By Jeff St. John
EnerNOC’s third-quarter 2011 revenues and profits beat analyst expectations, and the demand response leader’s market share has grown to 7,000 megawatts under management. So why is the company’s stock (Nasdaq: ENOC) trading so flat after Monday’s earnings call?
Blame a long-running dispute with a key customer. Since early this year, Boston-based EnerNOC has been arguing with grid operator PJM about how it claims revenues from its demand response programs. In February, PJM accused EnerNOC of “double-counting” its customers' participation in certain demand response programs, an accusation which drove EnerNOC's share price to lows that have yet to be reversed.
The Federal Energy Regulatory Commission initially sided with EnerNOC in a March ruling that ordered PJM to keep its existing market rules, but that didn’t do much to help the company’s battered share price. And earlier this month, FERC approved PJM’s proposal to change its demand response performance measures in a way that could hurt EnerNOC’s revenues -- although FERC also ordered PJM to do so in a way that minimized the impact on existing demand response participants.
PJM accounts for more than half of EnerNOC’s revenues, so anything that changes how they’re calculated could have a big impact on the company’s financial fortunes. FERC has given PJM until February 2012 to submit its proposal.
FERC is also a big backer of demand response, and has also ordered grid operators like PJM to pay DR providers prices for energy reductions that are in line with the prices they pay for generated power. How FERC will balance EnerNOC and PJM’s competing views of how the market should work is hard to predict.
For now, analyst views on the company’s exposure to PJM’s press to change its market rules remain mixed. Needham & Co. analyst Sean Hannan called FERC’s decision earlier this month “only a minor negative,” noting that FERC's order to minimize impacts should provide EnerNOC a “relief mechanism” through 2014 or so. On the other hand, analysts at JPMorgan Chase, Wedbush and Ardour Capital all lowered their price targets for EnerNOC stock on Monday, though the range of targets -- $17 for JPMorgan, $6 for Wedbush and $14 for Ardour -- indicates the range of uncertainty over the company’s prospects.
EnerNOC’s shares were trading at around the $10 mark Monday afternoon, where they’ve lingered since a big drop after a less-than-stellar second-quarter earnings report in August. That’s pretty low, compared to the $25 to $35 range the company saw throughout 2010.
Monday’s third-quarter report does give investors some reason to hope for a rebound, however. Revenues for the quarter were $169.2 million, compared to $162.8 million for the same period in 2010. Third-quarter profits stood at $46.9 million, or $1.77 per diluted share, compared to $43.9 million, or $1.67 per diluted share for the same quarter last year. Analysts were expecting revenues of $161 million and EPS of $1.57.
As for forecasts, EnerNOC is still aiming for full year 2011 revenues in the range of $282.5 million to $297.5 million, and is projecting GAAP net loss per share of $0.25 to $0.50, or a non-GAAP net income of $.028 to $0.53. The latter calculation doesn’t include estimated stock-based compensation of $14 million and amortization of acquisition-related expenses of $6.6 million.
The company has been expanding rapidly over the past year, buying Australia and New Zealand demand response provider Energy Response for $27.9 million in July and adding 150 megawatts of automated demand response for Alberta, Canada’s grid operator in September. It’s doing fast demand response in Texas and the U.K., and is working on a wind power-balancing project with the Bonneville Power Administration.
EnerNOC has also been growing its non-demand response lines of business, which include energy efficiency services, power procurement, wireless sensors and agricultural power management. The company reported about $50 million in third-quarter revenues for its EfficiencySMART product line, nearly double the revenue reported in the same period in 2010, through customers within its demand response customer base and new customers brought in through partnerships such as its efficiency program with Southern California Edison.