Silver Spring Networks, the smart grid startup that’s been planning to go public for nearly two years, finally set the price of its IPO on Tuesday -- but with much reduced expectations for how much money it will raise in its public offering.
The Redwood City, Calif.-based company’s latest S-1 amendment says the company plans to sell 3.7 million shares at a price of $16 to $18 per share, or $59.2 million to $66.6 million, with a midpoint price of $63 million. That’s less than half the $150 million the company originally planned to raise when it filed its S-1 in July 2011.
That won’t surprise too many industry watchers who’ve been waiting to see if Silver Spring would actually pull the trigger on its IPO. The company, which has networked about 13 million smart meters in deployments in the U.S. and abroad and has another 11 million under contract, has yet to turn a profit, and saw its revenues for the first nine months of 2012 decline to $146.7 million, down from the $175.7 million in the same period in 2011. (Silver Spring reported 2011 revenues of $237 million, 2010 revenues of $70.2 million and 2009 revenues of $3.3 million.)
At the same time, the company has been growing its billings, or the amount of money it has invoiced for products and services to customers but has yet to receive, to $218.8 million in the first nine months of last year, up from $183.3 million in the first nine months of 2011. While this measure isn’t used for accounting purposes, it does indicate the prospect of growing revenues to come -- and the company also has a backlog of $745 million in products and services.
Beyond the particulars of Silver Spring’s finances, which have been the subject of some debate, there are market conditions to consider. The appetite for green technology IPOs has certainly turned sour over the past few years, with many startups pulling their IPO plans, and others going public only to see their share prices drop. Even successful IPOs like SolarCity’s December public offering are a touch-and-go affair, with that company slashing its opening share price target from $13 to $10, and then to $8, before picking up a 50-percent gain on its first day of trading.
Silver Spring did announce earlier this year that key VC backer Foundation Capital has agreed to buy $12 million in Silver Spring shares at its IPO price if it finally does go public. That's 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, and was meant to show investors’ confidence that the IPO would finally happen. (Silver Spring also raised $30 million from Hitachi and $24 million from EMC, both strategic investors, over the past year.)
In the meantime, Silver Spring is also struggling with a slowdown in the U.S. smart metering industry, as the billions of federal stimulus dollars that boosted deployments over the past few years are now spent, leaving expectations of a shrinking market for 2013. In large part, Silver Spring 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 and the U.K., 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.
One key measure to keep a close eye on in Silver Spring’s upcoming filings is the share of its revenues it earns from services such as demand response, distribution automation and the other services it has built on top of its core networking and software platforms. The company has said for some time that it 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 as well.
Silver Spring’s latest 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 -- and the appetite of investors for its reduced IPO offering.