Enphase Energy Inc (ENPH)

[Tommy John Surgery]

ENPH

Solar investment. Speculative. Turnaround.

This is a turnaround issue. I have followed this company for close to 2 years and would like to share some information as well as get some feedback. Company is involved in what is known as "module-level power electronics" a technology subset within the solar panel manufacturing field. Panels require inverters to convert DC energy into usable AC energy. There are 3 basic ways of doing this: through string inverters, power optimizers or microinverters. Enphase specialized in this last area and has as its main competitor a company that has specialized in power optimizers (sedg).

Recently, with the introduction of a new class of microinverters, enphase has been able to integrate their technology into the manufacturing process of solar panels. These new panels are called ACM (AC modules) where the microinverter is now attached to the panel and the need for assembling it by solar roof installers may -and eventually will- disappear.

In the last year or so, previous management made some bad decisions: went into unproductive product lines, signed bad loan deals and wasted precious resources in non-conducive activities. On January this year, TJ Rodgers and John Doerr bought a chunk of the company (close to 10% combined) and TJ R was named a Director. After an abysmal first quarter, where California market tanked greatly affecting enphase's numbers, a new COO was named to take charge of operations: Badri Kothandaraman.

Both TJ R and Badri are CYpress semiconductors guys. In fact, TJ R was one of the founders. This is important because it was TJ R who discovered the novel technology of Sunpower and invested his own money when the company was failing as a start up. We all know what happened to Sunpower years later. In that specific case, TJ R also brought into Sunpower the management style of Cypress and covered many top, essential positions with CY management.

In ENPHs most recent quarter its 10 year old CEO got ousted. While there is a transition going on and we are waiting for the announcement of a new CEO by 8/31, rumor has been that Badri K, former CY's executive now performing as COO, might become the permanent CEO. This would further solidify TJ R's move into turning the company around.

As for numbers, last Q was the 1Q company did not burn cash with 31 mill in their coffers, as a result of cleaning up inventory. By the end of this Q, company would have transitioned completely to the higher margin microinverter named IQ6. Company has also signed deals with LG and Jinko Solar both of which will now carry ACMs with integrated micros. LG's ACM panels are already being offered in the market and it is expected that this coming quarter will bring color into ACMs sales. Jinko is not expected to offer integrated modules until later this year.

Enphase has been rapidly correcting past management mistakes and imposing a new style and discipline, evident in last Q numbers. COO has released a working plan on a path to profitability and growth. Company has guided flat sales for 3Q most likely due to transition issues although they officialy mentioned components issues.

There are risks and obstacles in the road to success. Micros are a different technology than the one offered by optimizers. There is a large public discussion on which technology offers the best advantage or if both could move forward and subsist together. Enphase, in particular, has a noose around its neck in a credit line by Tennenbaum (50 million) with covenants that may hit the company hard in 2018 so while bankruptcy doesn't appear to be in the cards anymore, dilution might. Next quarter's guidance is critical in that it will show a new CEOs work, the chance of hitting all stated benchmarks and the potential and acceptance by the market of the ACM's.

Yet, the most important piece of information in this analysis is not to disregard the direct involvement of TJ Rodgers, his philosophy of fighting for shareholders and what he did with Sunpower.

Overall, solar seems to be on the up and up and most public companies in this segment have been posting much better numbers as of late. Solar has already achieved parity in some parts of the world becoming as cheap as wind energy.

Below are 3 informative articles:
https://www.greentechmedia.com/articles/read/silicon-valleys-john-doerr-and-tj-rodgers-invest-10m-in-enphases-microin
http://www.marketwired.com/press-release/enphase-energy-announces-strategic-investment-from-tj-rodgers-and-john-doerr-nasdaq-enph-2187536.htm
http://newsroom.enphase.com/releasedetail.cfm?releaseid=1021173



Copied from:
http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/enph-enphase-energy/