With a projected 2015 loss, the demand response leader seeks growth in enterprise and utility software.
Over the next few years, EnerNOC wants to bring in as much money serving up enterprise efficiency and energy management software as it does in its traditional field of demand response. But that transition won’t come without some significant financial growing pains in the year to come.
On Thursday, EnerNOC reported record revenues of $471.9 million for 2014, up 23 percent from the previous year, largely driven by growth in its mainline demand response business in markets from mid-Atlantic grid operator PJM to Australia and Europe. Profit shrank on a non-GAAP basis to $36.3 million or $1.26 per share in 2014, down 19 percent from $44.9 million and $1.55 per share in 2013.
But 2015 guidance showed how relying on grid operator demand response revenues can lead to big swings in fortunes. The Boston-based company projected 2015 revenues of $410 million to $430 million, down 9 percent to 13 percent from 2014, mainly because of a projected $100 million reduction in its grid operator — that is, demand response — business driven by cyclical downturns in key markets like PJM.
That’s led EnerNOC to focus the next year on building what it calls its Energy Intelligence Software (EIS) business — the suite of energy efficiency, power procurement, risk management, utility customer engagement, and other software platforms it has built and acquired over the past few years.
EnerNOC has been saying for years that EIS will end up being a much larger market than traditional demand response. CEO Tim Healy said in Thursday’s earnings conference call that “within the next few years, we expect revenue from our enterprise and utility business to exceed that from our grid operator business.”
EnerNOC still has a way to go to reach this goal. Of its 2014 revenues, $369 million came from its demand response business, compared to $62 million from its utility business in white-labeled demand response, customer engagement, billing management and other software platforms, and $41 million from its enterprise business, which provides energy efficiency, utility billing, energy procurement and other software to corporate and institutional customers.
But its 2015 guidance shows both utility and enterprise revenues increasing to $70 million to $75 million apiece, representing a 13 percent to 21 percent increase in utility revenue, and a whopping 70 percent to 83 percent increase in enterprise revenue. That’s in stark contrast to its grid operator business, where EnerNOC is projecting 2015 revenues will fall to $270 million to $280 million, a drop of 24 percent to 27 percent from last year.
Software provides a stable stream of subscription payments and other sources of annual recurring revenue, which added up to about $115 million for EnerNOC as of early 2015, according to its Thursday earnings announcement.
About $67 million of that came from its utility business, including the revenues from acquisition Pulse Energy, which provides utilities with energy efficiency and engagement software for small and medium-size businesses, COO Neil Moses said in Thursday’s conference call.
Another $50 million or so comes from its enterprise business, including the revenues from acquisition EnTech, a provider of utility bill management software for businesses, and the roughly $30 million it has brought on through its acquisition of World Energy Solutions, a provider of energy management and procurement software, he said.
EnerNOC has no intention of ending its work in demand response, Healy said in response to an analyst’s question about possible spinoffs of that business. It opened 2014 by buying up European demand response providers Entelios and Activation Energy, expanded into Korea in October, and has increased the number of markets in which it offers demand response from eight to 14 over the course of 2014.
Still, the company is devoting a majority of its sales efforts on software now, rather than demand response, and expects to continue converting its existing demand response customers to its broader software portfolio. Indeed, that’s been part of the company’s strategy all along, Healy said.
“We operated in grid operator markets because we felt it was an attractive and compelling way to engage customers in energy management, through technology that would allow us to acquire customers faster than our competition,” he said. “Now we want to monetize those relationships with those customers by selling them software during this cyclical downturn.”
Healy also said that EnerNOC’s focus in 2015 “is going to be continued integration of the acquisitions we made in 2014,” rather than buying more companies. One of the coming year’s main goals is to pull all of its acquired companies’ software into an integrated platform, to drive down costs and make it easier for customers of one set of software to start using others more quickly and cost-effectively.
“It’s time to put our heads down and execute on the opportunity that’s in front of us,” he said. Of course, with the lines between demand response and energy management becoming increasingly blurred — and legal challenges threatening the traditional demand response business model — EnerNOC won’t be the only company in its field trying to make this transition.
Originally published on Greentech Media
By Jeff St. John, February 27, 2015
