1/8/2014
By David Urani

You don’t hear about it much, but it could become more of an issue if the trend continues; despite the Fed saying inflation is too low, electricity prices are at record high levels. This comes despite a big decline in natural gas prices since fracking unlocked an abundance of it in the US.  It’s also perhaps something that you won’t be hearing out of Washington since government regulations on coal and pollution in general certainly have something to do with it.

 Whatever the case, electricity bills are going up and if you’re a large corporation that figure is already in the tens- or hundreds- of millions of dollars annually. In fact, commercial and industrial companies spend $2.25 trillion annually on energy.

 This week’s deep freeze across the US has gone to show how unforseen events can further strain the electricity grid. In times like these, you rack up even more expenditures because not only do you need to burn more energy but higher demand causes the price per kilowatt-hour to go up. Even during normal times, electricity prices during peak demand hours (particularly from noon to 5:00 p.m.) go significantly higher. Approximately 31% of a company’s energy costs come from peak demand charges.

The reason I mention this is because these expenditures can be managed if you have the right tools. EnerNOC directly addresses this expenditure by being the premier provider of software solutions. The Company's main product is DemandSMART, a comprehensive demand response system that limits peak hour usage while including real-time tracking and even mobile alerts, and it also operates 24/7 customer support services.

 The company’s competitors include Johnson Controls, Siemens and IBM but ENOC boasts the fullest and strongest range of software capabilities. It focuses on the $60 billion Enterprtise market, where the average company spends $200 million a year on energy; EnerNOC says it can save each of them roughly $50 million. For one of their customers, Adidas for example, that's the equivalent of selling 15 million pairs of sneakers.

 The company also works with utilities and power grids to manage supply and overall grid functionality. On Tuesday ENOC surged higher after giving a business update. The company says it has been widely called on during the unprecedented cold in the past couple of days, from several customers across 17 states. Various utilities are reporting new winter records for demand, and EnerNOC has been dispatched by grid operators and utilites to manage peak demand, keep grid stability and prevent power outages.

 In its Q3, ENOC beat Street estimates by $0.10 on the bottom line while reporting a 56.5% revenue increase at $278.5 million. Gross margin also expanded from 53.4% to 54.7%, and operating margin was up from 33.3% to 40.3%. The company still has a long road of expansion to go, with Texas and California being relatively untapped, and the international opportunity is huge; international sales were 0% of revenue in 2010 and already account for 20% now. The company currently operates in just four countries and the addition of new markets has great promise, with the recent additions of Australia and Canada for example accounting for ~$50 million and ~$20 million, respectively. Consensus estimates currently project total revenue for 2013 to increase by 38%, and by 17% in 2014.

 Background

EnerNOC ‘s business is to provide software-related services that manage energy consumption. The company was established in 2001 in Boston, and when it went public in 2007 it had the biggest percent increase of any ‘green' IPO that year. It was founded by Timothy Healy and David Brewser, with Healy being the current CEO and Chairman. Healy previously was a financial analyst and venture capitalist who gained power market experience with Northern Power Systems and International Fuel Cells. He saw that corporate power usage was woefully unmanaged, and that virtually every big company in the world could save millions on energy usage with the use of software solutions.

Disclosure: Wall Street Strategies has been long ENOC since December

David Urani
Wall Street Strategies

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