July 25, 2018

Enphase Energy Inc. | ENPH

Enphase Energy's shares could fall 85% to $1.00 when investors realize the company' seemingly overnight turnaround is nothing but a sham. Prescience Point is short ENPH.

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We believe Enphase Energy’s financial results since Q3 2017 have been materially inflated by manipulative, and potentially improper, accounting practices that have become increasingly severe with each passing quarter. These accounting shenanigans appear to have begun following the appointment of Badri Kothandaraman as Enphase’s new CEO in September 2017.

  • Prescience Point believes that Enphase Energy’s purported turnaround under its new CEO is a sham
  • Prescience Point’s analysis indicates that the 43.7% or 804 bps expansion in Enphase’s gross margin over the past three quarters is almost entirely attributable to manipulative and potentially improper accounting practices
  • Prescience Point’s analysis indicates that Enphase’s revenue in the past two quarters was also materially inflated. For example, irreconcilable discrepancies in Enphase’s latest 10Q indicate that the company improperly recognized $6.3m of deferred revenue in the quarter – a potentially egregious violation of GAAP
  • An anomalous 19.9% YoY increase in Q1 2018 revenue per inverter amounts to proof, in our view, that Enphase’s Q1 2018 results were significantly inflated. This large increase is completely out of line with historical trends and directly contradicts management’s recent projection of a 2% ASP decline per quarter in FY’18
  • Former CFO Bert Garcia suddenly departed Enphase in June 2018. New CFO Eric Branderiz, a former Tesla executive, is Enphase’s fourth CFO in a little over six years as a public company
  • Investor optimism over the recently announced SPWR deal is misplaced. Our analysis indicates that ENPH paid 34.4x annual EBIT for a limited five-year supply agreement – an incredibly value destructive transaction. We believe ENPH engaged in this questionable deal to artificially boost its future gross margins

 

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