U.S demand response leader EnerNOC (ENOC) on Thursday reported third-quarter revenues that set a historical record for the company, and tightened its full-year guidance as it aims for “delivering the best year in the company's history,” according to CEO Tim Healy.
EnerNOC reported third quarter GAAP net income of $106.86 million on revenues of $278.47 million, up from net income of $60.35 million on revenues of $177.95 million in the same quarter last year. The Boston-based company also issued fourth-quarter 2013 guidance of earnings between $32.5 million and $37.5 million, or a GAAP loss per diluted share of 75 to 67 cents.
For fiscal year 2013, EnerNOC is now projecting revenues of $380 million to $385 million and GAAP earnings per diluted share of 72 to 80 cents, as compared to its August guidance of full-year revenues of $360 million to $400 million and EPS of 60 to 85 cents.
These figures, along with previous quarterly reports this year, make it clear that EnerNOC’s annual performance tends to be driven by third-quarter revenues. That’s because most of the revenues from its biggest demand response market, that of mid-Atlantic grid operator PJM, are reported in that period.
At the same time, EnerNOC is facing a long-term decline in that key market for aggregating lots of customers that are willing to turn down power use when the grid is facing peak demand. While new federal regulations have boosted PJM demand response payments this year, 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 region it serves (PDF).
That means that EnerNOC is being pressed on two fronts. First, it’s seeking to expand market share beyond PJM, both into new markets in the United States and abroad. One key growth area is Australia, where EnerNOC announced in September a planned expansion of its ongoing program with distribution operator Ausgrid. Other markets include Northwest utility PacifiCorp, where EnerNOC manages agricultural equipment via its acquisition of M2M Communications, and Alberta, Canada, where it’s carrying out high-speed demand response to help balance that province’s transmission grid.
But PJM still made up half of EnerNOC revenues for the first nine months of 2013, up from 47 percent in the same period last year. Its Australia business made up 13 percent of its revenues for 2013 so far, up from 7 percent in the same period in 2012. As this chart from the company’s 10-Q filed with the U.S. Securities and Exchange Commission shows, revenues across its other demand response markets have been mixed, with some (PacifiCorp, Alberta) rising, and others, such as Pennsylvania and New England, declining as EnerNOC winds down operations amidst poor economics (figures are in units of thousands):
Healy noted during Thursday’s conference call that EnerNOC is looking at Texas, where regulations are in the midst of significant changes, as a big target. “It's roughly about 40 percent the size of PJM,” he said, adding that if Texas grid operator ERCOT implements rules similar to those that drove growth in the mid-Atlantic region, “I think demand response could potentially grow two or three times from where it is today,” he said. EnerNOC competes with such demand response aggregators as Comverge, the once publicly traded company taken private last year; Exelon's Constellation Energy, via its 2010 acquisition of CPower and subsequent developments such as its VirtuWatt platform; and Energy Curtailment Specialists, which was acquired by NRG Energy earlier this year.
In addition, EnerNOC is striving to make progress on its pledge to expand from demand response into energy efficiency, energy supply and risk management, and other markets that promise to offer far greater long-term potential than demand response. As Healy said in Thursday’s conference call, “We see demand response as the killer application within a much broader market known as energy intelligence software.”
At EnerNOC, that includes its EfficiencySMART line of energy efficiency technology and services, its SupplySMART energy procurement and risk management business, and its utility solutions, program implementation and consulting services. On these fronts, EnerNOC competes such energy services giants as Honeywell, Schneider Electric, Johnson Controls and Siemens, as well as a host of up-and-coming contenders.
EnerNOC has been making strides in signing up energy efficiency clients, bringing both demand response customers and new customers on board, managing efficiency programs for utility partners like Southern California Edison, and beefing up its IT capabilities to deliver cost-effective services on that front. Company president David Brewster noted in Thursday’s conference call that this portion of EnerNOC’s business grew by 33 percent year-over-year in the third quarter.
Even so, as the following chart from EnerNOC’s 10-Q indicates, revenues from its non-demand response lines of business, while growing, are still a fraction of its demand response revenues. The inclusion of the company’s big third-quarter DR revenues helps put this relationship into better context (figures are in units of thousands):
Healy noted that EnerNOC has seen an increase in the percentage of its R&D budget spent on the “non-demand response part of the energy intelligent software business. So we're introducing more product features more quickly [that are] related to energy intelligent software.” As to just how quickly EnerNOC plans to expand those revenues, and which new features and business lines it will be launching, the company’s Analyst Day presentation on Nov. 19 should bring more details, he said.