Activist company

An innovative solar company started planning for the downturn nearly 3 years ago and its stock is up 41% this year

“It’s about analyzing your business and planning ahead,” Enphase Energy CFO Mandy Yang told me when I asked how the solar business is handling its growth in 2022. “It’s not just what we’ve done this year to respond to market turbulence. We started looking to the future two or three years ago.

Enphase stock has gained 41% this year, the second best performance outside the petrochemical sector. The Fremont, Calif.-based maker of solar and storage products for homes and businesses has beaten estimates for the past 14 quarters, maintaining steady growth through the COVID-19 era with all its shocks supply, inflationary pressures and economic turbulence. It also managed to avoid hiring freezes at other tech companies.

Like most companies, Enphase executes scenario planning that starts from a base case and builds on more conservative and aggressive outcomes. But in addition to establishing an annual operating plan, Enphase anticipates trends a few years from now, adjusting its longer-term outlook as conditions change. “You can react to adversity, but what makes one management superior to others is how they see the market moving over the next year,” Yang says.

Of course, few leaders predicted the impact of a global pandemic and the supply chain disruptions and price spikes it brought. And unlike most companies, Enphase is taking advantage of growing demand for solar power as gas and oil prices have surged. But Enphase’s advance planning has helped her develop strategies to stay nimble in the face of uncertain times.

For example, Enphase has worked to minimize the long-term fixed costs that many manufacturers face by building their own factories relying on contract manufacturers. To avoid having to pay extra for manufacturing contracts, Enphase keeps track of which subcontractors have available capacity. “We also started qualifying additional suppliers for key components a few years ago,” Yang says, making sure the company has multiple sources for each key component to guard against disruption.

Growing demand for solar power has left Enphase with a steady backlog, which the company is tracking to prioritize manufacturing in high-demand regions. Contractors in Mexico, China and India are well positioned to meet the changing demand in their geographies, and Enphase has recruited another contractor in Romania to meet growing demand in Europe.

To maintain a competitive edge in a crowded industry, the company has also designed more reliable microconverters, devices that convert solar energy into current capable of powering a home. Many homes use a single centralized converter; if it fails, the whole system breaks down. Enphase’s microconverters are distributed across each solar panel, so if one panel fails, the others will still provide power. Newer products can create batteryless “microgrids” that can seamlessly provide backup power using only sunlight during grid outages.

“Our failure rates have been low, but we are learning from products that have failed,” Yang says. “We ask the customer to send them back, and we analyze what triggered the failure and use that data analysis in our next product design.”

And while M&A activity has slowed significantly this year, Enphase has grown with several strategic acquisitions, including two in 2022: SolarLeadFactory in March and GreenCom Networks in August. Yang says a corporate development team regularly screens potential candidates based on a few key criteria.

“The question is how to deploy capital and create the best return for shareholders,” Yang says. “We have weekly meetings where the M&A team talks about the companies they have assessed. We are looking at certain areas: do they fit into our strategy? What is the return on investment? How can they increase our offerings to our customers? »

Like many companies these days, Enphase has built a globally distributed workforce, with three out of five workers located in India. To align foreign workers with management goals, the company offers bonuses tied to company financial performance and structures meetings around core values ​​such as product quality and solving customer problems.

“We have a continuous improvement mindset that translates into our financial performance,” Yang says. “We are a metrics-driven organization. Each department will have their own key performance indicators which they will review with management on a weekly, monthly and quarterly basis to ensure that the team in India is meeting expectations.


Thanks for reading. Sheryl will be back tomorrow.

Kevin Keller
@kpkelleher

Big deal

A little-known indicator of the vulnerability of corporate finances is giving an early warning signal. S&P Global said last week that its Financial Fragility Indicator for Non-Financial Businesses “exceeded zero at 0.06 in the second quarter of 2022 from -0.92 in the first quarter, exceeding the historical average and approaching vulnerability territory. “. “While the private sector is still in relatively healthy territory, the speed at which it has reached its historical average is worrying,” he added. S&P Global said in a research note.

Courtesy of S&P Global Market Intelligence

Go further

It’s not just you. Business leaders across all industries face greater unpredictability, complexity and volatility these days. A test in the harvard business review by Michael Mankins, partner at the strategy firm of Bain & Co., identifies two factors of unpredictability: the increasing number of drivers of change and the growing interdependence between them. Mankins describes tools that can help, including “considering extreme but plausible scenarios; the search for strategic options and hedging; and identifying trigger points and warning signs” – and urges leaders to move from a static plan to an adjustable “life strategy”. business environment on which they are supposed to rely.”

Ranking

Zint chip was named chief financial officer and senior vice president of Deluxe (NYSE: DLX), effective October 17. Deluxe invented the checkbook a century ago and has since expanded into digital payments and commerce technology. Zint, who joined the company in 2020 as vice president of corporate finance, will succeed Scott Bomar, who is leaving to take up a leadership role with a former employer. Prior to joining Deluxe, Zint worked for nearly 14 years at NCR Corp.

Donna Wong, who since September 2020 has served as chief financial officer at Reunion Neuroscience (NASDAQ: REUN), a developer of antidepressants and other pharmaceuticals, has been named company secretary, effective October 7. Wong is also Chief Financial Officer of Field Trip Health. She replaces Paula Amy Hewitt as Corporate Secretary.

Understood

“Leaders and companies are trying to find common ground with activists. You even now have directors meeting with investors. So I would say to you that’s not a bad thing, and it’s one of those things where you engage in… You have to, as a manager, ask management to think about all the different types of activists and questions they might ask you. You need to understand as a manager who owns the stock and why they own the stock and therefore what types of questions you are going to receive regarding the strategy and how it is executed. »

—Maria Castañón Moats, head of the Governance Insights Center at PricewaterhouseCoopers, in a Fortune story explaining how boards can respond to activist investors.

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