EnerNOC (ENOC), a U.S. demand response company looking to expand into international markets and grow its energy efficiency and management lines of business, reported second-quarter 2013 financial results this week that indicate it’s moving ahead on those goals.
The Boston-based company reported revenue of $36.15 million in the second quarter and $69 million for the first half of 2012, slightly ahead of analyst expectations and up 8.7 percent and 19.5 percent from the second quarter and first half of 2012, respectively. The company’s second-quarter net loss of $34.35 million, or $1.23 per share, also beat analyst estimates.
EnerNOC, which recognizes the bulk of its demand response earnings in the third and fourth quarters of the year, also reaffirmed its full-year 2013 guidance of $360 million to $400 million in revenue and $62 million to $77 million in adjusted earnings before interest, taxes, depreciation and amortization (EBIDTA).
That would be a big jump from revenues of $277.98 million and an adjusted EBIDTA of $25.97 million reported for fiscal year 2012. Tuesday’s positive earnings statement didn’t prevent EnerNOC’s share price from falling $1.16, or 7.2 percent, to $14.97 as of late afternoon Wednesday. EnerNOC competes with such demand response aggregators as Comverge, the once-publicly traded company taken private last year, and Constellation Energy, via its 2010 acquisition of CPower and subsequent developments such as its VirtuWatt platform.
In a Tuesday research note, analysts at Baird Equity Research stated that EnerNOC seems well along its way to diversifying its business to overcome some key challenges in its core demand response business. Namely, mid-Atlantic grid operator PJM, the country’s biggest demand response market and the source of the majority of EnerNOC’s annual revenues, has seen pricing for demand response decline from peaks set in the last decade, when the resource were relatively scarce.
While new federal regulations have boosted those payments this year, an increase in available demand response capacity from both inside and outside PJM territory have been eroding prices for pledges from EnerNOC and other demand response providers to turn down power when the grid is facing peak demand. PJM’s latest auction, which sets prices for 2016 and 2017, ranged from $59 to $219 per megawatt, lower than the previous year’s prices across most of the grid operator’s footprint, according to its May announcement (PDF).
To prepare for this, EnerNOC has been expanding to demand response markets both inside and outside the United States. The company is working in California, Texas and Kentucky, and has also expanded to Australia and New Zealand, as well as the U.K. Baird noted that about 16 percent of EnerNOC’s second-quarter revenue came from international markets.
A number of these projects are implementing automated demand response, which offers faster and more flexible capabilities than the traditional phone calls, text messages and other low-tech communications used in most of today’s demand response. EnerNOC’s 150-megawatt project with Canada’s Alberta Electric Systems Operator, as well as work with utilities in Kentucky and in Texas, fall into this category. U.S. regulations that require higher prices for faster and more accurate demand response, and moves by growing markets like California to require automated DR, could make those projects more lucrative in years to come.
More importantly, perhaps, EnerNOC has been quickly expanding its lines of business outside of demand response -- in particular, its energy efficiency offering, known as EfficiencySMART. In the past few years, the company has grown that new line of business to encompass more than 200 million square feet of commercial and industrial real estate under management. While EnerNOC earned less than 5 percent of its revenues from efficiency services in 2011, Baird noted that its second-quarter revenues included about 26 percent coming from its “energy intelligence systems,” including efficiency.
EnerNOC has long held that energy efficiency represents a market with much larger long-term potential than traditional demand response, and has been investing in software and data analytics capabilities to compete in the field. EnerNOC CEO Tim Healy told investors earlier this year that the company’s goal is to “make EnerNOC the cloud-based energy data system of record for commercial, institutional and investor enterprises,” which puts it squarely in competition with such energy services giants as Honeywell, Schneider Electric, Johnson Controls and Siemens, to name a few.