January 29, 2013 2:00 am EST - Nineteen months and a whopping ten (10!) S-1 Amendments later, Silver Spring Networks, Inc. (PrivCo Private Company Ticker: SILVRSP), a cleantech company that provides smart-grid solutions to the utilities industry, has yet to go public despite filing for an IPO in July 2011. PrivCo analysis indicates that despite Silver Spring's persistence, its chances of actually going public are getting slimmer by the day, based on PrivCo's IPO tracking data of companies waiting so long after their IPO filings to go public. Coupled with Silver Spring's painful balance sheet (the company is technically insolvent, as PrivCo explains below), its years of losses, and now declining revenues (see PrivCo Graphic below: Silver Spring Quarterly Revenue), PrivCo expects to see eiher Silver Spring Networks IPO withdrawal within weeks OR pushing through with a shrunken "Midget IPO. Pulling the plug on the company's once highly anticipated IPO is now only a matter of when and not if, PrivCo's IPO analysis concludes.
19-MONTH-LONG WAIT AT THE IPO ALTAR AFTER ITS 1ST S-1 FILING IN JULY 2011
Silver Spring Networks first filed for an IPO in July 2011 (in retrospect, unfortunately, just as its quarter revenue was cresting) and has since filed a whopping ten S-1 Amendments. This 19-month-long registration is a highly unusual waiting period, is evidence of weak IPO investor demand, and empirically the delay significantly decreases Silver Spring's chances of successfully pricing its IPO and metamorphosing from a private company to a publicly traded one. PrivCo IPO tracking data shows that IPOs with registration periods over 9 months have over an 80% chance of withdrawal. (In normal markets, the average IPO goes from initial filing to public trading within 80 to 90 days.) Moreover, PrivCo sources indicate that IPO investors are passing on Silver Spring Networks due to the company's Risk Factors, Balance Sheet, and quarterly revenue declines (see PrivCo analysis below), and that its bankers at Goldman Sachs and Credit Suisse had informally been offering to cut Silver Spring Network' IPO pricing several times to try to draw interest, only to find the company's each new quarter's revenues falling faster than its proposed valuation.
ENDLESS LOSSES & QUARTERLY DECLINES IN REVENUE SINCE JULY 2011 PEAK
A major factor in this lack of IPO investor interest is Silver Spring Networks' inability to turn a profit (net losses were over $92 million in 2011, with losses projected by PrivCo for years to come). Silver Spring Networks operates in a low margin business and has low control over its cost of sales due to a business model that relies on outsourced manufacturing. But to make matters worse, PrivCo's summary of Silver Spring's quarterly revenue data shows a constant decline in quarterly revenue since they peaked Q2 of 2011 (except for a flat rounding error in that year's Q4), and averaging a 13% sequential drop each quarter throughout 2012. PrivCo estimates that Silver Spring's 2012 revenues will only be $180 million, approximately 25% less than the $237 million collected in 2011. These figures indicate that Silver Spring's financial prospects peaked in mid-2011, with no apparent signs that they can turn revenues into profit - hardly the rapid growth story that IPO investors seek out in private companies so young.
CONTINUING LOSSES, DEPENDENCY ON ADDITIONAL CAPITAL
Silver Spring Networks has already raised $232 Million in venture capital since 2004 (this amount of private capital is more than most companies' IPOs), and its losses mean the company needs still more funding in the foreseeable future to stay in business. In February 2012, after Silver Spring's cut in its IPO price talk failed, the company was forced to turn to its existing V.C. backers for an additional $30M bridge investment to keep IPO hopes alive. This dependency on outside capital is another sign that Silver Spring Networks is unable to survive on its own, and dims the light on its chances of drawing investor interest in a highly scrutinized public offering.
SILVER SPRING'S BALANCE SHEET REVEALS COMPANY NOW "TECHNICALLY INSOLVENT"
Close scrutiny of Silver Spring Networks' balance sheet by PrivCo analysts reveal more reasons IPO investors should avoid this public offering. What many observers don't realize is that - similar to Groupon - most of the company's customers pre-pay for its products (Silver Spring had a staggering $472 Million in Unearned Revenue at the end of Q3 2012 - cash received in advance for goods and services it must deliver in the near future - but less than $60 Million in cash on hand). Essentially Silver Spring Networks is using its customers' money to finance its losses and stay afloat, a balance sheet structure which in accounting terminology is "technical insolvency."
"Had Silver Spring's customers paid the company only as goods and services were delivered, Silver Spring Networks would already be insolvent," said PrivCo CEO Sam Hamadeh today in a statement.
Hamadeh added: "After nearly a decade of cumulative losses exceeding $400 million, over $232 Million in venture capital funding raised, steadily declining quarterly revenue, an insolvent balance sheet, and interminable delays after first filing for its IPO in July 2011, the lights soon will go out on Silver Spring Network's IPO plans. And as PrivCo data shows that 80% of IPOs in registration for over 9 months end up withdrawn, Silver Spring's 19 months in registration augurs poorly for its IPO prospects."
Silver Spring Networks, Inc.: PrivCo IPO Analysis (PrivCo Private Company Ticker: SILVRSP)
IPO Offering Information:
- Offering Size: N.A.
- Filing Range: N.A.
- Proposed Ticker: NYSE:SSNI
- Offering Amount (Expected): $150 Million
- Expected Trading Begins: N.A.
- Lead Underwriters: Goldman Sachs, Credit Suisse
- Co-Managers: Jefferies, Piper Jaffray, Baird, Stifel Nicolaus Weisel, Evercore, Canaccord Genuity, Pacific Crest Securities
- Legal Advisors: Fenwick & West LLP, Davis Polk & Wardwell LLP
- Use of Funds: General corporate purposes, including working capital and potential acquisitions.
- Silver Spring Networks Ownership: Foundation Capital (41.6%), Kleiner Perkins Caufield & Byers (9.6%), WR Holdings (8.7), Redstone Management (7.0%), NextEra Energy, Inc. (6.1%), JVB Properties (5.8%), Scott Lang (3.8%), Google Ventures, Northgate Capital
- Revenue (Year end December 31): $180.3M (2012 PrivCo-Projected), $237.1M (2011), $70.2M (2010)
- TTM Revenue (Sept. 30, 2012): $208.0M
- 1 Year Revenue Growth: 237.6% (2010-2011)
- Net Income/Loss: -$92.4M (2011), -$148.4M (2010), -$113.5M (2009)
- Cost of Goods & Services Sold: $214.1M (2011)
- Operating Expenses: $118.2M (2011)
- R&D Expenses: $57.5M (2011)
- Total Deferred Revenue: $472.5M (As of Sept. 30, 2012)
- Provides advanced, cloud networking solutions to the utility sector, a market that is just starting to realize the benefits of advanced networking.
- Offers the SilverLink platform, which allows utility providers the capability to monitor usage in real-time and adjust for cost-reduction.
- Large market potential in terms of customers and services - offers a partnership program with utility providers in bringing its products to market (over 60 global partners as of 2012).
- Business model taps into the industry-wide trend toward efficiency and connectivity in smart-grid deployments.
- Has attracted big name customers: PG&E, Florida Power & Light (FPL), Pepco, Commonwealth Edison, Progress Energy, etc.
- Decreasing quarterly revenue(see chart above): -13% average quarterly decline for the past 3 quarters (from 2012 Q2 to Q3 saw a decline of -23%, largest ever)
- First filed for an IPO in July 2011, with ten S-1 Amendments so far -19 months in registration.
- Silver Spring Networks has already raised $232 Million in venture capital since 2004 (this is more than most companies' IPOs), and still needs more funding for the foreseeable future to operate.
- Endless losses and inability to control costs reveal a business that has struggled to find ways to turn a profit.
- Low margin business with outsourced manufacturing for its products (significant portion of its cost of sales) result in lack of control over quality assurance, products costs and supply.
- Customer concentration issues: historically just 3 or fewer customers comprised around 70% of total revenues.
- Competition in the field of smart-grid services is high: Aclara, eMeter, Echelon, Elster Metering, Landis+Gyr, Itron
UPDATE (Jan. 29, 2013): PrivCo previously reported that Silver Spring Networks received a bridge investment of $12 million from current investor Foundation Capital in September 2012; in fact, Foundation Capital had only stated its intent to separately purchase an additional $12 million worth of Silver Spring Networks shares at the IPO price if and when an IPO takes place, in a separate private placement.
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