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 intelligent 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 (“U.S.”), or 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 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, 2020 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, inventory valuation, accrued warranty obligations, fair value of debt derivatives, 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 management’s estimates using different assumptions or under different conditions.
The worldwide spread of the COVID-19 pandemic is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including from the Company’s customers, while also disrupting sales channels and marketing activities for an unknown period of time until the disease is contained. The Company expects this to have a negative impact on its sales and its results of operations. In preparing the Company’s condensed consolidated financial statements in accordance with GAAP, the Company is required to make estimates, assumptions and judgments that affect the amounts reported in its financial statements and the accompanying disclosures. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.
Enphase Energy, Inc. | 2020 Form 10-Q | 6
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summary of Significant Accounting Policies
There have been no significant changes to the Company’s significant accounting policies in Note 2. “Summary of Significant Accounting Policies,” of the notes to consolidated financial statements included in Item 8 of the Company’s 2019 Annual Report on Form 10-K.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” to reduce diversity in practice in accounting for the costs of implementing cloud computing arrangements that are service contracts. ASU 2018-15 allows entities to apply the guidance in the ASC 350-40, “Intangibles–Goodwill and Other–Internal-Use Software,” to determine which implementation costs are eligible to be capitalized as assets in a cloud computing arrangement that is considered a service contract. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively and are required to make certain disclosures in the interim and annual period of adoption. The Company adopted the new standard effective January 1, 2020 on a prospective basis and the adoption of this guidance did not have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a current expected credit loss (CECL) model which will result in earlier recognition of credit losses. On January 1, 2020, the Company adopted Topic 326, the measurement of expected credit losses under the CECL model is applicable to financial assets measured at amortized cost, including accounts receivable. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Disaggregated Revenue
The Company has one 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,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Primary geographical markets:
|
|
|
|
United States
|
$
|
179,600
|
|
|
$
|
77,686
|
|
International
|
25,945
|
|
|
22,464
|
|
Total
|
$
|
205,545
|
|
|
$
|
100,150
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
Products delivered at a point in time
|
$
|
194,679
|
|
|
$
|
90,400
|
|
Products and services delivered over time
|
10,866
|
|
|
9,750
|
|
Total
|
$
|
205,545
|
|
|
$
|
100,150
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 7
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contract Balances
Receivables, and contract assets and contract liabilities from contracts with customers are as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Receivables
|
$
|
95,484
|
|
|
$
|
145,413
|
|
Short-term contract assets (Prepaid expenses and other assets)
|
15,928
|
|
|
15,055
|
|
Long-term contract assets (Other assets)
|
45,361
|
|
|
42,087
|
|
Short-term contract liabilities (Deferred revenues)
|
39,022
|
|
|
81,783
|
|
Long-term contract liabilities (Deferred revenues)
|
106,205
|
|
|
100,204
|
|
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, 2020.
Significant changes in the balances of contract assets (prepaid expenses and other assets) during the period are as follows (in thousands):
|
|
|
|
|
Contract Assets
|
|
Balance on December 31, 2019
|
$
|
57,142
|
|
Amount recognized
|
(4,140
|
)
|
Increase
|
8,287
|
|
Balance as of March 31, 2020
|
$
|
61,289
|
|
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.
Significant changes in the balances of contract liabilities (deferred revenues) during the period are as follows (in thousands):
|
|
|
|
|
Contract Liabilities
|
|
Balance on December 31, 2019
|
$
|
181,987
|
|
Revenue recognized
|
(55,373
|
)
|
Increase due to billings
|
18,613
|
|
Balance as of March 31, 2020
|
$
|
145,227
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 8
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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,
2020
|
|
(In thousands)
|
Fiscal year:
|
|
2020 (remaining nine months)
|
$
|
30,514
|
|
2021
|
33,553
|
|
2022
|
28,527
|
|
2023
|
22,743
|
|
2024
|
17,566
|
|
Thereafter
|
12,324
|
|
Total
|
$
|
145,227
|
|
|
|
3.
|
OTHER FINANCIAL INFORMATION
|
Accounts Receivable, Net
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional.
Accounts receivable, net consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Accounts receivable
|
$
|
95,858
|
|
|
$
|
145,977
|
|
Allowance for doubtful accounts
|
(374
|
)
|
|
(564
|
)
|
Accounts receivable, net
|
$
|
95,484
|
|
|
$
|
145,413
|
|
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for uncollectible accounts receivable. Management estimates anticipated losses from doubtful accounts based on financial health of customers, days past due, collection history and existing economic conditions. The following table sets forth activities in the allowance for doubtful accounts for the periods indicated.
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Balance, at beginning of the period
|
$
|
564
|
|
|
$
|
2,138
|
|
Net charges to expenses
|
104
|
|
|
217
|
|
Write-offs, net of recoveries
|
(294
|
)
|
|
(1,791
|
)
|
Balance, at end of the period
|
$
|
374
|
|
|
$
|
564
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 9
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Inventory
Inventory consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Raw materials
|
$
|
5,018
|
|
|
$
|
4,197
|
|
Finished goods
|
29,599
|
|
|
27,859
|
|
Total inventory
|
$
|
34,617
|
|
|
$
|
32,056
|
|
Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Salaries, commissions, incentive compensation and benefits
|
$
|
9,200
|
|
|
$
|
5,524
|
|
Customer rebates and sales incentives
|
21,601
|
|
|
24,198
|
|
Freight
|
3,734
|
|
|
4,908
|
|
Operating lease liabilities, current
|
3,511
|
|
|
3,170
|
|
Other
|
11,771
|
|
|
9,292
|
|
Total accrued liabilities
|
$
|
49,817
|
|
|
$
|
47,092
|
|
|
|
4.
|
GOODWILL AND INTANGIBLE ASSETS
|
The Company’s goodwill and purchased intangible assets as of March 31, 2020 and December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
(In thousands)
|
Goodwill
|
$
|
24,783
|
|
|
$
|
—
|
|
|
$
|
24,783
|
|
|
$
|
24,783
|
|
|
$
|
—
|
|
|
$
|
24,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Other indefinite-lived intangibles
|
$
|
286
|
|
|
$
|
—
|
|
|
$
|
286
|
|
|
$
|
286
|
|
|
$
|
—
|
|
|
$
|
286
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
13,100
|
|
|
(3,639
|
)
|
|
9,461
|
|
|
13,100
|
|
|
(3,093
|
)
|
|
10,007
|
|
Customer relationships
|
23,100
|
|
|
(3,515
|
)
|
|
19,585
|
|
|
23,100
|
|
|
(2,814
|
)
|
|
20,286
|
|
Total purchased intangible assets
|
$
|
36,486
|
|
|
$
|
(7,154
|
)
|
|
$
|
29,332
|
|
|
$
|
36,486
|
|
|
$
|
(5,907
|
)
|
|
$
|
30,579
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 10
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,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Developed technology, and patents and licensed technology
|
$
|
546
|
|
|
$
|
546
|
|
Customer relationships
|
701
|
|
|
636
|
|
Total amortization expense
|
$
|
1,247
|
|
|
$
|
1,182
|
|
Amortization of developed technology, patents and licensed technology is recorded to sales and marketing expense. The developed technology acquired from the Company’s acquisition of SunPower Corporation’s (“SunPower”) microinverter business in August 2018 was embedded in the microinverters that SunPower sold to its customers. The Company does not actively use the developed technology acquired from SunPower and holds the developed technology to prevent others from using it. Accordingly, the Company accounts for the developed technology as a defensive intangible asset and amortizes the associated value over a period of six years from the date of acquisition.
The master supply agreement (“MSA”) entered into with SunPower in August 2018 provides the Company with the exclusive right to supply SunPower with module level power electronics for a period of five years, with options for renewals. The exclusivity arrangement extends throughout the term of the MSA, which comprises all of the expected cash flows from the customer relationship intangible asset, and was a condition to, and was an essential part of the acquisition of SunPower’s microinverter business by the Company. As the fair value ascribed to the customer relationship intangible asset represents payments to a customer, the Company amortizes the value of the customer relationship intangible asset as a reduction to revenue using a pattern of economic benefit method over a useful life of nine years.
The Company’s warranty activities were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Warranty obligations, beginning of period
|
$
|
37,098
|
|
|
$
|
31,294
|
|
Accruals for warranties issued during period
|
1,524
|
|
|
858
|
|
Changes in estimates
|
1,677
|
|
|
804
|
|
Settlements
|
(3,270
|
)
|
|
(2,296
|
)
|
Increase due to accretion expense
|
774
|
|
|
551
|
|
Other
|
(302
|
)
|
|
(169
|
)
|
Warranty obligations, end of period
|
37,501
|
|
|
31,042
|
|
Less: current portion
|
(9,678
|
)
|
|
(7,925
|
)
|
Noncurrent
|
$
|
27,823
|
|
|
$
|
23,117
|
|
|
|
6.
|
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.
Enphase Energy, Inc. | 2020 Form 10-Q | 11
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 the Company’s assets and liabilities that were measured at fair value on a recurring basis and its categorization within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
(In thousands)
|
|
Level 2
|
|
Level 3
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Convertible notes hedge
|
$
|
47,885
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, non-current
|
|
|
|
|
|
|
|
Convertible notes embedded derivative
|
45,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Warrants liability
|
38,637
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Warranty obligations
|
|
|
|
|
|
|
|
Current
|
—
|
|
|
6,578
|
|
|
—
|
|
|
6,794
|
|
Non-current
|
—
|
|
|
13,847
|
|
|
—
|
|
|
13,012
|
|
Total warranty obligations measured at fair value
|
—
|
|
|
20,425
|
|
|
—
|
|
|
19,806
|
|
Total liabilities measured at fair value
|
$
|
83,737
|
|
|
$
|
20,425
|
|
|
$
|
—
|
|
|
$
|
19,806
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 12
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Level 1. The Company's cash and cash equivalents primarily include highly liquid money market fund instruments and are within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical instruments in active markets. As of March 31, 2020, cash and cash equivalents balance includes money market funds of $542.2 million.
Level 2.
Convertible Notes due 2025 Derivatives
On March 9, 2020, the Company issued $320 million aggregate principal amount of 0.25% convertible senior notes due 2025 (the “Notes due 2025”) as further described in Note. 8 “Debt”. Concurrently with the issuance of the Notes due 2025, the Company entered into privately-negotiated convertible note hedge and warrant transactions which in combination are intended to reduce the potential dilution from the conversion of the Notes due 2025 and to effectively increase the overall conversion price from $81.54 to $106.94 per share. Initially, conversion of the Notes due 2025 will be settled solely in cash; however, following satisfaction of certain share reservation conditions (as defined in the relevant Indenture), conversion of the Notes due 2025 may be settled in cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election. The conversion option associated with the Notes due 2025 currently meets the criteria for an embedded derivative liability which required bifurcation and separate accounting. In addition, the privately-negotiated convertible note hedge and warrant transactions are also currently classified as a derivative asset and liability, respectively, on the Company’s condensed consolidated balance sheet. On the date the Company increases its authorized shares of common stock and satisfies the share reservation condition, the derivative asset and liabilities will be reclassified to additional paid-in capital as the equity classification criteria is met. Changes in the fair value of these derivatives prior to being classified in equity are reflected in other income (expense), net, in the Company’s condensed consolidated statement of operations.
The fair value of the Convertible notes embedded derivative is estimated using Binomial Lattice model and the fair value of Convertible notes hedge and Warrants liability is estimated using Black-Scholes-Merton model. Based on the fair value hierarchy, the Company classified the Convertible notes embedded derivative, Convertible notes hedge and Warrants liability derivatives (collectively the “derivatives”) to be Level 2 as significant inputs are observable, either directly or indirectly. The significant inputs and assumptions used in the models to calculate the fair value of the derivatives include the Company’s common stock price, exercise price of the derivatives, risk-free interest rate, volatility, annual coupon rate and remaining contractual term.
Notes due 2025 and Notes due 2024. The Company carries the Notes due 2025 and Notes due 2024 (as defined below) at face value less unamortized discount and issuance costs on its condensed consolidated balance sheets. The fair value of the Notes due 2025 and Notes due 2024 of $262.3 million and $252.9 million, respectively, was determined based on the closing trading prices per $100 principal amount as of the last day of trading for the period. The Company considers the fair value of the Notes due 2025 and Notes due 2024 to be a Level 2 measurement as they are not actively traded.
Level 3.
Warranty Obligations.
Fair Value Option for Warranty Obligations Related to Microinverters Sold Since January 1, 2014
The Company estimates the fair value of warranty obligations by calculating the warranty obligations in the same manner as for sales prior to January 1, 2014 and applying an expected present value technique to that result. The expected present value technique, an income approach, converts future amounts into a single current discounted amount. In addition to the key estimates of failure rates, claim rates and replacement costs, the Company used certain Level 3 inputs which are unobservable and significant to the overall fair value measurement. Such additional assumptions included a discount rate based on the Company’s credit-adjusted risk-free rate and compensation comprised of a profit element and risk premium required of a market participant to assume the obligation.
Enphase Energy, Inc. | 2020 Form 10-Q | 13
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information regarding changes in nonfinancial liabilities related to the Company’s warranty obligations measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Balance at beginning of period
|
$
|
19,806
|
|
|
$
|
11,757
|
|
Accruals for warranties issued during period
|
1,524
|
|
|
858
|
|
Changes in estimates
|
615
|
|
|
341
|
|
Settlements
|
(1,993
|
)
|
|
(1,272
|
)
|
Increase due to accretion expense
|
774
|
|
|
551
|
|
Other
|
(301
|
)
|
|
(170
|
)
|
Balance at end of period
|
$
|
20,425
|
|
|
$
|
12,065
|
|
Quantitative and Qualitative Information about Level 3 Fair Value Measurements
As of March 31, 2020 and December 31, 2019, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Used
(Weighted Average)
|
Item Measured at Fair Value
|
|
Valuation Technique
|
|
Description of Significant Unobservable Input
|
|
March 31,
2020
|
|
December 31,
2019
|
Warranty obligations for microinverters sold since January 1, 2014
|
|
Discounted cash flows
|
|
Profit element and risk premium
|
|
15%
|
|
14%
|
|
|
Credit-adjusted risk-free rate
|
|
16%
|
|
16%
|
Sensitivity of Level 3 Inputs - Warranty Obligations
Each of the significant unobservable inputs is independent of the other. The profit element and risk premium are estimated based on requirements of a third-party participant willing to assume the Company’s warranty obligations. The credit‑adjusted risk‑free rate (“discount rate”) is determined by reference to the Company’s own credit standing at the fair value measurement date. Increasing the profit element and risk premium input by 100 basis points would result in a $0.2 million increase to the liability. Decreasing the profit element and risk premium by 100 basis points would result in a $0.2 million reduction of the liability. Increasing the discount rate by 100 basis points would result in a $0.9 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a $1.0 million increase to the liability.
Restructuring expense consist of the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Redundancy and employee severance and benefit arrangements
|
$
|
—
|
|
|
$
|
468
|
|
Lease loss reserves
|
—
|
|
|
(100
|
)
|
Total restructuring charges
|
$
|
—
|
|
|
$
|
368
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 14
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2018 Plan
In the third quarter of 2018, the Company began implementing restructuring actions (the “2018 Plan”) to lower its operating expenses. The restructuring actions include reorganization of the Company’s global workforce, elimination of certain non-core projects and consolidation of facilities. The Company completed its restructuring activities under the 2018 Plan in 2019.
The following table provides information regarding the Company’s long-term debt.
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Convertible notes
|
|
|
|
Notes due 2025
|
$
|
320,000
|
|
|
$
|
—
|
|
Less: unamortized discount and issuance costs
|
(75,450
|
)
|
|
—
|
|
Carrying amount of Notes due 2025
|
244,550
|
|
|
—
|
|
|
|
|
|
Notes due 2025 embedded derivative
|
45,100
|
|
|
—
|
|
|
|
|
|
Notes due 2024
|
132,000
|
|
|
132,000
|
|
Less: unamortized discount and issuance costs
|
(34,087
|
)
|
|
(35,815
|
)
|
Carrying amount of Notes due 2024
|
97,913
|
|
|
96,185
|
|
|
|
|
|
Notes due 2023
|
5,000
|
|
|
5,000
|
|
Less: unamortized issuance costs
|
(132
|
)
|
|
(143
|
)
|
Carrying amount of Notes due 2023
|
4,868
|
|
|
4,857
|
|
|
|
|
|
Sale of long-term financing receivable recorded as debt
|
3,352
|
|
|
4,501
|
|
Total carrying amount of debt
|
395,783
|
|
|
105,543
|
|
Less: current portion of convertible notes and long-term financing receivable recorded as debt
|
(100,567
|
)
|
|
(2,884
|
)
|
Long-term debt
|
$
|
295,216
|
|
|
$
|
102,659
|
|
Convertible Senior Notes due 2025
On March 9, 2020, the Company issued $320.0 million aggregate principal amount of the Notes due 2025. The Notes due 2025 are general unsecured obligations and bear interest at an annual rate of 0.25% per year, payable semi-annually on March 1 and September 1 of each year, beginning September 1, 2020. The Notes due 2025 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Notes due 2025 will mature on March 1, 2025, unless earlier repurchased by the Company or converted at the option of the holders. The Company may not redeem the notes prior to the maturity date, and no sinking fund is provided for the notes. The Notes due 2025 may be converted, under certain circumstances as described below, based on an initial conversion rate of 12.2637 shares of common stock per $1,000 principal amount (which represents an initial conversion price of $81.54 per share). The conversion rate for the Notes due 2025 will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the relevant indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its notes in connection with such make-whole fundamental change. The Company received approximately $313.0 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2025.
Enphase Energy, Inc. | 2020 Form 10-Q | 15
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Notes due 2025 may be converted prior to the close of business on the business day immediately preceding September 1, 2024, in multiples of $1,000 principal amount, at the option of the holder only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On and after September 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date of March 1, 2025, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon the occurrence of a fundamental change (as defined in the relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2025 for cash at a price equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
As of March 31, 2020, the number of authorized and unissued shares of the Company’s common stock that are not reserved for other purposes is less than the maximum number of underlying shares that will be required to settle the Notes due 2025 into equity. Accordingly, unless and until the Company has a number of authorized shares that have not been issued or reserved for any other purpose that equals or exceeds the maximum number of underlying shares (“share reservation condition”), the Company will pay to the converting holder in respect of each $1,000 principal amount of notes being converted solely cash in an amount equal to the sum of the daily conversion values for each of the 20 consecutive trading days during the related observation period. However, following satisfaction of the share reservation condition, the Company may settle conversions of notes through payment or delivery, as the case may be, of cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election.
In accounting for the issuance of the Notes due 2025, on March 9, 2020, the conversion option of the Notes due 2025 was deemed an embedded derivative requiring bifurcation from the Notes due 2025 (“host contract”) and separate accounting as an embedded derivative liability, as a result of the Company not having the necessary number of authorized but unissued shares of its common stock available to settle the conversion option of the Notes due 2025 in shares. The proceeds from the Notes due 2025 are first allocated to the embedded derivative liability and the remaining proceeds are then allocated to the host contract. On March 9, 2020, the carrying amount of the embedded derivative liability of $68.7 million representing the conversion option was determined using the Binomial Lattice model and the remaining $251.3 million was allocated to the host contract. The difference between the principal amount of the Notes due 2025 and the fair value of the host contract (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes due 2025.
As of March 31, 2020, the embedded derivative liability is included in Debt, non-current in the condensed consolidated balance sheet and the change in fair value of derivative is included in other income (expense), net in the condensed consolidated statement of operations.
The following table presents the fair value and the change in fair value for convertible note embedded derivative (in thousands):
|
|
|
|
|
Convertible note embedded derivative
|
|
Fair value as of March 09, 2020
|
$
|
68,700
|
|
Change in the fair value
|
(23,600
|
)
|
Fair value as of March 31, 2020
|
$
|
45,100
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 16
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Debt issuance costs for the issuance of the Notes due 2025 were approximately $7.6 million, consisting of initial purchasers' discount and other issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to the Notes due 2025 host contract. Transaction costs were recorded as debt issuance cost (presented as contra debt in the condensed consolidated balance sheet) and are being amortized to interest expense over the term of the Notes due 2025.
The following table presents the total amount of interest cost recognized relating to the Notes due 2025:
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
(In thousands)
|
Contractual interest expense
|
$
|
49
|
|
Amortization of debt discount
|
743
|
|
Amortization of debt issuance costs
|
87
|
|
Total interest cost recognized
|
$
|
879
|
|
The derived effective interest rate on the Notes due 2025 host contract was determined to be 5.18%, which remain unchanged from the date of issuance. The remaining unamortized debt discount was $68.0 million as of March 31, 2020, will be amortized over approximately 4.9 years.
Notes due 2025 Hedge and Warrant Transactions
In connection with the offering of the Notes due 2025, the Company entered into privately-negotiated convertible note hedge transactions pursuant to which the Company has the option to purchase a total of approximately 3.9 million shares of its common stock (subject to anti-dilution adjustments), which is the same number of shares initially issuable upon conversion of the notes, at a price of $81.54 per share, which is the initial conversion price of the Notes due 2025. The total cost of the convertible note hedge transactions was approximately $89.1 million. The convertible note hedge transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2025 and/or offset any cash payments the Company is required to make in excess of the principal amount of converted notes, as the case may be. As of March 31, 2020, the Company had not purchased any shares under the convertible note hedge transactions.
Additionally, the Company separately entered into privately-negotiated warrant transactions (the “Warrants”) whereby the Company sold warrants to acquire approximately 3.9 million shares of the Company’s common stock (subject to anti-dilution adjustments) at an initial strike price of $106.94 per share. The Company received aggregate proceeds of approximately $71.6 million from the sale of the Warrants. If the market value per share of the Company’s common stock, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on the Company’s earnings per share, unless the Company elects, subject to certain conditions, to settle the Warrants in cash. Taken together, the purchase of the convertible note hedges and the sale of the Warrants are intended to reduce potential dilution from the conversion of the Notes due 2025 and to effectively increase the overall conversion price from $81.54 to $106.94 per share. The Warrants are only exercisable on the applicable expiration dates in accordance with the agreements relating to each of the Warrants. Subject to the other terms of the Warrants, the first expiration date applicable to the Warrants is June 1, 2025, and the final expiration date applicable to the Warrants is September 23, 2025. As of March 31, 2020, the Warrants had not been exercised and remained outstanding.
For the period from March 9, 2020, the issuance date of the convertible notes hedge and warrant transactions, through March 31, 2020, the number of authorized and unissued shares of the Company’s common stock that are not reserved for other purposes is less than the maximum number of underlying shares that will be required to settle the Notes due 2025 through the delivery of shares of the Company’s common stock. Accordingly, the convertibles note hedge transactions and the warrants may only be settled on net cash settlement basis. As a result the convertible note hedge transactions and the warrants have been classified as a Convertible notes hedge asset and Warrants liability, respectively, in the condensed consolidated balance sheet and the change in fair value of derivative is included in other income (expense), net in the condensed consolidated statement of operations.
Enphase Energy, Inc. | 2020 Form 10-Q | 17
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the fair value and the change in fair value for Convertible notes hedge and Warrants liability (in thousands):
|
|
|
|
|
|
|
|
|
|
Convertible notes hedge
|
|
Warrants liability
|
|
(In thousands)
|
Fair value as of March 09, 2020
|
$
|
89,056
|
|
|
$
|
71,552
|
|
Change in the fair value
|
(41,171
|
)
|
|
(32,915
|
)
|
Fair value as of March 31, 2020
|
$
|
47,885
|
|
|
$
|
38,637
|
|
Convertible Senior Notes due 2024
On June 5, 2019, the Company issued $132.0 million aggregate principal amount of 1.0% convertible senior notes due 2024 (the “Notes due 2024”). The Notes due 2024 are general unsecured obligations and bear interest at an annual rate of 1.0% per year, payable semi-annually on June 1 and December 1 of each year, beginning December 1, 2019. The Notes due 2024 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Notes due 2024 will mature on June 1, 2024, unless earlier repurchased by the Company or converted at the option of the holders. The Company may not redeem the notes prior to the maturity date, and no sinking fund is provided for the notes. The Notes due 2024 may be converted, under certain circumstances as described below, based on an initial conversion rate of 48.7781 shares of common stock per $1,000 principal amount (which represents an initial conversion price of $20.5010 per share). The conversion rate for the Notes due 2024 will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the relevant indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its notes in connection with such make-whole fundamental change. The Company received approximately $128.0 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2024.
The Notes due 2024 may be converted on any day prior to the close of business on the business day immediately preceding December 1, 2023, in multiples of $1,000 principal amount, at the option of the holder only under any of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to $26.6513 (130% of the conversion price) on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On and after December 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date of June 1, 2024, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon the occurrence of a fundamental change (as defined in the relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2024 for cash at a price equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
As of March 31, 2020, the sale price of the Company’s common stock was greater than or equal to $26.6513 (130% of the notes conversion price) for at least 20 trading days (whether consecutive or not) during a period of 30 consecutive trading days preceding the quarter-ended March 31, 2020. As a result, as of March 31, 2020, the Notes due 2024 became convertible at the holders’ option beginning on April 1, 2020 and ending June 30, 2020. Accordingly, the Company classified the net carrying amount of the Notes due 2024 of $97.9 million as Debt, current on the condensed consolidated balance sheet as of March 31, 2020.
Enphase Energy, Inc. | 2020 Form 10-Q | 18
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In accounting for the issuance of the Notes due 2024, on June 5, 2019, the Company separated the Notes due 2024 into liability and equity components. The carrying amount of the liability component of approximately $95.6 million was calculated by using a discount rate of 7.75%, which was the Company’s borrowing rate on the date of the issuance of the notes for a similar debt instrument without the conversion feature. The carrying amount of the equity component of approximately $36.4 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Notes due 2024. The equity component of the Notes due 2024 is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The difference between the principal amount of the Notes due 2024 and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes due 2024.
The Company separated the Notes due 2024 into liability and equity components, this resulted in a tax basis difference associated with the liability component that represents a temporary difference. The Company recognized the deferred taxes of $0.3 million for the tax effect of that temporary difference as an adjustment to the equity component included in additional paid-in capital in the condensed consolidated balance sheet.
Debt issuance costs for the issuance of the Notes due 2024 were approximately $4.6 million, consisting of initial purchasers' discount and other issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Notes due 2024. Transaction costs attributable to the liability component were approximately $3.3 million, were recorded as debt issuance cost (presented as contra debt in the condensed consolidated balance sheet) and are being amortized to interest expense over the term of the Notes due 2024. The transaction costs attributable to the equity component were approximately $1.3 million and were netted with the equity component in stockholders’ equity. As of March 31, 2020 and December 31, 2019, the unamortized deferred issuance cost for the Notes due 2024 was $2.8 million and $2.9 million, respectively, on the condensed consolidated balance sheets.
The following table presents the total amount of interest cost recognized relating to the Notes due 2024:
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
(In thousands)
|
Contractual interest expense
|
$
|
330
|
|
Amortization of debt discount
|
1,562
|
|
Amortization of debt issuance costs
|
166
|
|
Total interest cost recognized
|
$
|
2,058
|
|
The effective interest rate on the liability component Notes due 2024 was 7.75% for the three months ended March 31, 2020, which remains unchanged from the date of issuance. The remaining unamortized debt discount was $31.3 million and $32.9 million as of March 31, 2020 and December 31, 2019, respectively, will be amortized over approximately 4.2 years from March 31, 2020.
Notes due 2024 Hedge and Warrant Transactions
In connection with the offering of the Notes due 2024, the Company entered into privately-negotiated convertible note hedge transactions pursuant to which the Company has the option to purchase a total of approximately 6.4 million shares of its common stock (subject to anti-dilution adjustments), which is the same number of shares initially issuable upon conversion of the notes, at a price of $20.5010 per share, which is the initial conversion price of the Notes due 2024. The total cost of the convertible note hedge transactions was approximately $36.3 million. The convertible note hedge transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2024 and/or offset any cash payments the Company is required to make in excess of the principal amount of converted notes, as the case may be. As of March 31, 2020, and through the date of this quarterly report, the Company had not purchased any shares under the convertible note hedge transactions.
Enphase Energy, Inc. | 2020 Form 10-Q | 19
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additionally, the Company separately entered into privately-negotiated warrant transactions (the “Warrants”) whereby the Company sold warrants to acquire approximately 6.4 million shares of the Company’s common stock (subject to anti-dilution adjustments) at an initial strike price of $25.2320 per share. The Company received aggregate proceeds of approximately $29.8 million from the sale of the Warrants. If the market value per share of the Company’s common stock, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on the Company’s earnings per share, unless the Company elects, subject to certain conditions, to settle the Warrants in cash. Taken together, the purchase of the convertible note hedges and the sale of the Warrants are intended to reduce potential dilution from the conversion of the Notes due 2024 and to effectively increase the overall conversion price from $20.5010 to $25.2320 per share. The Warrants are only exercisable on the applicable expiration dates in accordance with the Warrants. Subject to the other terms of the Warrants, the first expiration date applicable to the Warrants is September 1, 2024, and the final expiration date applicable to the Warrants is April 22, 2025. As of March 31, 2020, and through the report date, the Warrants had not been exercised and remained outstanding.
Given that the transactions meet certain accounting criteria, the Notes due 2024 hedge and the warrants transactions are recorded in stockholders’ equity, and they are not accounted for as derivatives and are not remeasured each reporting period.
Convertible Senior Notes due 2023
In August 2018, the Company sold $65.0 million aggregate principal amount of 4.0% convertible senior notes due 2023 (the “Notes due 2023”) in a private placement. On May 30, 2019, the Company entered into separately and privately negotiated transactions with certain holders of the Notes due 2023 resulting in the repurchase and exchange, as of June 5, 2019, of $60.0 million aggregate principal amount of the notes in consideration for the issuance of 10,801,080 shares of common stock and separate cash payments totaling $6.0 million. As of both March 31, 2020 and December 31, 2019, $5.0 million aggregate principal amount of the Notes due 2023 remain outstanding.
The remaining outstanding Notes due 2023 are general unsecured obligations and bear interest at a rate of 4.0% per year, payable semi-annually on February 1 and August 1 of each year. The Notes due 2023 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The remaining outstanding Notes due 2023 will mature on August 1, 2023, unless earlier repurchased by the Company or converted at the option of the holders. The Company may not redeem the remaining Notes due 2023 prior to the maturity date, and no sinking fund is provided for such notes. The remaining Notes due 2023 are convertible, at a holder’s election, in multiples of $1,000 principal amount, into shares of the Company’s common stock based on the applicable conversion rate. The initial conversion rate for such notes is 180.0180 shares of common stock per $1,000 principal amount of notes (which is equivalent to an initial conversion price of approximately $5.56 per share). The conversion rate and the corresponding conversion price are subject to adjustment upon the occurrence of certain events but will not be adjusted for any accrued and unpaid interest. Holders of the remaining Notes due 2023 who convert their notes in connection with a make-whole fundamental change (as defined in the applicable indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the remaining Notes due 2023 may require the Company to repurchase all or a portion of their notes at a price equal to 100% of the principal amount of notes, plus any accrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. Holders may convert all or any portion of their Notes due 2023 at their option at any time prior to the close of business on the business day immediately preceding the maturity date, in multiples of $1,000 principal amount.
The following table presents the amount of interest cost recognized relating to the contractual interest coupon and the amortization of debt issuance costs of the Notes due 2023.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Contractual interest expense
|
$
|
50
|
|
|
$
|
650
|
|
Amortization of debt issuance costs
|
10
|
|
|
129
|
|
Total interest costs recognized
|
$
|
60
|
|
|
$
|
779
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 20
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Sale of Long-Term Financing Receivables
The Company entered into an agreement with a third party in the fourth quarter of 2017 to sell certain current and future receivables at a discount. In December 2017, the third party made an initial purchase of receivables that resulted in net proceeds to the Company of $2.8 million. This transaction was recorded as debt on the accompanying consolidated balance sheets, and the debt balance was relieved in January 2019 as the underlying receivables were settled. During the year ended December 31, 2018, the third party made three additional purchases of receivables that resulted in total net proceeds to the Company of $5.6 million. These transactions were recorded as debt on the accompanying condensed consolidated balance sheets, and the total associated debt balance will be relieved by September 2021 as the underlying receivables are settled.
|
|
9.
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
Operating Leases
The Company leases office facilities under noncancelable operating leases that expire on various dates through 2028, some of which may include options to extend the leases for up to 12 years.
The components of lease expense are presented as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Operating lease costs
|
$
|
1,222
|
|
|
$
|
499
|
|
The components of lease liabilities are presented as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Operating lease liabilities, current (Accrued liabilities)
|
$
|
3,511
|
|
|
$
|
3,170
|
|
Operating lease liabilities, noncurrent (Other liabilities)
|
10,972
|
|
|
9,542
|
|
Total operating lease liabilities
|
$
|
14,483
|
|
|
$
|
12,712
|
|
|
|
|
|
Supplemental lease information:
|
|
|
|
Weighted average remaining lease term
|
5.6 years
|
|
5.5 years
|
Weighted average discount rate
|
8.3%
|
|
8.6%
|
Supplemental cash flow and other information related to operating leases, are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
1,014
|
|
|
$
|
737
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
Lease liabilities arising from obtaining right-of-use assets
|
$
|
2,941
|
|
|
$
|
—
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 21
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Undiscounted cash flows of operating lease liabilities as of March 31, 2020 are as follows:
|
|
|
|
|
|
Lease Amounts
|
|
(In thousands)
|
Year:
|
|
2020 (remaining nine months)
|
$
|
3,432
|
|
2021
|
4,651
|
|
2022
|
3,337
|
|
2023
|
2,619
|
|
2024
|
1,415
|
|
2025 and thereafter
|
1,902
|
|
Total lease payments
|
17,356
|
|
Less: imputed lease interest
|
(2,873
|
)
|
Total lease liabilities
|
$
|
14,483
|
|
Purchase Obligations
The Company has contractual obligations related to component inventory that its primary contract manufacturer procures on its behalf in accordance with its production forecast as well as other inventory related purchase commitments. As of March 31, 2020, these purchase obligations totaled approximately $95.6 million.
Letter of Credits
As of both March 31, 2020 and December 31, 2019, the Company had a standby letter of credit in the aggregate amount of $44.7 million, primarily in connection with one of its customer contracts. The letter of credit served as a performance security for product delivered to the customer during the three months ended March 31, 2020 and expired on April 30, 2020. The Company had collateralized under the letter of credit a certificate of deposit of $44.7 million. No amounts have been drawn against this letter of credit.
Litigation
From time-to-time, the Company may be involved in litigation relating to claims arising out of its operations. The Company is not currently involved in any material legal proceedings; however, the Company may be involved in material legal proceedings in the future. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material effect on its business, results of operations, financial position or cash flows.
|
|
10.
|
STOCK-BASED COMPENSATION
|
Enphase Energy, Inc. | 2020 Form 10-Q | 22
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock-based Compensation Expense
Stock-based compensation expense for all stock-based awards expected to vest is measured at fair value on the date of grant and recognized ratably over the requisite service period. The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations for the periods presented.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Cost of revenues
|
$
|
606
|
|
|
$
|
231
|
|
Research and development
|
1,919
|
|
|
716
|
|
Sales and marketing
|
1,942
|
|
|
999
|
|
General and administrative
|
3,048
|
|
|
1,288
|
|
Restructuring
|
—
|
|
|
55
|
|
Total
|
$
|
7,515
|
|
|
$
|
3,289
|
|
The following table summarizes the various types of stock-based compensation expense for the periods presented.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Stock options, RSUs, and PSUs
|
$
|
7,077
|
|
|
$
|
3,222
|
|
Employee stock purchase plan
|
438
|
|
|
67
|
|
Total
|
$
|
7,515
|
|
|
$
|
3,289
|
|
As of March 31, 2020, there was approximately $40.6 million of total unrecognized stock-based compensation expense related to unvested equity awards, which are expected to be recognized over a weighted-average period of 2.8 years.
Valuation of Equity Awards
Stock Options
The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model. No options were granted during the three months ended March 31, 2020 and 2019.
Restricted Stock Units
The fair value of the Company’s restricted stock units (“RSU”) awards granted is based upon the closing price of the Company’s stock price on the date of grant.
Performance Stock Units
The fair value of the Company’s non-market performance stock units (“PSU”) awards granted was based upon the closing price of the Company’s stock price on the date of grant. The fair value of awards of the Company’s PSU awards containing market conditions was determined using a Monte Carlo simulation model based upon the terms of the conditions, the expected volatility of the underlying security, and other relevant factors.
Enphase Energy, Inc. | 2020 Form 10-Q | 23
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity Awards Activity
Stock Options
The following is a summary of stock option activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Outstanding
|
|
Weighted-
Average
Exercise Price
per Share
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value (1)
|
|
(In thousands)
|
|
|
|
(Years)
|
|
(In thousands)
|
Outstanding at December 31, 2019
|
4,097
|
|
|
$
|
2.18
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(541
|
)
|
|
2.58
|
|
|
|
|
$
|
28,263
|
|
Canceled
|
(73
|
)
|
|
7.44
|
|
|
|
|
|
Outstanding at March 31, 2020
|
3,483
|
|
|
$
|
2.01
|
|
|
4.2
|
|
$
|
105,469
|
|
Vested and expected to vest at March 31, 2020
|
3,483
|
|
|
$
|
2.01
|
|
|
4.2
|
|
$
|
105,469
|
|
Exercisable at March 31, 2020
|
2,518
|
|
|
$
|
2.22
|
|
|
4.1
|
|
$
|
75,706
|
|
|
|
(1)
|
The intrinsic value of options exercised is based upon the value of the Company’s stock at exercise. The intrinsic value of options outstanding, vested and expected to vest, and exercisable as of March 31, 2020 is based on the closing price of the Company’s stock fair value on March 31, 2020 or the earlier of the last trading day prior to March 31, 2020, if March 31, 2020 is a non-trading day. The Company’s stock fair value used in this computation was $32.29 per share.
|
The following table summarizes information about stock options outstanding at March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number of
Shares
|
|
Weighted-
Average
Remaining
Life
|
|
Weighted-
Average
Exercise
Price
|
|
Number of
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
|
(In thousands)
|
|
(Years)
|
|
|
|
(In thousands)
|
|
|
$0.70 —– $1.11
|
|
751
|
|
|
4.8
|
|
$
|
0.82
|
|
|
565
|
|
|
$
|
0.80
|
|
$1.29 —– $1.29
|
|
1,000
|
|
|
4.5
|
|
1.29
|
|
|
625
|
|
|
1.29
|
|
$1.31 —– $1.31
|
|
1,037
|
|
|
4.0
|
|
1.31
|
|
|
765
|
|
|
1.31
|
|
$1.37 —– $12.57
|
|
653
|
|
|
3.3
|
|
4.78
|
|
|
527
|
|
|
5.34
|
|
$14.58 —– $14.58
|
|
42
|
|
|
6.1
|
|
14.58
|
|
|
36
|
|
|
14.58
|
|
Total
|
|
3,483
|
|
|
4.2
|
|
$
|
2.01
|
|
|
2,518
|
|
|
$
|
2.22
|
|
Enphase Energy, Inc. | 2020 Form 10-Q | 24
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted Stock Units
The following is a summary of RSU activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Outstanding
|
|
Weighted-
Average
Fair Value
per Share at
Grant Date
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value (1)
|
|
(In thousands)
|
|
|
|
(Years)
|
|
(In thousands)
|
Outstanding at December 31, 2019
|
4,263
|
|
|
$
|
7.19
|
|
|
|
|
|
Granted
|
552
|
|
|
31.34
|
|
|
|
|
|
Vested
|
(951
|
)
|
|
6.13
|
|
|
|
|
$
|
34,095
|
|
Canceled
|
(34
|
)
|
|
16.92
|
|
|
|
|
|
Outstanding at March 31, 2020
|
3,830
|
|
|
$
|
10.85
|
|
|
1.3
|
|
$
|
123,672
|
|
Expected to vest at March 31, 2020
|
3,830
|
|
|
$
|
10.63
|
|
|
1.3
|
|
$
|
114,306
|
|
|
|
(1)
|
The intrinsic value of RSUs vested is based upon the value of the Company’s stock when vested. The intrinsic value of RSUs outstanding and expected to vest as of March 31, 2020 is based on the closing price of the Company’s stock on March 31, 2020 or the earlier of the last trading day prior to March 31, 2020, if March 31, 2020 is a non-trading day. The Company’s stock fair value used in this computation was $32.29 per share.
|
Performance Stock Units
The following is a summary of PSU activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Outstanding
|
|
Weighted-
Average
Fair Value
per Share at
Grant Date
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value (1)
|
|
(In thousands)
|
|
|
|
(Years)
|
|
(In thousands)
|
Outstanding at December 31, 2019
|
955
|
|
|
$
|
9.83
|
|
|
|
|
|
Granted
|
482
|
|
|
11.52
|
|
|
|
|
|
Vested
|
(1,410
|
)
|
|
10.41
|
|
|
|
|
$
|
50,938
|
|
Canceled
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding at March 31, 2020
|
27
|
|
|
$
|
4.40
|
|
|
0
|
|
$
|
872
|
|
|
|
(1)
|
The intrinsic value of PSUs vested is based upon the value of the Company’s stock when vested. The intrinsic value of PSUs outstanding and expected to vest as of March 31, 2020 is based on the closing price of the Company’s stock on March 31, 2020 or the earlier of the last trading day prior to March 31, 2020, if March 31, 2020 is a non-trading day. The Company’s stock fair value used in this computation was $32.29 per share.
|
For the three months ended March 31, 2020, the Company’s income tax benefit of $11.9 million on income before income taxes of $57.1 million, calculated using the annualized effective tax rate method, was primarily due to tax deduction from employee stock compensation as a discrete event in the three months ended March 31, 2020, partially offset by projected tax expense in the United States (U.S.) and foreign jurisdictions that are profitable. For the three months ended March 31, 2019, the Company’s income tax provision of $0.3 million on income before income taxes of $3.1 million, calculated using the discrete tax approach, was primarily related to income taxes attributable to its foreign operations.
For the three months ended March 31, 2020, in accordance with FASB guidance for interim reporting of income tax, the Company has computed its provision for income taxes based on a projected annual effective tax rate while excluding loss jurisdictions which cannot be benefited.
Enphase Energy, Inc. | 2020 Form 10-Q | 25
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company used the discrete tax approach in calculating the tax expense for the three months ended March 31, 2019 due to the fact that a relatively small change in the Company’s projected pre-tax net income (loss) could result in a volatile effective tax rate. Under the discrete method, the Company determines its tax (expense) benefit based upon actual results as if the interim period was an annual period. The tax provision recorded was primarily related to income taxes attributable to its foreign operations.
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed in a similar manner, but it also includes the effect of potential common shares outstanding during the period, when dilutive. Potential common shares include Stock Options, RSUs, PSUs, shares to be purchased under the Company’s ESPP, the Notes due 2023, the Notes due 2024 and warrants issued in conjunction with the Notes due 2024. Until the Company’s authorized shares of common stock increases to satisfy the share reservation condition, the Notes due 2025 and warrants issued in conjunction with the Notes due 2025 must be settled in cash, and therefore excluded from shares used in diluted per share amounts.
The dilutive effect of potentially dilutive common shares is reflected in diluted earnings per share by application of the treasury stock method for stock options, RSUs, PSUs, Notes due 2024, warrants issued in conjunction with the Notes due 2024 and shares to be purchased under the ESPP, and by application of the if-converted method for the Notes due 2023. To the extent these potential common shares are antidilutive, they are excluded from the calculation of diluted net income per share.
Enphase Energy, Inc. | 2020 Form 10-Q | 26
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the computation of basic and diluted net income per share for the periods presented.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands, except per share data)
|
Numerator:
|
|
|
|
Net income
|
$
|
68,936
|
|
|
$
|
2,765
|
|
Notes due 2023 interest and financing costs, net
|
44
|
|
|
—
|
|
Adjusted net income
|
$
|
68,980
|
|
|
$
|
2,765
|
|
|
|
|
|
Denominator:
|
|
|
|
Shares used in basic per share amounts:
|
|
|
|
Weighted average common shares outstanding
|
123,531
|
|
|
108,195
|
|
|
|
|
|
Shares used in diluted per share amounts:
|
|
|
|
Weighted average common shares outstanding
|
123,531
|
|
|
108,195
|
|
Effect of dilutive securities:
|
|
|
|
Employee stock-based awards
|
8,609
|
|
|
7,668
|
|
Warrants (issued in conjunction with Notes due 2024)
|
2,128
|
|
|
—
|
|
Notes due 2024
|
2,936
|
|
|
—
|
|
Notes due 2023
|
900
|
|
|
—
|
|
Weighted average common shares outstanding for diluted calculation
|
138,104
|
|
|
115,863
|
|
|
|
|
|
Basic and diluted net income per share
|
|
|
|
Net income per share, basic
|
$
|
0.56
|
|
|
$
|
0.03
|
|
Net income per share, diluted
|
$
|
0.50
|
|
|
$
|
0.02
|
|
The following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net income per share attributable to common stockholders because their effect would have been antidilutive.
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Employee stock options
|
—
|
|
|
112
|
|
RSUs and PSUs
|
—
|
|
|
91
|
|
Notes due 2023
|
—
|
|
|
11,701
|
|
Total
|
—
|
|
|
11,904
|
|
Diluted earnings per share for the three months ended March 31, 2020 and 2019 includes the dilutive effect of stock options, RSUs, PSUs, and shares to be purchased under the ESPP, the Notes due 2023, the Notes due 2024 and warrants issued in conjunction with the Notes due 2024. For the three months ended March 31, 2020, no shares were antidilutive and excluded from diluted earnings per share. For the three months ended March 31, 2019, certain common stock issuable under stock options, RSUs, PSUs and Notes due 2023 have been omitted from the diluted net income per share calculation because including such shares would have been antidilutive.
Enphase Energy, Inc. | 2020 Form 10-Q | 27
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Since the Company has the intent and ability to settle the aggregate principal amount of the Notes due 2024 in cash and any excess in shares of the Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. In order to compute the dilutive effect, the number of shares included in the denominator of diluted net income per share is determined by dividing the conversion spread value of the “in-the-money” Notes due 2024 by the Company’s average share price during the period and including the resulting share amount in the diluted net income per share denominator. The conversion spread will have a dilutive impact on net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of $20.5010 per share for the Notes due 2024. The Company’s weighted average common stock price since the issuance of the Notes due 2024 was above the conversion price, resulting in an impact on the diluted net income per share.
In 2018, a member of the Company’s board of directors and one of its principal stockholders, Thurman John Rodgers, purchased $5.0 million aggregate principal amount of the Notes due 2023 in a concurrent private placement. As of both March 31, 2020 and December 31, 2019, $5.0 million aggregate principal amount of the Notes due 2023 were outstanding. See Note 8. “Debt” for additional information related to this purchase.
Enphase Energy, Inc. | 2020 Form 10-Q | 28