Silver Spring Networks’ IPO is off to a good start Wednesday morning, with shares opening at $22 on the company’s first day of trading on the New York Stock Exchange, 29 percent higher than the $17-per-share IPO price the smart grid networking startup set yesterday.
SSNI shares then dropped to between $21 and $21.50 in early morning trading, and of course we’ll be watching the stock throughout the day to see if trends shift. But at least so far, it’s a pretty spectacular debut for a company that some doubted would hold its IPO at all.
“It’s a very exciting time, obviously,” CEO Scott Lang told me this morning in a phone call from the NYSE. “The most important thing is that this milestone is celebrated by all of our employees, our customers and our partners. It took a very long and strong chain to get here, and every link was critical to that.”
Founded in Milwaukee, Wisc. in May 2002, Silver Spring moved to Redwood City, Calif. in mid-decade and has raised just over $300 million in venture capital from investors including Foundation Capital, with 27.7 percent of the company after the IPO and private placement, and Kleiner Perkins Caufield & Byers with 12.8 percent. Other investors include Northgate Capital Partners, Google Ventures, EMC and Hitachi.
The company has networked about 13 million smart meters deployed, mostly in the United States but also in Australia, and had orders for about 11 million more as of the end of last year, with operations in Brazil, Singapore and the U.K. as well. It also makes software that taps its underlying network to support distribution grid equipment, demand response assets in homes and businesses, electric vehicle chargers and other grid-facing devices -- though it is still seeking to grow that services portion of the business to generate ongoing revenues from its deployed networks.
Silver Spring announced its IPO plans in July 2011, then forced the smart grid industry and investment community to wait nearly two years before it went through with it. Over that time, we’ve seen plenty of other exits in the smart grid startup space, but exclusively through acquisitions, at reported (or rumored) valuations that fell well below the 5X-and-up returns generally hoped for in the venture capital community.
Wednesday’s debut has broken that smart grid IPO drought, and in a big way. After pricing its IPO at $16 to $18 per share in late February, Silver Spring announced Tuesday night that it sold 4.75 million shares at the midpoint of that price range, or $17 per share, raising $81 million. That’s more than the 3.7 million shares the company had been planning to sell as of last week, at a midpoint price of about $63 million -- but it’s also far from the $150 million the Redwood City, Calif.-based startup hoped to raise when it first announced plans to go public in July 2011.
Still, given the declining appetite amongst public investors for green technology IPOs that we’ve seen since then, news that Silver Spring was able to sell more shares than expected appears to augur well for institutional investors’ interest in the company’s offering. There's also an increased overall appetite for IPOs to take into account -- Bloomberg reported that U.S. IPOs have raised $6.6 billion so far this year, more than double the amount in the year-earlier period.
Silver Spring will also raise $12 million in a private placement to its biggest shareholder, Foundation Capital, in a move akin to SolarCity backers Elon Musk, DFJ and DBL Investors pledging to buy up a big share of the company's stock the day before its December IPO. But Silver Spring’s S-1 also notes that it will be paying back that $12 million to Foundation out of its cash reserves.
Silver Spring will also extend to underwriters a 30-day option to buy up to 712,500 additional shares of common stock. That list of underwriters no longer includes Morgan Stanley, which dropped out as lead underwriter, but does include lead underwriter Goldman Sachs, Credit Suisse, Piper Jaffray, Stifel, Baird, Canaccord Genuity, Evercore Partners and Pacific Crest Securities.
We will be filing updates to Silver Spring’s opening day through the coming hours, so stay tuned for more. Here’s our previous coverage of the company that has now broken the IPO barrier in the smart grid industry:
We’ve covered Silver Spring’s IPO plans from the pre-inception phase to the official S-1 filing in July 2011, through the company’s continuing list of project wins, technology developments and strategic investments since then, culminating with the company’s decision late last month to price its IPO at $16 to $18 per share.
Silver Spring has never made a profit, though it’s achieved big revenue growth over the past several years. 2012 revenue was $196.7 million, down from $237.1 million in 2011, but its 2012 net loss of $89.7 million represented a slight improvement over 2011’s loss of $92.4 million. The company hasn’t stated when it expects to achieve profitability, though it has offered some non-GAAP metrics for its billing and payment cycles, which run on utility (i.e., slow) timescales.
In the meantime, the company is facing a slowdowin in the U.S. smart metering market, which is more a consequence of the one-time jolt of billions of dollars of federal smart grid stimulus money passing through the system. That puts pressure on Silver Spring, as well as competitors (and sometime partners) such as Itron, Sensus, Elster, Toshiba’s Landis+Gyr, Aclara, Echelon, Trilliant and General Electric to expand to international markets.
In the week and a half since it named its IPO target price, Silver Spring did announce one new project with CPS Energy, San Antonio, Texas’s municipal electric and gas utility. The two said they’re working on “increased energy efficiency, automating energy distribution, and improving grid reliability,” all terms that describe some of the distribution automation (DA) services that Silver Spring is trying to grow as a way to make money on its existing networks, as well as new ones.
The project, part of San Antonio’s “New Energy Economy” initiative, is also aimed at laying the “groundwork to implement smart energy and Smart City technology across CPS Energy’s service territory,” with possible projects including smart streetlighting, environmental sensors, traffic signals, electric vehicles and parking meters – a pretty long list of functions that Silver Spring is working on with various partners.
Diversification of its revenue streams will be vital for Silver Spring to meet its profitability goals. The company currently relies on several large-scale projects with big U.S. customers such as Pacific Gas & Electric, FPL, Oklahoma Gas & Electric, Baltimore Gas & Electric, Commonwealth Edison and Progress Energy for the majority of its revenue. While Silver Spring has also networked smart meters in Australia and is working with partners in Brazil, the U.K. and Singapore, international business accounted for only 8 percent of revenue in the first nine months of 2012, up from 5 percent in the same period in 2011.
Silver Spring’s share of revenues from services such as demand response, distribution automation and others it has built on top of its core networking and software platforms will also be a critical measure of the company’s prospects. Silver Spring hopes to expand recurring revenues from those services, both for customers that have already networked millions of meters with the company’s technology and for future customers such as CPS.
Silver Spring’s S-1 notes that “the majority of our utility customers are already leveraging the networking platform for advanced metering to support at least one other solution,” such as OG&E’s using the company’s smart meters for its large-scale residential demand response program, or Sacramento Municipal Utility District buying its distribution automation services. Other customers, such as FPL, have extended Silver Spring’s managed services contracts for longer periods.
Even so, revenue from the company’s demand response and DA solutions only represented 11 percent of the company’s revenues for the first nine months of 2012. That’s up from only 1 percent in the same time period in 2011, which indicates that the company is finding few new customers interested in those services. Whether or not Silver Spring can continue to grow the share of revenues that are coming from these recurring service contracts, and thus avoid being caught in the overall smart metering slowdown, may play a key role in its future financial prospects.