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Enphase Energy surges after record quarter despite supply chain woes

Solaray Director Jonathan Fisk moves a solar panel at the solar power installation company’s Sydney facility.

Jason Reed | Reuters

Shares of Enphase Energy surged more than 12% during extended trading on Tuesday after the company reported record revenue during the third quarter, despite ongoing headwinds from supply chain bottlenecks.

The company, which makes microinverters and backup energy storage for solar systems, posted sales of $351.5 million during the period, compared to the $345 million analysts surveyed by StreetAccount were expecting.

Revenue jumped 11% quarter over quarter, and was nearly double the $178.5 million earned during the third quarter of 2020. The company also issued upbeat guidance, saying it expects fourth quarter revenue to be between $390 million and $410 million. Wall Street analysts were expecting revenue guidance of $373.6 million, according to estimates from StreetAccount.

Still, while CEO Badri Kothandaraman said business is booming, Enphase, like companies across sectors and industries, is facing supply chain constraints. In an effort to get products to consumers faster, the company qualified alternate suppliers during the quarter, and also chose to airship some microinverters. That significantly increases costs, and combined with ocean freight rates rising by eight times, the company opted to pass along some of those costs to the consumer by raising prices. Enphase is planning to once again raise prices during the fourth quarter.

“Every component in the supply chain is stressed,” Kothandaraman told CNBC. “It is all hand to mouth…every cost is going up and that’s happening right now.” He noted that a shipping container that cost $2,000 last year now costs $16,000.

While Kothandaraman expects the company to navigate the supply chain headwinds during the current quarter, he did not issue any guidance for next year. But this is not a deviation from the normal — Enphase never issues outlook beyond the current period.

“The situation is dynamic. What’s happening on logistics tomorrow may be totally different…the situation is changing every day,” he said, while adding that the fourth quarter looks better on the microinverter front than the third quarter, just as the third quarter looked better than the second quarter. Logistics around batteries, which can’t be shipped by air, have gotten worse, however.

But the company doesn’t envision any slowdown in demand for products despite longer delivery times. Enphase expects to ship between 90 and 100 megawatt hours of storage systems in the fourth quarter, up from 65 megawatt hours during the third quarter.

Enphase has focused on cutting costs, and raising prices for consumers will help offset growing expenses. But gross margins could edge lower during the current quarter. Third-quarter GAAP gross margins came in at 39.9%. Guidance for the fourth quarter puts that number between 37% and 40%.

The company is also expanding its product base. On Monday Enphase announced the IQ8 — a new microinverter that allows a solar system to continuing functioning even if the grid goes down, and without on-site storage.

“Overall, it was a strong quarter, as higher logistics costs were offset by pricing increases and cost management and microinverter demand continues to outstrip supply,” Citi wrote in a note to clients following the earnings announcement.

Shares of Enphase are down 1% for 2021 as of Tuesday’s close.

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