Earnings

Enphase Reports $23.4 Million Profit On A $3.6 Million Pre-Tax Loss After $26.5 Million Investment Write-Downs

A $27.0 million tax benefit turned a third-quarter pre-tax loss into net income, while exposure to one solar financier reached about $72.9 million.

Enphase Energy, which makes microinverters and home batteries for solar systems, lost $3.6 million before taxes in the third quarter but still booked $23.4 million of net income, according to its 10-Q filed Tuesday. A $27.0 million tax benefit did the work, after $26.5 million of non-cash write-downs on private debt investments.

Write-downs flip the quarter

Other expense, net hit $26.6 million, against $3.7 million a year earlier. Nearly all of it was the $26.5 million drop in the fair value of debt securities, the filing says.

The company recorded a $27.0 million income tax benefit on the pre-tax loss. In the second quarter it had booked a $25.8 million tax provision on $61.9 million of pre-tax income. The 10-Q ties the benefit to the tax credit for U.S.-made microinverters and to the tax effect of the investment impairments.

The core business also shrank. Revenue fell 29% to $293.3 million from $410.4 million a year earlier, with U.S. revenue down 33% after the Section 25D residential tax credit expired. Gross margin slipped to 43.3% from 47.8%. Diluted earnings were $0.17 a share, against $0.50.

Where the markdowns landed

The notes list the damage by holding, with year-end values first:

Series C preferred units in a private company fell to $20.3 million from $29.6 million, including a $7.9 million drop in the quarter.
One convertible note fell to $3.8 million from $11.0 million.
A second convertible note fell to $5.7 million from $14.5 million.
The SunPower convertible notes fell to $2.3 million from $6.3 million.

The SunPower notes are a related-party deal, because SunPower's CEO sits on Enphase's board. The company's Audit Committee approved the investment.

$72.9 million tied to one solar financier

Enphase holds 19.99% of a residential solar and storage finance company and has lent to it, extended a revolving credit line and issued letters of credit. Its maximum loss exposure is about $72.9 million, and it rises as interest is added to the balance.

The revolver had about $24.4 million drawn at quarter end against a $30.0 million commitment, accruing 9.0% paid in kind, meaning added to principal rather than paid in cash. It matures April 30, 2027. The company issued $35.0 million of standby letters of credit and rates a draw on them remote. Its security interest is subordinated to the financier's new credit facility.

A separate lawsuit arrived in August: Tigo Energy Innovations LLC accuses the company of infringing ten patents. Enphase says it cannot estimate a loss and will defend the case.

Dates ahead

Loan 2 to the financier matures in December 2026. The Federal Circuit appeal over refunds of Section 122 tariffs is still pending, and Enphase has recorded no receivable for them. In the fourth quarter, the company guided revenue to $225.0 million to $255.0 million.

Enphase's market value stood near $4.0 billion in Tuesday's report, with cash and marketable securities of $931.8 million at September 30.