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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| | | | | |
(Mark One) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35480
Enphase Energy, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 20-4645388 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
47281 Bayside Parkway
Fremont, CA 94538
(Address of principal executive offices, including zip code)
(877) 774-7000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $0.00001 par value per share | | ENPH | | Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.” See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| | | | | | | | | | | | | | |
Large accelerated filer | ☒
| | Accelerated filer | ☐
|
Non-accelerated filer | ☐
| | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 21, 2022, there were 135,028,239 shares of the registrant’s common stock outstanding, $0.00001 par value per share.
Enphase Energy, Inc. | 2022 Form 10-Q | 1
ENPHASE ENERGY, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
Enphase Energy, Inc. | 2022 Form 10-Q | 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited) | | | | | | | | | | | |
| As of |
| March 31,
2022 | | December 31,
2021 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 251,850 | | | $ | 119,316 | |
| | | |
| Marketable securities | 811,621 | | | 897,335 | |
Accounts receivable, net of allowances of $599 and $1,590 at March 31, 2022 and December 31, 2021, respectively | 358,310 | | | 333,626 | |
| Inventory | 96,436 | | | 74,400 | |
| Prepaid expenses and other assets | 40,566 | | | 37,784 | |
| Total current assets | 1,558,783 | | | 1,462,461 | |
| Property and equipment, net | 85,073 | | | 82,167 | |
| Operating lease, right of use asset, net | 19,442 | | | 14,420 | |
| Intangible assets, net | 103,173 | | | 97,758 | |
| Goodwill | 195,637 | | | 181,254 | |
| Other assets | 120,878 | | | 118,726 | |
| Deferred tax assets, net | 180,291 | | | 122,470 | |
| | | |
| Total assets | $ | 2,263,277 | | | $ | 2,079,256 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 104,738 | | | $ | 113,767 | |
| Accrued liabilities | 169,146 | | | 157,912 | |
| | | |
| Deferred revenues, current | 68,693 | | | 62,670 | |
Warranty obligations, current (includes $19,412 and $14,612 measured at fair value at March 31, 2022 and December 31, 2021, respectively) | 23,960 | | | 19,395 | |
| | | |
| Debt, current | 87,219 | | | 86,052 | |
| Total current liabilities | 453,756 | | | 439,796 | |
| Long-term liabilities: | | | |
| | | |
| Deferred revenues, non-current | 202,711 | | | 187,186 | |
Warranty obligations, non-current (includes $42,174 and $36,395 measured at fair value at March 31, 2022 and December 31, 2021, respectively) | 59,619 | | | 53,982 | |
| Other liabilities | 19,259 | | | 16,530 | |
| Debt, non-current | 1,196,950 | | | 951,594 | |
| | | |
| Total liabilities | 1,932,295 | | | 1,649,088 | |
| Commitments and contingencies (Note 10) | | | |
| | | |
| Stockholders’ equity: | | | |
| | | |
Common stock, $0.00001 par value, 300,000 shares authorized; and 134,959 shares and 133,894 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 1 | | | 1 | |
| Additional paid-in capital | 666,511 | | | 837,924 | |
| Accumulated deficit | (328,206) | | | (405,737) | |
| Accumulated other comprehensive loss | (7,324) | | | (2,020) | |
| | | |
| Total stockholders’ equity | 330,982 | | | 430,168 | |
| Total liabilities and stockholders’ equity | $ | 2,263,277 | | | $ | 2,079,256 | |
See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2022 Form 10-Q | 3
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 | | |
| Net revenues | | | | | $ | 441,292 | | | $ | 301,754 | | | |
| Cost of revenues | | | | | 264,319 | | | 178,805 | | | |
| Gross profit | | | | | 176,973 | | | 122,949 | | | |
| Operating expenses: | | | | | | | | | |
| Research and development | | | | | 35,719 | | | 21,818 | | | |
| Sales and marketing | | | | | 41,344 | | | 19,622 | | | |
| General and administrative | | | | | 38,086 | | | 20,123 | | | |
| | | | | | | | | |
| Total operating expenses | | | | | 115,149 | | | 61,563 | | | |
| Income from operations | | | | | 61,824 | | | 61,386 | | | |
| Other income (expense), net | | | | | | | | | |
| Interest income | | | | | 460 | | | 73 | | | |
| Interest expense | | | | | (2,736) | | | (7,329) | | | |
| Other (expense) income, net | | | | | (2,141) | | | 573 | | | |
| Loss on partial settlement of convertible notes | | | | | — | | | (56,369) | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total other expense, net | | | | | (4,417) | | | (63,052) | | | |
| Income (loss) before income taxes | | | | | 57,407 | | | (1,666) | | | |
| Income tax (provision) benefit | | | | | (5,586) | | | 33,364 | | | |
| Net income | | | | | $ | 51,821 | | | $ | 31,698 | | | |
| Net income per share: | | | | | | | | | |
| Basic | | | | | $ | 0.39 | | | $ | 0.24 | | | |
| Diluted | | | | | $ | 0.37 | | | $ | 0.22 | | | |
| Shares used in per share calculation: | | | | | | | | | |
| Basic | | | | | 134,327 | | | 131,303 | | | |
| Diluted | | | | | 144,617 | | | 146,442 | | | |
See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2022 Form 10-Q | 4
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 | | |
| Net income | | | | | $ | 51,821 | | | $ | 31,698 | | | |
| Other comprehensive income: | | | | | | | | | |
| Foreign currency translation adjustments | | | | | 264 | | | 206 | | | |
| Marketable securities | | | | | | | | | |
| Change in net unrealized loss | | | | | (5,568) | | | — | | | |
| Less: reclassification adjustment for net losses included in net income | | | | | — | | | — | | | |
Net change, net of income tax benefit of $1,956 | | | | | (5,568) | | | — | | | |
| Comprehensive income | | | | | $ | 46,517 | | | $ | 31,904 | | | |
See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2022 Form 10-Q | 5
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| Common stock and paid-in capital | | | | | | | |
| Balance, beginning of period | $ | 837,925 | | | $ | 534,745 | | | | | |
| Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2020-06 | (207,967) | | | — | | | | | |
| Issuance of common stock from exercise of equity awards | 404 | | | 214 | | | | | |
| Payment of withholding taxes related to net share settlement of equity awards | (9,344) | | | (9,185) | | | | | |
| | | | | | | |
| Equity component of convertible notes issued, net of tax | — | | | 207,962 | | | | | |
| Cost of convertible notes hedge related to the convertible notes issued, net of tax | — | | | (213,322) | | | | | |
| Sale of warrants related to the convertible notes issued | — | | | 220,800 | | | | | |
| Equity component of partial settlement of convertible notes | — | | | (966,483) | | | | | |
| Cost of reacquired equity component on partial settlement of convertible notes | — | | | 962,114 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Stock-based compensation expense | 45,494 | | | 14,844 | | | | | |
| | | | | | | |
| Balance, end of period | $ | 666,512 | | | $ | 751,689 | | | | | |
| | | | | | | |
| Accumulated deficit | | | | | | | |
| Balance, beginning of period | $ | (405,737) | | | $ | (51,186) | | | | | |
| Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2020-06 | 25,710 | | | — | | | | | |
| Net income | 51,821 | | | 31,698 | | | | | |
| | | | | | | |
| | | | | | | |
| Balance, end of period | $ | (328,206) | | | $ | (19,488) | | | | | |
| | | | | | | |
| Accumulated other comprehensive income (loss) | | | | | | | |
| Balance, beginning of period | $ | (2,020) | | | $ | 434 | | | | | |
| Foreign currency translation adjustments | 264 | | | 206 | | | | | |
| Change in net unrealized loss on marketable securities, net of tax | (5,568) | | | — | | | | | |
| Balance, end of period | $ | (7,324) | | | $ | 640 | | | | | |
Total stockholders' equity, ending balance | $ | 330,982 | | | $ | 732,841 | | | | | |
See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2022 Form 10-Q | 6
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended
March 31, |
| | | | | | | 2022 | | 2021 | | |
| Cash flows from operating activities: | | | | | | | | | | | |
| Net income | | | | | | | $ | 51,821 | | | $ | 31,698 | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | |
| Depreciation and amortization | | | | | | | 15,558 | | | 5,558 | | | |
| Provision for doubtful accounts | | | | | | | 147 | | | 14 | | | |
| | | | | | | | | | | |
| Non-cash interest expense | | | | | | | 1,979 | | | 7,156 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Loss on partial settlement of convertibles notes | | | | | | | — | | | 56,369 | | | |
| Deemed repayment of convertible notes attributable to accreted debt discount | | | | | | | — | | | (15,579) | | | |
| | | | | | | | | | | |
| Change in fair value of debt securities | | | | | | | 1,116 | | | (1,437) | | | |
| Stock-based compensation | | | | | | | 47,797 | | | 14,844 | | | |
| | | | | | | | | | | |
| Deferred income taxes | | | | | | | 3,165 | | | (35,367) | | | |
| Changes in operating assets and liabilities: | | | | | | | | | | | |
| Accounts receivable | | | | | | | (24,224) | | | (53,719) | | | |
| Inventory | | | | | | | (22,036) | | | 6,888 | | | |
| Prepaid expenses and other assets | | | | | | | (3,042) | | | (5,040) | | | |
| | | | | | | | | | | |
| Accounts payable, accrued and other liabilities | | | | | | | (1,805) | | | 36,376 | | | |
| Warranty obligations | | | | | | | 9,906 | | | 8,640 | | | |
| Deferred revenues | | | | | | | 22,061 | | | 19,440 | | | |
| Net cash provided by operating activities | | | | | | | 102,443 | | | 75,841 | | | |
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property and equipment | | | | | | | (12,375) | | | (9,940) | | | |
| | | | | | | | | | | |
| Investments in private companies | | | | | | | — | | | (25,000) | | | |
| | | | | | | | | | | |
| Business acquisitions, net of cash acquired | | | | | | | (24,625) | | | (55,239) | | | |
| | | | | | | | | | | |
| Maturities of marketable securities | | | | | | | 76,735 | | | — | | | |
| Net cash provided by (used in) investing activities | | | | | | | 39,735 | | | (90,179) | | | |
| Cash flows from financing activities: | | | | | | | | | | | |
| Issuance of convertible notes, net of issuance costs | | | | | | | — | | | 1,189,388 | | | |
| Purchase of convertible note hedges | | | | | | | — | | | (286,235) | | | |
| Sale of warrants | | | | | | | — | | | 220,800 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Principal payments and financing fees on debt | | | | | | | — | | | (1,078) | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Partial repurchase of convertible notes | | | | | | | — | | | (289,233) | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Proceeds from exercise of equity awards and employee stock purchase plan | | | | | | | 404 | | | 214 | | | |
| | | | | | | | | | | |
| Payment of withholding taxes related to net share settlement of equity awards | | | | | | | (9,344) | | | (9,185) | | | |
| | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | | | | | (8,940) | | | 824,671 | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | | | | | (704) | | | (702) | | | |
| Net increase in cash and cash equivalents | | | | | | | 132,534 | | | 809,631 | | | |
| Cash and cash equivalents—Beginning of period | | | | | | | 119,316 | | | 679,379 | | | |
| Cash and cash equivalents—End of period | | | | | | | $ | 251,850 | | | $ | 1,489,010 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Supplemental cash flow disclosure: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Supplemental disclosures of non-cash investing and financing activities: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Purchases of property and equipment included in accounts payable | | | | | | | $ | 4,352 | | | $ | 7,301 | | | |
| Purchases of property and equipment through tenant improvement allowance | | | | | | | $ | 748 | | | $ | — | | | |
| Contingent consideration in connection with the acquisition | | | | | | | $ | — | | | $ | 3,500 | | | |
| Convertible senior note issuance costs included in accounts payable and accrued expense | | | | | | | $ | — | | | $ | 991 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2022 Form 10-Q | 7
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Enphase Energy, Inc. (the “Company”) is a global energy technology company. The Company delivers smart, easy-to-use solutions that manage solar generation, storage and communication on one platform. The Company revolutionized the solar industry with its microinverter technology and produces a fully integrated solar-plus-storage solution.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
These accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, considered necessary to present fairly the Company’s financial condition, results of operations, comprehensive income, stockholders’ equity and cash flows for the interim periods indicated. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates and assumptions reflected in the financial statements include revenue recognition, allowance for doubtful accounts, stock-based compensation, deferred compensation arrangements, inventory valuation, accrued warranty obligations, fair value of investments, debt derivatives, convertible notes and contingent consideration, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, incremental borrowing rate for right-of-use assets and lease liability, legal contingencies and tax valuation allowance. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the ongoing semiconductor supply and logistics constraints, and the continuing COVID-19 pandemic.
The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The Company filed audited consolidated financial statements, which included all information and notes necessary for such a complete presentation in conjunction with its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 11, 2022 (the “Form 10‑K”).
Summary of Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies as described in Note 2, “Summary of Significant Accounting Policies” of the notes to consolidated financial statements included in Part II, Item 8 of the Form 10-K, other than as a result of the Company’s adoption of the new accounting guidance related to convertible senior notes, effective January 1, 2022, as discussed in “Recently Adopted Accounting Pronouncements” below.
Enphase Energy, Inc. | 2022 Form 10-Q | 8
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update(“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40)” (“ASU 2020-06”), which reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments.
The Company adopted ASU 2020-06 in the annual period beginning January 1, 2022, on a modified retrospective basis. Upon adoption of ASU 2020-06, the Company is no longer required to bifurcate the conversion feature related to the issuance of $575.0 million aggregate principal amount of its 0.0% convertible senior notes due 2028 (the “Notes due 2028”) and $632.5 million aggregate principal amount of its 0.0% convertible senior notes due 2026 (the “Notes due 2026”) in equity. Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, thereby eliminating the subsequent amortization of the debt discount. Similarly, the portion of issuance costs previously allocated to equity was reclassified to the carrying value of debt and amortized over the remaining terms of the convertible senior notes. Accordingly, the Company recorded a net decrease to additional paid-in capital by $207.9 million, net of tax to remove the equity component separately recorded for the conversion features associated with the convertible senior notes and equity component associated with the issuance costs, an increase to the carrying value of its convertible debt instrument by $244.5 million to reflect the full principal amount of the convertible senior notes outstanding net of issuance costs, a decrease to deferred tax liability of $62.3 million, and a decrease to accumulated deficit by $25.7 million, net of tax in the Company’s consolidated balance sheet with no impact on the Company’s consolidated statements of operations.
Also upon adoption of ASU 2020-06, the Company is no longer utilizing the treasury stock method for earnings per share impact for 0.25% convertible senior notes due 2025 (the “Notes due 2025”), Notes due 2026 and together with the Notes due 2028 (the “Convertible Senior Notes”). Instead, the Company is applying the if-converted method when reporting the number of potentially dilutive shares of common stock as the Company may at its election, settle its Convertible Senior Notes through payment or delivery, as the case may be, in cash, shares of its common stock or a combination of cash and shares of its common stock. Further, the Company under the relevant sections of the indentures, irrevocably may elect to settle principal in cash and any excess in cash or shares of the Company’s common stock for its Convertible Senior Notes. If and when the Company makes such election, there will be no adjustment to the net income and the Company will use the average share price for the period to determine the potential number of shares to be issued based upon assumed conversion to be included in the diluted share count.
Recently Issued Accounting Pronouncements
Not Yet Effective
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" (“ASU 2021-08”). The standard requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the adoption of ASU 2021-08 to have a significant impact on its condensed consolidated financial statements and plans to adopt the standard effective January 1, 2023.
Enphase Energy, Inc. | 2022 Form 10-Q | 9
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. REVENUE RECOGNITION
Disaggregated Revenue
The Company has one major business activity, which is the design, manufacture and sale of solutions for the solar photovoltaic (“PV”) industry. Disaggregated revenue by primary geographical market and timing of revenue recognition for the Company’s single product line are as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 |
| | | | | (In thousands) |
| Primary geographical markets: | | | | | | | |
| U.S. | | | | | $ | 369,492 | | | $ | 247,782 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| International | | | | | 71,800 | | | 53,972 | |
| Total | | | | | $ | 441,292 | | | $ | 301,754 | |
| | | | | | | |
| Timing of revenue recognition: | | | | | | | |
| Products delivered at a point in time | | | | | $ | 424,149 | | | $ | 288,871 | |
| Products and services delivered over time | | | | | 17,143 | | | 12,883 | |
| Total | | | | | $ | 441,292 | | | $ | 301,754 | |
Contract Balances
Receivables, and contract assets and contract liabilities from contracts with customers, are as follows:
| | | | | | | | | | | |
| March 31,
2022 | | December 31,
2021 |
| (In thousands) |
| Receivables | $ | 358,310 | | | $ | 333,626 | |
| | | |
| Short-term contract assets (Prepaid expenses and other assets) | 24,869 | | | 23,508 | |
| Long-term contract assets (Other assets) | 73,138 | | | 69,583 | |
| | | |
| | | |
| | | |
| Short-term contract liabilities (Deferred revenues, current) | 68,693 | | | 62,670 | |
| Long-term contract liabilities (Deferred revenues, non-current) | 202,711 | | | 187,186 | |
| | | |
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include deferred product costs and commissions associated with the deferred revenue and will be amortized along with the associated revenue. The Company had no asset impairment charges related to contract assets in the three months ended March 31, 2022.
Significant changes in the balances of contract assets (prepaid expenses and other assets) as of March 31, 2022 are as follows (in thousands):
| | | | | |
| Contract Assets | |
| Contract Assets, beginning of period | $ | 93,091 | |
| Amount recognized | (6,419) | |
| Increase | 11,335 | |
| Contract Assets, end of period | $ | 98,007 | |
Contract liabilities are recorded as deferred revenue on the accompanying condensed consolidated balance sheets and include payments received in advance of performance obligations under the contract and are realized when the associated revenue is recognized under the contract.
Enphase Energy, Inc. | 2022 Form 10-Q | 10
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Significant changes in the balances of contract liabilities (deferred revenues) as of March 31, 2022 are as follows (in thousands):
| | | | | |
| Contract Liabilities | |
| Contract Liabilities, beginning of period | $ | 249,856 | |
| Revenue recognized | (17,143) | |
| |
| Increase due to billings | 38,691 | |
| |
| Contract Liabilities, end of period | $ | 271,404 | |
| |
| |
Remaining Performance Obligations
Estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period are as follows:
| | | | | |
| March 31,
2022 |
| (In thousands) |
| Fiscal year: | |
| 2022 (remaining nine months) | $ | 52,571 | |
| 2023 | 62,373 | |
| 2024 | 56,709 | |
| 2025 | 49,491 | |
| 2026 | 33,772 | |
| Thereafter | 16,488 | |
| Total | $ | 271,404 | |
| |
| |
| |
| |
| |
3. OTHER FINANCIAL INFORMATION
Inventory
Inventory consists of the following:
| | | | | | | | | | | |
| |
| March 31,
2022 | | December 31,
2021 |
| (In thousands) |
| Raw materials | $ | 31,228 | | | $ | 25,429 | |
| Finished goods | 65,208 | | | 48,971 | |
| Total inventory | $ | 96,436 | | | $ | 74,400 | |
Enphase Energy, Inc. | 2022 Form 10-Q | 11
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accrued Liabilities
Accrued liabilities consist of the following:
| | | | | | | | | | | |
| March 31,
2022 | | December 31,
2021 |
| (In thousands) |
| Salaries, commissions, incentive compensation and benefits | $ | 17,110 | | | $ | 13,062 | |
| Customer rebates and sales incentives | 99,302 | | | 79,038 | |
| Freight | 20,105 | | | 20,522 | |
| Operating lease liabilities, current | 3,722 | | | 3,830 | |
| Liability due to supply agreements | 10,161 | | | 14,653 | |
| Contingent consideration | — | | | 3,710 | |
| Post combination expense accrual | 7,764 | | | 8,602 | |
| | | |
| Other | 10,982 | | | 14,495 | |
| Total accrued liabilities | $ | 169,146 | | | $ | 157,912 | |
4. BUSINESS COMBINATIONS
Acquisition of SolarLeadFactory, LLC. (“SolarLeadFactory”)
On March 14, 2022, the Company completed the acquisition of 100% of the shares of SolarLeadFactory, a privately-held company. SolarLeadFactory provides high quality leads to solar installers. As part of the purchase price, the Company paid approximately $26.1 million in cash on March 14, 2022.
The acquisition has been accounted for as a business combination under the acquisition method, and accordingly, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.
In addition to the purchase price summarized above, the Company will be obligated to issue up to approximately $10.0 million in shares of common stock of the Company payable in the second quarter of 2023, subject to achievement of certain operational targets. As the additional payments require continuous employment of certain key employees of SolarLeadFactory and are subject to other conditions, these payments are being accounted for as post-combination expense and will be recognized ratably over the one-year period presuming conditions will be met.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, which are subject to change within the measurement period as the fair value assessments are finalized (in thousands):
| | | | | | | | |
| Cash and cash equivalents | | $ | 1,426 | |
| Net tangible assets acquired | | 813 | |
| Intangible assets | | 11,200 | |
| | |
| Goodwill | | 12,612 | |
| Net assets acquired | | $ | 26,051 | |
The excess of the consideration paid over the fair values assigned to the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. Goodwill is primarily attributable to expected synergies in the Company’s solar offerings and cross-selling opportunities. The entire goodwill amount is expected to be deductible for U.S. federal income tax purposes over 15 years.
Enphase Energy, Inc. | 2022 Form 10-Q | 12
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible assets consist primarily of developed technology and customer relationships. Developed technology intangible is attributable to developed technology include a combination of unpatented technology, trade secrets, computer software and research processes that represent the foundation for the existing and planned new products to facilitate the generation of new content. Customer relationships intangible relates to SolarLeadFactory’s software ability to sell current and future offerings, as well as products built around the current offering, to its existing customers.
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
| | | | | | | | | | | | |
| | Preliminary Fair Value | | Useful Life |
| | (In thousands) | | (Years) |
| Developed technology | | $ | 3,600 | | | 5 |
| Customer relationships | | 7,600 | | | 5 |
| Total identifiable intangible assets | | $ | 11,200 | | | |
Pro forma financial information has not been presented for the SolarLeadFactory acquisition as the impact to the Company’s condensed consolidated financial statements was not material.
The Company incurred and accrued costs related to acquisition of $0.4 million that were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2022.
5. GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill as of March 31, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | |
| Goodwill | March 31,
2022 | | December 31,
2021 |
| (In thousands) |
| Goodwill, beginning of period | $ | 181,254 | | | $ | 24,783 | |
| Goodwill acquired | 14,105 | | | 156,390 | |
| Currency translation adjustment | 278 | | | 81 | |
| Goodwill, end of period | $ | 195,637 | | | $ | 181,254 | |
The Company’s purchased intangible assets as of March 31, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Gross | | Additions | | Accumulated Amortization | | Net | | Gross | | Additions | | | | Accumulated Amortization | | Net |
| (In thousands) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Intangible assets: | | | | | | | | | | | | | | | | | |
| Other indefinite-lived intangibles | $ | 286 | | | $ | — | | | $ | — | | | $ | 286 | | | $ | 286 | | | $ | — | | | | | $ | — | | | $ | 286 | |
| | | | | | | | | | | | | | | | | |
| Intangible assets with finite lives: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Developed technology | 38,650 | | | 3,600 | | | (10,823) | | | 31,427 | | | 13,100 | | | 25,550 | | | | | (8,958) | | | 29,692 | |
| Customer relationships | 41,021 | | | 7,600 | | | (13,206) | | | 35,415 | | | 26,421 | | | 14,600 | | | | | (11,448) | | | 29,573 | |
| Trade names | 37,700 | | | — | | | (1,978) | | | 35,722 | | | — | | | 37,700 | | | | | (93) | | | 37,607 | |
| Order backlog | 600 | | | — | | | (277) | | | 323 | | | — | | | 600 | | | | | — | | | 600 | |
| Total purchased intangible assets | $ | 118,257 | | | $ | 11,200 | | | $ | (26,284) | | | $ | 103,173 | | | $ | 39,807 | | | $ | 78,450 | | | | | $ | (20,499) | | | $ | 97,758 | |
Enphase Energy, Inc. | 2022 Form 10-Q | 13
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortization expense related to finite-lived intangible assets are as follows: | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 | | |
| | | | | (In thousands) |
| Developed technology | | | | | $ | 1,866 | | | $ | 799 | | | |
Customer relationships | | | | | 1,758 | | | 930 | | | |
| Trade names | | | | | 1,885 | | | 62 | | | |
| Order backlog | | | | | 277 | | | — | | | |
Total amortization expense | | | | | $ | 5,786 | | | $ | 1,791 | | | |
Amortization of developed technology is recorded to cost of sales and customer relationships and trade names is recorded to sales and marketing expense.
The expected future amortization expense of intangible assets as of March 31, 2022 is presented below (in thousands):
| | | | | |
| March 31,
2022 |
| |
| Fiscal year: | |
| 2022 (remaining nine months) | $ | 18,212 | |
| 2023 | 24,096 | |
| 2024 | 21,299 | |
| 2025 | 19,984 | |
| 2026 | 16,425 | |
| Thereafter | 2,871 | |
| Total | $ | 102,887 | |
| |
| |
| |
| |
| |
Enphase Energy, Inc. | 2022 Form 10-Q | 14
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The marketable securities consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable Securities | | |
| Money market funds | $ | 193,627 | | | $ | — | | | $ | — | | | $ | 193,627 | | | $ | 193,627 | | | $ | — | | | |
| Certificate of Deposit | 6,000 | | | — | | | (1) | | | 5,999 | | | — | | | 5,999 | | | |
| Commercial paper | 164,243 | | | — | | | (379) | | | 163,864 | | | — | | | 163,864 | | | |
| Corporate notes and bonds | 164,858 | | | 1 | | | (2,860) | | | 161,999 | | | — | | | 161,999 | | | |
| | | | | | | | | | | | | |
| U.S. Government agency securities | 486,902 | | | — | | | (7,143) | | | 479,759 | | | — | | | 479,759 | | | |
| Total | $ | 1,015,630 | | | $ | 1 | | | $ | (10,383) | | | $ | 1,005,248 | | | $ | 193,627 | | | $ | 811,621 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable Securities |
| Money market funds | $ | 35,789 | | | $ | — | | | $ | — | | | $ | 35,789 | | | $ | 35,789 | | | $ | — | |
| Certificate of Deposit | 16,001 | | | — | | | (2) | | | 15,999 | | | 6,000 | | | 9,999 | |
| Commercial paper | 215,964 | | | — | | | (114) | | | 215,850 | | | 26,997 | | | 188,853 | |
| Corporate notes and bonds | 199,244 | | | — | | | (872) | | | 198,372 | | | 760 | | | 197,612 | |
| U.S. Treasuries | 14,999 | | | — | | | (1) | | | 14,998 | | | — | | | 14,998 | |
| U.S. Government agency securities | 487,743 | | | — | | | (1,870) | | | 485,873 | | | — | | | 485,873 | |
| Total | $ | 969,740 | | | $ | — | | | $ | (2,859) | | | $ | 966,881 | | | $ | 69,546 | | | $ | 897,335 | |
The following table summarizes the contractual maturities of the Company’s marketable securities as of March 31, 2022 (in thousands):
| | | | | | | | | | | | | | |
| | Amortized Cost | | Fair Value |
| Due within one year | | $ | 692,296 | | | $ | 689,588 | |
| Due within one to three years | | 323,334 | | | 315,660 | |
| Total | | $ | 1,015,630 | | | $ | 1,005,248 | |
All available-for-sale securities have been classified as current, based on management's intent and ability to use the funds in current operations.
Enphase Energy, Inc. | 2022 Form 10-Q | 15
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. WARRANTY OBLIGATIONS
The Company’s warranty activities were as follows:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 | | |
| | | | | (In thousands) |
| Warranty obligations, beginning of period | | | | | $ | 73,377 | | | $ | 45,913 | | | |
| Accruals for warranties issued during period | | | | | 8,910 | | | 3,894 | | | |
| | | | | | | | | |
| Changes in estimates | | | | | 4,912 | | | 7,655 | | | |
| Settlements | | | | | (5,881) | | | (2,930) | | | |
| Increase due to accretion expense | | | | | 1,515 | | | 943 | | | |
| | | | | | | | | |
| Other | | | | | 746 | | | (922) | | | |
| Warranty obligations, end of period | | | | | 83,579 | | | 54,553 | | | |
| Less: current portion | | | | | (23,960) | | | (14,303) | | | |
| Non-current | | | | | $ | 59,619 | | | $ | 40,250 | | | |
Changes in Estimates
In the three months ended March 31, 2022, the Company recorded $4.9 million in warranty expense from change in estimates primarily related to increase in expedited freight costs and replacement costs for IQ batteries. In the three months ended March 31, 2021, the Company recorded a $6.3 million increase to warranty expense based on continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products. The Company also recorded additional warranty expense of $1.3 million in the three months ended March 31, 2021 related to unit costs for prior generation microinverter replacement mainly driven by tariffs.
8. FAIR VALUE MEASUREMENTS
The accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
•Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of such assets or liabilities do not entail a significant degree of judgment.
•Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The following table presents assets and liabilities measured at fair value on a recurring basis using the above input categories:
Enphase Energy, Inc. | 2022 Form 10-Q | 16
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
| Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | | |
| Money market funds | $ | 193,627 | | | $ | — | | | $ | — | | | $ | 35,789 | | | $ | — | | | $ | — | |
| Certificate of deposit | — | | | — | | | — | | | — | | | 6,000 | | | — | |
| Commercial paper | — | | | — | | | — | | | — | | | 26,997 | | | — | |
| Corporate notes and bonds | — | | | — | | | — | | | — | | | 760 | | | — | |
| | | | | | | | | | | |
| Marketable securities: | | | | | | | | | | | |
| Certificate of deposit | — | | | 5,999 | | | — | | | — | | | 9,999 | | | — | |
| Commercial paper | — | | | 163,864 | | | — | | | — | | | |
