in             September 30,           Change in
                2020          2019          $          %        2020         2019          $        %
                                         (In thousands, except percentages)

Net revenues $ 178,503$ 180,057$ (1,554 ) (1 )% $ 509,586$ 414,301$ 95,285 23 %



Three months ended September 30, 2020 and 2019
Net revenues decreased by 1% or $1.6 million for the three months ended
September 30, 2020, as compared to the same period in 2019, primarily due to the
20% decrease in microinverter unit volume shipped globally, partially offset by
shipments of our Enphase Encharge storage systems to customers in North America.
We sold approximately 1,443 thousand microinverter units in the three months
ended September 30, 2020, as compared to approximately 1,796 thousand
microinverter units in the same period in 2019.
Nine months ended September 30, 2020 and 2019
Net revenues increased by 23% or $95.3 million for the nine months ended
September 30, 2020, as compared to the same period in 2019, primarily due to the
12% increase in microinverter unit volume shipped primarily as a result of
business growth in the U.S., higher microinverter units shipped in the first
quarter of 2020 as our customers took advantage of safe harbor guidance from the
IRS and shipments of our Enphase Encharge storage systems to customers in North
America. We sold approximately 4,543 thousand microinverter units in the nine
months ended September 30, 2020, as compared to approximately 4,056 thousand
microinverter units in the same period in 2019.
Cost of Revenues and Gross Profit
                    Three Months Ended                                     

Nine Months Ended

                      September 30,                Change in                 September 30,               Change in
                    2020         2019            $            %           2020          2019           $           %
                                                   (In thousands, except 

percentages)

Cost of revenues $ 83,522$ 115,351$ (31,829 )       (28 )%   $ 285,543$ 270,937$ 14,606          5 %
Gross profit       94,981        64,706        30,275          47  %     224,043       143,364       80,679         56 %
Gross margin         53.2 %        35.9 %                                   

44.0 % 34.6 %



Three months ended September 30, 2020 and 2019
Cost of revenues decreased by 28% or $31.8 million for the three months ended
September 30, 2020, as compared to the same period in 2019, primarily due to
$23.0 million in refunds approved for tariffs previously paid on certain
microinverter products that meet the definition of the Tariff Exclusion, which
is recorded as a reduction to our cost of revenues. Of the $39 million total
refund sought, we have received an approval for $23.0 million through October
27, 2020, of which we had received $16.0 million in the three months ended
September 30, 2020. In addition, the decline in cost of revenue period over
period is due to a decrease in the unit cost of our products as a result of our
cost reduction efforts and decrease in the volume of microinverter units sold,
partially offset by shipments of our Enphase Encharge storage systems to
customers in North America. The Tariff Exclusion expired on August 7, 2020.
Gross margin increased by 17.3 percentage points for the three months ended
September 30, 2020, as compared to the same period in 2019. The increase in
gross margin was primarily attributable to the $23.0 million in refunds approved
for tariffs mentioned above as well as our overall pricing and cost management
efforts, including the transition of our contract manufacturing to Mexico to
mitigate tariffs, partially offset by a higher fixed costs per unit due to lower
volume.
Nine months ended September 30, 2020 and 2019
Cost of revenues increased by 5% or $14.6 million for the nine months ended
September 30, 2020, as compared to the same period in 2019, primarily due to
higher volume of microinverter units sold and shipments of our Enphase Encharge
storage systems primarily as a result of business growth in the U.S., as well as
higher units shipped in the first quarter of 2020 as our customers took
advantage of safe harbor guidance from the IRS, partially offset by the $23.0
million in refunds approved for tariffs mentioned above and a decrease in the
unit cost of our products as a result of our cost reduction efforts.




                   Enphase Energy, Inc. | 2020 Form 10-Q | 33

--------------------------------------------------------------------------------

Table of Contents


Gross margin increased by 9.4 percentage points for the nine months ended
September 30, 2020, as compared to the same period in 2019. The increase in
gross margin was primarily attributable to the $23.0 million in refunds approved
for tariffs mentioned above as well as our overall pricing and cost management
efforts, including the transition of our contract manufacturing to Mexico to
mitigate tariffs.
Research and Development
               Three Months Ended                                  Nine 

Months Ended

                 September 30,               Change in               September 30,              Change in
               2020          2019          $            %          2020         2019          $           %
                                            (In thousands, except percentages)
Research
and
development $  15,052$ 11,085$  3,967          36 %   $ 40,120$ 29,213$ 10,907         37 %
Percentage
of net
revenues            8 %          6 %                                   8 %          7 %


Three months ended September 30, 2020 and 2019
Research and development expense increased by 36% or $4.0 million for the three
months ended September 30, 2020, as compared to the same period in 2019. The
increase was primarily due to $4.3 million higher personnel-related expenses
associated with the innovation and development, introduction and qualification
of new products, partially offset by a $0.3 million reduction in travel
expenditure as we implemented travel restrictions prohibiting all non-essential
business travel. The increase in personnel-related expenses was primarily due to
hiring employees in New Zealand, India and U.S., increasing total compensation
costs. The amount of research and development expenses may fluctuate from period
to period due to differing levels and stages of development activity.
Nine months ended September 30, 2020 and 2019
Research and development expense increased by 37% or $10.9 million for the nine
months ended September 30, 2020, as compared to the same period in 2019. The
increase was primarily due to $9.8 million higher personnel-related expenses and
$1.5 million of outside consulting, engineering services and equipment
associated with the innovation and development, introduction and qualification
of new products, partially offset by a $0.4 million reduction in travel
expenditure as we implemented travel restrictions prohibiting all non-essential
business travel. The increase in personnel-related expenses was primarily due to
hiring employees in New Zealand, India and US, increasing total compensation
costs. The amount of research and development expenses may fluctuate from period
to period due to differing levels and stages of development activity.
Sales and Marketing
               Three Months Ended                                   Nine Months Ended
                  September 30,               Change in               September 30,              Change in
                2020          2019          $            %          2020         2019          $           %
                                             (In thousands, except percentages)
Sales and
marketing   $   14,645$  9,551$  5,094          53 %   $ 38,788$ 26,038$ 12,750         49 %
Percentage
of net
revenues             8 %          5 %                                   8 %          6 %


Three months ended September 30, 2020 and 2019
Sales and marketing expense increased by 53% or $5.1 million for the three
months ended September 30, 2020 as compared to the same period in 2019. The
increase was primarily due to $3.7 million of higher personnel-related expenses
as a result of our efforts to improve customer experience by hiring additional
employees to reduce the average call wait time for customers, as well as support
our business growth in the U.S. and international expansion in Europe, and $1.8
million for a combination of higher marketing expenses, professional services,
advertising costs and facilities costs to enable business growth, partially
offset by $0.4 million reduction in travel expenditure as we implemented travel
restrictions prohibiting all non-essential business travel and converting where
possible our in-person sales, trainings and marketing events to virtual-only due
to COVID-19.




                   Enphase Energy, Inc. | 2020 Form 10-Q | 34

--------------------------------------------------------------------------------

Table of Contents


Nine months ended September 30, 2020 and 2019
Sales and marketing expense increased by 49% or $12.8 million for the nine
months ended September 30, 2020 as compared to the same period in 2019. The
increase was primarily due to $9.9 million of higher personnel-related expenses
as result of our efforts to improve customer experience by hiring additional
employees to reduce the average call wait time for customers, as well as support
our business growth in the U.S. and international expansion in Europe, and $3.3
million for a combination of higher marketing expenses, professional services,
advertising costs and facilities costs to enable business growth, partially
offset by $0.5 million reduction in travel expenditure as we implemented travel
restrictions prohibiting all non-essential business travel and converting where
possible our in-person sales, trainings and marketing events to virtual-only due
to COVID-19.
General and Administrative
                  Three Months Ended                                   Nine Months Ended
                     September 30,               Change in               September 30,              Change in
                   2020          2019          $            %          2020         2019          $           %
                                                (In thousands, except percentages)
General and
administrative $   13,525$  9,895$  3,630          37 %   $
37,810     $ 28,358$  9,452         33 %
Percentage of
net revenues            8 %          5 %                                   7 %          7 %


Three months ended September 30, 2020 and 2019
General and administrative expense increased 37% or $3.6 million for the three
months ended September 30, 2020, as compared to the same period in 2019. The
increase was primarily due to $2.4 million of higher personnel-related expenses,
$0.9 million of higher legal and professional services and $0.4 million of other
corporate costs to support our business growth, partially offset by $0.1 million
reduction in travel expenditures as we implemented travel restrictions
prohibiting all non-essential business travel in response to COVID-19.
Nine months ended September 30, 2020 and 2019
General and administrative expense increased 33% or $9.5 million for the nine
months ended September 30, 2020, as compared to the same period in 2019. The
increase was primarily due to $7.9 million of higher personnel-related expenses,
$1.0 million of higher legal and professional services and, $0.9 million of
other operational and facilities costs to support our business growth, partially
offset by $0.3 million reduction in travel expenditures as we implemented travel
restrictions prohibiting all non-essential business travel in response to
COVID-19.
Restructuring Charges
                      Three Months Ended                                         Nine Months Ended
                         September 30,                     Change in               September 30,               Change in
                       2020               2019          $            %           2020          2019          $            %
                                                     (In thousands, except percentages)
Restructuring
charges       $        -               $    469$   (469 )      (100 )%   $       -     $  1,468$ (1,468 )     (100 )%


Three months ended September 30, 2020 and 2019
We completed our 2018 restructuring plan in 2019, hence we incurred no
restructuring expenses during the three months ended September 30, 2020.
Restructuring charges for three months ended September 30, 2019 primarily
included $0.5 million of one-time termination benefits and other
employee-related expenses under our 2018 Plan.
Nine months ended September 30, 2020 and 2019
We completed our 2018 restructuring plan in 2019, hence we incurred no
restructuring expenses during the nine months ended September 30, 2020.
Restructuring expense for the nine months ended September 30, 2019 primarily
include $1.6 million of one-time termination benefits and other employee-related
expenses under our 2018 Plan, partially offset by a $0.1 million reduction in
lease loss reserve.



                   Enphase Energy, Inc. | 2020 Form 10-Q | 35

--------------------------------------------------------------------------------

Table of Contents

Other Expense, Net

                Three Months Ended                                   Nine 

Months Ended

                  September 30,               Change in                September 30,                Change in
                2020          2019          $            %          2020          2019            $            %
                                               (In thousands, except percentages)
Interest
income       $     110$    894$   (784 )      (88 )%   $   1,483$   1,698$    (215 )      (13 )%
Interest
expense         (5,993 )     (2,286 )     (3,707 )      162  %     (15,100 )      (7,388 )      (7,712 )      104  %
Other
expense, net    (1,031 )       (943 )        (88 )        9  %      (1,302 )      (6,904 )       5,602        (81 )%
Change in
fair value
of
derivatives          -            -            -        **       $ (44,348 )   $       -     $ (44,348 )      **
Total other
expense, net $  (6,914 )$ (2,335 )$ (4,579 )     (196 )%   $ (59,267 )$ (12,594 )$ (46,673 )     (371 )%





**  Not meaningful
Three months ended September 30, 2020 and 2019
Interest income of $0.1 million for the three months ended September 30, 2020
decreased, as compared to $0.9 million in the same period in 2019, primarily due
to significant decline in interest rates earned on cash balances, partially
offset by higher average cash balance earning interest in the three months ended
September 30, 2020 compared to the same period in 2019.
Interest expense of $6.0 million for the three months ended September 30, 2020
primarily includes $5.8 million related to the accretion of the debt discount,
amortization of debt issuance cost and coupon interest incurred associated with
our Notes due 2024 and Notes due 2025, interest expense of $0.1 million related
to coupon interest incurred and amortization of debt issuance costs associated
with our Notes due 2023 and $0.1 million of interest expense related to
long-term financing receivable recorded as debt. Interest expense of
$2.3 million for the three months ended September 30, 2019 primarily includes
$2.0 million related to the accretion of the debt discount, amortization of debt
issuance cost and coupon interest incurred associated with our Notes due 2024,
$0.2 million interest expense related to long-term financing receivable recorded
as debt and interest expense of $0.1 million related to coupon interest incurred
and amortization of debt issuance costs associated with our Notes due 2023.
Other expense, net of $1.0 million for the three months ended September 30,
2020, relates to a net loss related to foreign currency exchange and
remeasurement. Other expense, net of $0.9 million for the three months ended
September 30, 2019, primarily relates to a net loss related to foreign currency
exchange and remeasurement.
Nine months ended September 30, 2020 and 2019
Interest income of $1.5 million for the nine months ended September 30, 2020
decreased, as compared to $1.7 million in the same period in 2019, primarily due
to significant decline in interest rates earned on cash balances, partially
offset by a higher average cash balance earning interest in the nine months
ended September 30, 2020 compared to the same period in 2019.
Interest expense of $15.1 million for the nine months ended September 30, 2020
primarily includes $14.5 million related to the accretion of the debt discount,
amortization of debt issuance cost and coupon interest incurred associated with
our Notes due 2024 and Notes due 2025, $0.4 million of interest expense related
to long-term financing receivable recorded as debt and interest expense of
$0.2 million related to coupon interest incurred and amortization of debt
issuance costs associated with our Notes due 2023. Interest expense of
$7.4 million for the nine months ended September 30, 2019 primarily
includes $3.4 million related to the repayment of our term loans,
$2.6 million related to the accretion of the debt discount, amortization of debt
issuance cost and coupon interest incurred associated with our Notes due 2024,
and interest expense of $1.4 million related to coupon interest incurred and
amortization of debt issuance costs associated with our Notes due 2023.
Other expense, net of $1.3 million for the nine months ended September 30, 2020
primarily relates to the net loss related to foreign currency exchange and
remeasurement. Other expense, net of $6.9 million for the nine months ended
September 30, 2019 primarily relates to the $6.0 million fees paid for the
repurchase and exchange of our Notes due 2023 and $0.9 million net loss related
to foreign currency exchange and remeasurement.
Change in fair value of derivatives of $44.3 million for the nine months ended
September 30, 2020 primarily includes the charge recognized for the change in
fair value of our convertible notes embedded derivative and warrants




                   Enphase Energy, Inc. | 2020 Form 10-Q | 36

--------------------------------------------------------------------------------

Table of Contents


of $47.6 million and $24.7 million, respectively. This charge is partially
offset by a gain recognized for the change in fair value of our convertible
notes hedge of $28.0 million. See Note 8, "Debt," of the notes to condensed
consolidated financial statements included in Part I, Item 1 of this Form 10-Q
for additional information.
Income Tax Benefit (Provision)
                Three Months Ended                                  Nine Months Ended
                  September 30,                Change in              September 30,               Change in
                2020           2019          $           %          2020          2019          $           %
                                             (In thousands, except percentages)
Income tax
benefit
(provision) $    (5,483 )$   (272 )$ (5,211 )      **      $  12,946$ (1,211 )$ 14,157        **





**  Not meaningful
Three months ended September 30, 2020 and 2019
The income tax provision of $5.5 million for the three months ended
September 30, 2020, calculated using the annualized effective tax rate method,
increased compared to the income tax provision of $0.3 million in 2019,
calculated using the discrete tax approach, which is due to higher projected tax
expense in the U.S. and foreign jurisdictions that are profitable in 2020
compared to 2019, partially offset by increased tax deduction of stock based
compensation.
Nine months ended September 30, 2020 and 2019
The income tax benefit of $12.9 million for the nine months ended September 30,
2020, calculated using the annualized effective tax rate method, increased
compared to the income tax provision of $1.2 million in 2019, calculated using
the discrete tax approach, which is due to tax deduction from employee stock
compensation as a discrete event in the nine months ended September 30, 2020,
partially offset by higher projected tax expense in the U.S. and foreign
jurisdictions that are profitable in 2020 compared to 2019.
Liquidity and Capital Resources
Sources of Liquidity
As of September 30, 2020, we had $593.7 million in working capital, including
cash and cash equivalents of $661.8 million, of which approximately
$654.3 million were held in the U.S. Our cash and cash equivalents primarily
consist of U.S. government money market mutual funds and both interest-bearing
and non-interest-bearing deposits, with the remainder held in various foreign
subsidiaries. We consider amounts held outside the U.S. to be accessible and
have provided for the estimated U.S. income tax liability associated with our
foreign earnings. However, our liquidity may be negatively impacted if sales
decline significantly for an extended period due to the impact of the ongoing
COVID-19 pandemic. While we have experienced delays in collections from certain
customers due to COVID-19, we believe we will be able to meet our anticipated
cash needs for at least the next 12 months. Further, the extent to which the
ongoing COVID-19 pandemic and our precautionary measures in response thereto
impact our business and liquidity will depend on future developments, which are
highly uncertain and cannot be precisely predicted at this time.
Convertible Notes
Notes due 2023. As of September 30, 2020, we had $5.0 million aggregate
principal amount of our Notes due 2023 outstanding. The Notes due 2023 are
general unsecured obligations and bear interest at a rate of 4.00% per year,
payable semi-annually on February 1 and August 1 of each year. The Notes due
2023 will mature on August 1, 2023, unless earlier repurchased by us or
converted at the option of the holders.
Notes due 2024. As of September 30, 2020, we had $132.0 million aggregate
principal amount of our Notes due 2024 outstanding. The Notes due 2024 are
general unsecured obligations and bear interest at a rate of 1.0% per year,
payable semi-annually on June 1 and December 1 of each year. The Notes due
2024 will mature on June 1, 2024, unless earlier repurchased by us or converted
at the option of the holders at a conversion price of $20.50 per share.




                   Enphase Energy, Inc. | 2020 Form 10-Q | 37

--------------------------------------------------------------------------------

Table of Contents


The Notes due 2024 may be converted on any day prior to the close of business on
the business day immediately preceding December 1, 2023, in multiples
of $1,000 principal amount, at the option of the holder only under any of the
following circumstances: (1) during any calendar quarter commencing after the
calendar quarter ending on September 30, 2019 (and only during such calendar
quarter), if the last reported sale price of the our common stock for at least
20 trading days (whether or not consecutive) during a period of 30 consecutive
trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to $26.6513 (130% of the
conversion price) on each applicable trading day; (2) during the five business
day period after any five consecutive trading day period (the "measurement
period") in which the "trading price" (as defined in the relevant indenture)
per $1,000 principal amount of notes for each trading day of the measurement
period was less than 98% of the product of the last reported sale price of the
our common stock and the conversion rate on each such trading day; or (3) upon
the occurrence of specified corporate events. Upon conversion of any of the
notes, we will pay or deliver, as the case may be, cash, shares of common stock
or a combination of cash and common stock, at our election.
From April 1, 2020 through December 31, 2020, the Notes due 2024 may be
converted because the last reported sale price of our common stock for at least
20 trading days during a period of 30 consecutive trading days ending on March
31, 2020, June 30, 2020 and September 30, 2020 was greater than or equal to
$26.6513 on each applicable trading day. Upon conversion of any of the notes, we
will pay or deliver, as the case may be, cash, shares of common stock or a
combination of cash and common stock, at our election.
In connection with the offering of the Notes due 2024, we entered into
privately-negotiated convertible note hedge transactions in order to reduce the
potential dilution to our common stock upon any conversion of the Notes due
2024. Also, concurrently with the offering of the Notes due 2024, we entered
into privately-negotiated warrant transactions whereby we issued warrants to
effectively increase the overall conversion price of Notes due 2024 from
$20.5010 to $25.2320.
As of October 27, 2020, we've received the request for conversion of
approximately $5.4 million in principal amount of Notes due 2024, of which we
have elected to settle the aggregate principal amount of the Notes due 2024 in a
combination of cash and any excess in shares of our common stock in accordance
with the applicable indenture. Such conversion will be settled in December 2020.
We may purchase shares under the convertible note hedge to the extent shares of
our common stock are issued for the additional conversion amount due over the
principal amount. As of October 27, 2020, we had not purchased any shares under
the convertible note hedge and the warrants had not been exercised and remain
outstanding. If we receive additional request for conversion from the holders of
the Notes due 2024 to exercise their right to convert the debt to equity we have
asserted our intent and ability to settle the $132.0 million aggregate principal
amount of the Notes due 2024 in cash.
Notes due 2025. As of September 30, 2020, we had $320.0 million aggregate
principal amount of our Notes due 2025 outstanding. The Notes due 2025 are
general unsecured obligations and bear interest at a rate of 0.25% per year,
payable semi-annually on March 1 and September 1 of each year, beginning on
September 1, 2020. The Notes due 2025 will mature on March 1, 2025, unless
earlier repurchased by us or converted at the option of the holders at a
conversion price of $81.54 per share.
The Notes due 2025 may be converted on any day prior to the close of business on
the business day immediately preceding September 1, 2024, in multiples of
$1,000 principal amount, at the option of the holder only under any of the
following circumstances: (1) during any calendar quarter commencing after the
calendar quarter ending on June 30, 2020 (and only during such calendar
quarter), if the last reported sale price of the our common stock for at least
20 trading days (whether or not consecutive) during a period of 30 consecutive
trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to $81.5400 (130% of the
conversion price) on each applicable trading day; (2) during the five business
day period after any five consecutive trading day period (the "measurement
period") in which the "trading price" (as defined in the relevant indenture) per
$1,000 principal amount of notes for each trading day of the measurement period
was less than 98% of the product of the last reported sale price of the our
common stock and the conversion rate on each such trading day; or (3) upon the
occurrence of specified corporate events. On and after September 1, 2024 until
the close of business on the second scheduled trading day immediately preceding
the maturity date of March 1, 2025, holders may convert their notes at any time,
regardless of the foregoing circumstances. Upon the occurrence of a fundamental
change (as defined in the relevant indenture), holders may require the Company
to repurchase all or a portion of their Notes due 2025 for cash at a price equal
to 100% of the principal amount of the notes to be repurchased plus any accrued
and unpaid interest to, but excluding, the fundamental change repurchase date.




                   Enphase Energy, Inc. | 2020 Form 10-Q | 38

--------------------------------------------------------------------------------

Table of Contents


In connection with the offering of the Notes due 2025, we entered into
privately-negotiated convertible note hedge transactions in order to reduce the
potential dilution to our common stock upon any conversion of the Notes due
2025. The total cost of the convertible note hedge transactions was
approximately $89.1 million. Also, concurrently with the offering of the Notes
due 2025, we entered into privately-negotiated warrant transactions whereby we
issued warrants to acquire shares of our common stock at a strike price of
$106.9400 rather than the Notes due 2025 conversion price of $81.5400. We
received approximately $71.6 million from the sale of the warrants.
As of October 27, 2020, the Notes due 2025 were not convertible, therefore, we
had not purchased any shares under the convertible note hedge and the warrants
had not been exercised and remain outstanding. If holders of the Notes due 2025
are able to convert the debt to equity, and exercise that right, we have
asserted our intent and ability to settle the $320.0 million aggregate principal
amount of the Notes due 2025 in cash. See Note 8, "Debt," of the notes to
condensed consolidated financial statements included in Part I, Item 1 of this
Form 10-Q for more information relating to the convertible note hedge
transactions and warrants.
Cash from operations could be affected by various risks and uncertainties,
including, but not limited to, the effects of COVID-19 and other risks detailed
in Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q, as
well as in the "Risk Factors" section in our 2019 Annual Report on Form 10-K. We
believe that our cash flow from operations with existing cash and cash
equivalents will be sufficient to meet our anticipated cash needs for at least
the next 12 months and thereafter for the foreseeable future. Our future capital
requirements will depend on many factors including our growth rate, the timing
and extent of spending to support development efforts, the expansion of sales
and marketing activities, the introduction of new and enhanced products, the
costs to acquire or invest in complementary businesses and technologies, the
costs to ensure access to adequate manufacturing capacity, the continuing market
acceptance of our products and macroeconomic events such as the impacts from
COVID-19. We may also choose to seek additional equity or debt financing. In the
event that additional financing is required from outside sources, we may not be
able to raise it on terms acceptable to us or at all. If we are unable to raise
additional capital when desired, our business, operating results, and financial
condition may be adversely affected.
Cash Flows. The following table summarizes our cash flows for the periods
presented:
                                             Nine Months Ended
                                               September 30,
                                             2020          2019
                                               (In thousands)

Net cash provided by operating activities $ 132,154$ 36,796 Net cash used in investing activities (11,707 ) (7,368 ) Net cash provided by financing activities 245,313 67,816 Effect of exchange rate changes on cash (77 ) (435 ) Net increase in cash and cash equivalents $ 365,683$ 96,809



Cash Flows from Operating Activities
For the nine months ended September 30, 2020, net cash provided by operating
activities was $132.2 million compared to net cash provided by operating
activities of $36.8 million in the same period 2019, an increase of $95.4
million year-over-year. This $95.4 million increase in net cash provided by
operating activities is primarily driven by an increase in our net revenues of
$95.3 million and an increase in our gross profit of $80.7 million, of which
$23.0 million relates to approved refunds for tariffs previously paid on certain
microinverter products that meet the definition of the Tariff Exclusion, and of
that $23.0 million approved, $16.0 million was received and $7.0 million was
accrued as a reduction in accounts payable, thus contributing to $16.5 million
of higher cash flows generated during the nine months ended September 30, 2020
as compared to the same period in 2019, adjusted for $52.3 million higher net
non-cash charges and $26.5 million decrease in cash used in changes from working
capital. Non-cash charges include change in the fair value of derivatives,
deferred income tax, stock-based compensation, amortization of debt discount,
and depreciation and amortization.
The $26.5 million decrease in cash used in changes from working capital for the
nine months ended September 30, 2020, compared to the same period in 2019, was
primarily due to collections of $79.7 million of accounts receivable and $8.5
million decrease in inventory, partially offset by $35.3 million decrease in
deferred revenue as we delivered safe harbor orders that were prepaid in the
fourth quarter of 2019 and $27.9 million decrease in accounts payable due to pay
off of liabilities.



                   Enphase Energy, Inc. | 2020 Form 10-Q | 39

--------------------------------------------------------------------------------

Table of Contents


Cash Flows from Investing Activities
For the nine months ended September 30, 2020, net cash used in investing
activities was $11.7 million, primarily from purchases of test and assembly
equipment to expand our supply capacity, related facility improvements and
information technology enhancements, and capitalized costs related to
internal-use software.
For the nine months ended September 30, 2019, net cash used in investing
activities of $7.4 million primarily resulted from purchases of test and
assembly equipment to expand our supply capacity and related facility
improvements, and capitalized costs related to internal-use software.
Cash Flows from Financing Activities
For the nine months ended September 30, 2020, net cash provided by financing
activities of $245.3 million was primarily from $312.4 million net proceeds from
the issuance of our Notes due 2025, $71.6 million from sale of warrants related
to our Notes due 2025, $4.7 million net proceeds from employee stock option
exercises and issuance of common stock under our employee stock incentive
program, partially offset by $89.1 million purchase of convertible note bond
hedge related to our Notes due 2025, $52.0 million payment of employee
withholding taxes related to net share settlement of equity awards and
$2.3 million of repayment on sale of long-term financing receivables.
For the nine months ended September 30, 2019, net cash provided by financing
activities of $67.8 million was primarily from net proceeds
of $127.5 million received from the issuance of our Notes due
2024, $29.8 million from sale of warrants, as well as $2.9 million net proceeds
from issuance of common stock under our employee stock incentive program. These
proceeds were partially offset by $45.7 million for principal payments on debts
and financing fees associated with repayment of our term loan, $36.3 million for
purchase of bond hedges related to our Notes due 2024, $6.0 million attributable
to inducement costs incurred for repurchase of our Notes due 2023 and $4.4
million for the payment of taxes related to net share settlement of equity
awards.
Contractual Obligations
Our contractual obligations primarily consist of our Notes due 2025, Notes due
2024, Notes due 2023, obligations under operating leases and inventory component
purchase. As of September 30, 2020, except as shown in the table below, there
have been no material changes from our disclosure in our Annual Report on Form
10-K for the fiscal year ended December 31, 2019. For more information on our
future minimum operating leases and inventory component purchase obligations as
of September 30, 2020, see Note 9, Operating Leases section and Purchase
Obligations section under "Commitments and Contingencies", of the notes to
condensed consolidated financial statements included in Part I, Item 1 of this
Form 10-Q.
In March 2020, we issued the Notes due 2025 and in October 2020, we received a
request for conversion of approximately $5.4 million in principal amount of
Notes due 2024. The following table updates our contractual obligations as of
September 30, 2020 associated with the Notes due 2025 and Notes due 2024. For
more information on our Notes due 2025 and Notes due 2024, see Note 8, "Debt" of
the notes to condensed consolidated financial statements included in Part 1 of
this Form 10-Q.
                                                       Payments Due by Period
                                         2020 (remaining
                            Total       three months) (1)      2021-2022       2023-2024       Beyond 2024
                                                           (In thousands)
Notes due 2024 principal
and interest                137,112                6,020           2,535         128,557                 -
Notes due 2025 principal
and interest                323,602                    -           1,600           1,600           320,402
Total                    $  460,714     $          6,020     $     4,135$   130,157$     320,402

(1) Includes approximately $5.4 million in principal amount of Notes due 2024,

     of which we have elected to settle the aggregate principal amount of the
     Notes due 2024 in a combination of cash and any excess in shares of our

common stock in accordance with the applicable indenture. Such conversion

     will be settled in December 2020 after the $0.6 million interest due on
     December 1, 2020.






                   Enphase Energy, Inc. | 2020 Form 10-Q | 40

--------------------------------------------------------------------------------

Table of Contents


Off-Balance Sheet Arrangements
As of September 30, 2020, we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the U.S., or GAAP. In connection
with the preparation of our condensed consolidated financial statements, we are
required to make assumptions and estimates about future events and apply
judgments that affect the reported amounts of assets, liabilities, revenue,
expenses and related disclosures. We base our assumptions, estimates and
judgments on historical experience, current trends and other factors that
management believes to be relevant at the time our condensed consolidated
financial statements are prepared. On a regular basis, we review the accounting
policies, assumptions, estimates and judgments to ensure that our condensed
consolidated financial statements are presented fairly and in accordance with
GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates. To
the extent that there are material differences between these estimates and
actual results, our future financial statement presentation, financial
condition, results of operations and cash flows will be affected.
The worldwide spread of the COVID-19 virus has resulted in a global slowdown of
economic activity which decreased demand for a broad variety of goods and
services, including from our customers, while also disrupting sales channels and
marketing activities for an unknown period of time and may continue to create
significant uncertainty in future operational and financial performance. This
had a negative impact on our sales and our results of operations for the second
quarter of 2020 and we expect this to continue to have a negative impact on our
sales and our results of operations for the remainder of 2020. In preparing our
condensed consolidated financial statements in accordance with GAAP, we are
required to make estimates, assumptions and judgments that affect the amounts
reported in our financial statements and the accompanying disclosures. Estimates
and assumptions about future events and their effects cannot be determined with
certainty and therefore require the exercise of judgment. As of the date of
issuance of these financial statements, we are not aware of any specific event
or circumstance that would require us to update our estimates, judgments or
revise the carrying value of our assets or liabilities. These estimates may
change, as new events occur and additional information is obtained, and are
recognized in the condensed consolidated financial statements as soon as they
become known. Actual results could differ from those estimates and any such
differences may be material to our financial statements.
We consider an accounting policy to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the condensed consolidated
financial statements.
Adoption of New and Recently Issued Accounting Pronouncements
Refer to Note 1. "Summary of Significant Accounting Policies" of the notes to
condensed consolidated financial statements included in Part I, Item 1 of this
Form 10-Q for a discussion of adoption of new and recently issued accounting
pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk" of our Annual
Report on Form 10­K for the fiscal year ended December 31, 2019. Our exposures
to market risk have not changed materially since December 31, 2019, except as
described below.
Market Risk
On March 9, 2020, we issued $320 million aggregate principal amount of our Notes
due 2025, and entered into privately-negotiated convertible note hedge and
warrant transactions, which in combination are intended to reduce the potential
dilution from the conversion of the Notes due 2025 and to effectively increase
the overall conversion price from $81.54 to $106.94 per share. For the period
from March 9, 2020 through May 19, 2020, the Notes due 2025, convertible note
hedge and warrant transactions could only be settled in cash because the number
of authorized and unissued shares of our common stock that was not reserved for
other purposes was less than the maximum number of underlying shares that would
be required to settle the Notes due 2025, convertible note hedge and warrants




                   Enphase Energy, Inc. | 2020 Form 10-Q | 41

--------------------------------------------------------------------------------

Table of Contents


transactions. As such, the embedded conversion option associated with the Notes
due 2025, convertible notes hedge and warrants liability met the criteria for
derivative accounting, and as a result, derivative financial instruments were
marked-to-market at each reporting period. The volatile market conditions
arising from the COVID-19 pandemic resulted in significant changes in the price
of our common stock in the first half of 2020, causing variability in the fair
value of these derivative financial instruments, and materially affecting our
condensed consolidated statement of operations three and nine months ended
September 30, 2020. Change in fair value of derivatives of $44.3 million for the
nine months ended September 30, 2020 includes the charge recognized for the
change in fair value of our convertible notes embedded derivative and warrants
of $47.6 million and $24.7 million, respectively. This charge is partially
offset by a gain recognized for the change in fair value of our convertible
notes hedge of $28.0 million.
On May 20, 2020, we received approval at our annual meeting of stockholders to
increase the authorized shares of our common stock, par value $0.00001 per
share, from 150,000,000 shares to 200,000,000 shares. As discussed further in
Note 8, "Debt," of the notes to condensed consolidated financial statements
included in Part I, Item 1 of this Form 10-Q, we reclassified the remeasured
fair value of embedded derivative, warrants and convertible notes hedge to
additional paid-in-capital in the condensed consolidated balance in the second
quarter of 2020. As a result of this reclassification, embedded derivative,
warrants and convertible notes hedge are no longer marked to fair value at each
reporting period.
Credit Risk
Financial instruments that subject us to concentrations of credit risk consist
primarily of cash and cash equivalents, accounts receivable, and derivative
financial instruments. We maintain a substantial portion of our cash balances in
non-interest-bearing and interest-bearing deposits and money market accounts.
The derivative financial instruments expose us to credit risk to the extent that
the counterparties may be unable to meet the terms of the arrangement. We
mitigate this credit risk by transacting with major financial institutions with
high credit ratings. We are not required to pledge, and are not entitled to
receive, cash collateral related to these derivative instruments. We do not
enter into derivative contracts for trading or speculative purposes. Our net
revenues are primarily concentrated among a limited number of customers. We
monitor the financial condition of our customers and perform credit evaluations
whenever considered necessary and maintain an allowance for doubtful accounts
for estimated potential credit losses.




                   Enphase Energy, Inc. | 2020 Form 10-Q | 42

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses

All news about ENPHASE ENERGY, INC.
11/17ENPHASE ENERGY : Joins Forces with MSpectrum to Provide Solar Solutions in the P..
AQ
11/16Enphase Energy Joins Forces with MSpectrum to Provide Solar Solutions in the ..
GL
11/16ENPHASE ENERGY : Joins Forces with MSpectrum to Provide Solar Solutions in the P..
AQ
11/13ENPHASE ENERGY : Partners with DMEGC Solar Energy on High-Efficiency AC Modules ..
AQ
11/12ENPHASE ENERGY : Partners with DMEGC Solar Energy on High-Efficiency AC Modules ..
AQ
11/12ENPHASE ENERGY : Partners with DMEGC Solar Energy on High-Efficiency AC Modules ..
AQ
11/12Enphase Energy Partners with DMEGC Solar Energy on High-Efficiency AC Modules..
GL
11/10ENPHASE ENERGY : and Cutler Bay Solar Solutions Partner to Deliver 1.5 MWh of Ba..
AQ
11/09ENPHASE ENERGY : and Cutler Bay Solar Solutions Partner to Deliver 1.5 MWh of Ba..
AQ
11/09Enphase Energy and Cutler Bay Solar Solutions Partner to Deliver 1.5 MWh of B..
GL
More news