Smart meters are a tough business to be in today. With U.S. markets in a post-stimulus slump and Europe’s big deployments in holding patterns, companies supplying smart meters and the networks and software that connect them have been struggling. The share prices of big players in the field, such as Itron (ITRI) and Silver Spring Networks (SSNI), have reflected it.
But as both companies will tell you, they’re not just in the smart meter networking business anymore. Each is using its communications networks to connect street lights and other new end nodes, as well as building out software platforms and partnerships to make use of the data these edge devices are collecting. Eventually, both say they want to be part of the internet of things (IOT).
Just how quickly these new markets will emerge -- and how effectively both companies can capitalize on them -- is important context for understanding Silver Spring's and Itron’s earnings announcements this week. While each company reported a disappointing 2014, both are promising new hardware, software and services will help them achieve better growth this year, while allowing them to do more with the millions of smart meters they've already got.
Silver Spring Networks
On Monday, Silver Spring reported a non-GAAP net loss of $24.4 million for 2014, or a 50-cent loss per share, compared to a loss of $3.1 million, or 8 cents per share, in 2013. Non-GAAP revenue was $276.7 million, down 20 percent from the previous year, and 2014 cashflow was negative $8.8 million, compared to last year’s breakeven cash flow. The company ended the year with $121 million of cash and no debt.
Even so, the Redwood City, Calif.-based company saw its share price jump after the news, to stand at $9.12 per share in late Friday afternoon trading, up from $7.24 on Monday, though still less than one-third its August 2013 high of nearly $33 per share. Investors may have been reacting to the news that Silver Spring met its fourth-quarter projections, or its backlog of $921 million in business, up 5 percent from last year. Or perhaps they were acting out of anticipation of new revenues from the company’s latest beyond-the-meter activities.
These include an expansion of its Miami-area networked streetlight project with Florida Power & Light, built on its acquisition of Streetlight Vision, and its expansion into theft detection and other grid data analytics via its acquisition of Detectent last month. Silver Spring also launched its fifth-generation networking platform, complete with a low-power node for use in battery-powered devices.
Silver Spring has also added new partners and customers to its SilverLink Sensor Network platform, meant to collect and analyze data from edge-of-network devices in faster and more adaptable ways. It’s competing against the likes of Cisco and Itron and Toshiba’s Landis+Gyr on this front.
As for 2015, the company expects to break even on a non-GAAP earnings basis on revenues of between $270 million and $290 million. A key part of that will be building its own suite of software and services to replace the “third-party content” it now runs across its network, which negatively impacts the company’s gross margins, CEO Scott Lang said in Monday’s conference call.
“There is approximately $40 million of top-line passthrough coming off of our top line this year,” he said. “So that gives you an idea of the kind of accelerated growth we are seeing in our products, our services and our SaaS business combined that is more than offsetting approximately $40 million of no-margin third-party passthrough that would have otherwise come from the top line.”
Silver Spring’s new solutions business grew 41 percent in the fourth quarter, and its managed services and software-as-a-service (SaaS) business is on track to meet projections of “$50 million plus this year,” CFO Jim Burns said in Monday’s conference call. As of the end of last year, Silver Spring has nearly doubled its “menu” of available SaaS services, to nearly $10 per connected home or business per year, compared to the “sub-five-dollar level” of several years ago, he noted.
On Wednesday, Itron reported a loss of $22.9 million, or 58 cents per share, on revenues of $1.97 billion for fiscal year 2014. That’s an improvement on 2013’s loss of $147 million, or $3.74 per share, but not as strong a performance as analysts had predicted, largely due to currency exchange rate impacts on its European electric, water and natural gas metering business.
But the Liberty Lake, Wash.-based company has also been spending money to restructure its electricity business, and it expects those costs to extend to about $50 million in 2015. Itron projected 2015 revenues of $1.8 billion to $1.9 billion and non-GAAP diluted earnings per share of $1.60 to $2.
Itron’s 2014 backlog stood at $1.48 billion, up nearly 40 percent from the previous year, and “overall, we are executing better today than we were 12 or 18 months ago,” CEO Philip Mezey said. It’s also hoping for big new projects, like its work with Duke Energy, to come on-line over the coming years.
Itron also launched some key parts of its IOT platform in the fourth quarter, including the October launch of its Riva platform, which builds on its close relationship with Cisco to extend an integrated, IPv6-capable wireless network to smart thermostats, pool pumps, water heaters, air conditioner controllers and other end loads.
Itron has also recently released new software analytics and expanded its smart grid network-as-a-service business, part of what Mezey said added up to a $100 million to $200 million software and services business for the company today. “We see tremendous opportunity from the data that we’re already collecting on behalf of our customers,” adding, “My target is $500 million business over time there,” he said.
After a brief Thursday morning spike, Itron shares had fallen to $35.74 as of late Friday. That’s right around the midpoint of the value the company’s shares have maintained since mid-2011, though less than half the company’s near-$80 peak in mid-2010.