Silver Spring Networks (SSNI), the smart grid networking company that went public in March, on Wednesday reported a loss for the first quarter of 2013 largely driven by costs associated with its long-awaited IPO, while pledging new growth in smart metering and ongoing services business to match a growing international smart grid market.
The Redwood City, Calif.-based company reported a GAAP net loss of $64.4 million for the first quarter, compared to an GAAP net loss of $18.4 million loss in the same quarter last year. Driving the loss was a $42.1 million charge in connection with its initial public offering -- excluding the one-time charge and other factors, the company’s non-GAAP net loss was $8.4 million for the first quarter, compared to a net loss of $5.3 million in Q1 2012.
Likewise, Silver Spring’s first-quarter revenues of $53.7 million, as reported on a GAAP basis, were down slightly from the $55.5 million it reported in the same quarter last year. But measured on a non-GAAP basis, in a term the company defines as billings, Silver Spring reported first-quarter revenues of $73.8 million, up 24 percent from the same quarter in 2012, and beating analyst projections slightly. The company's shares fell 2.4 percent to $17.62 in post-close trading Wednesday afternoon, down from its IPO price of $22 per share.
This discrepancy between its GAAP and non-GAAP financial figures underscores a problem Silver Spring faces in reconciling utility sales and billing cycles with the quarter-by-quarter imperatives of being a publicly traded company. In simplified terms, billings represent money that Silver Spring has, but which can’t be counted as revenues under GAAP accounting rules.
“Under GAAP, we defer the product and services revenue, but do not defer the cost,” is how John Joyce, Silver Spring’s chief financial officer, explained the billings issue in Wednesday’s conference call. This type of “acceptance accounting” is common in the utility industry, he said.
Silver Spring CEO Scott Lang pledged improvement over the course of 2013, including non-GAAP revenue growth of 18 percent and a goal of positive operating income by year’s end, as well as big growth in its distribution automation, demand-side management and other key services offerings. Silver Spring ended the quarter with cash of $142.4 million, up from $70 million as of the end of 2012.
Lang also took time in Wednesday’s conference call to flesh out Silver Spring’s goals in the U.K., where it’s partnering with Vodafone, which bought Silver Spring partner Cable & Wireless last year, in bids to build part of a nationwide smart meter network expected to cost about $7.5 billion over the coming decade.
Lang said that Silver Spring is bidding with Vodafone as its partner, and “we’re right in the middle of that” today, with the U.K.’s Department of Energy and Climate Change (DECC) aiming at making a decision by the third quarter of this year. Silver Spring’s mesh solution, along with cellular components, will be part of the bid, he said, which faces competition from Telefonica, Airwave Solutions and the SmartReach group, a collaboration of BT, BAE, Arqiva and U.S. smart metering company Sensus, over three region-wide deployments of about 10 million meters each, he said.
Silver Spring has built the lion’s share of its revenues on big smart meter networking contracts with customers like FPL, Pacific Gas & Electric, Pepco, Oklahoma Gas & Electric, Baltimore Gas & Electric, Commonwealth Edison and Progress Energy. The company had 16.5 million cumulative network endpoints delivered as of March 31, up 27 percent from a year ago.
Some of those big customers, like FPL and PG&E, are fully installed, while others are still underway. Still, with a whopping 79 percent of the company’s 2012 revenues coming from FPL (31 percent), PG&E (30 percent) and OG&E (18 percent), Silver Spring is under pressure to diversify its customer base. To be sure, it has a good list of new customers, including San Antonio, Texas-based CPS Energy, and other U.S. customers still expanding their deployments -- U.S. business grew 16 percent in the first quarter compared to the same quarter last year on a non-GAAP basis.
Silver Spring also wants to expand the range of services it can provide for its networks, and thus boost ongoing revenues. Services only made up 17 percent of Silver Spring’s 2012 revenues, but Joyce said that the first quarter’s $9 million in services revenue was up 23 percent from the same quarter last year. Some 70 percent of Silver Spring’s big smart meter networking customers, including FPL, are using its services capabilities to manage and maintain their networks, since “we can run it cost-effectively at higher performance,” he said.
At the same time, Silver Spring wants to put its network to use for many different smart grid functions, ranging from distribution grid sensors and controls to home energy management and demand response. Plug-in vehicle chargers, solar panels and streetlights are also on its agenda, with the idea being that a smart meter network can do double-duty at no extra cost for all kinds of energy-using devices in the field.
Of course, Silver Spring has a ton of competitors in networking the smart grid, including all its smart meter competitors, all the major cellular providers, and contenders like Cisco, Alcatel-Lucent and RuggedCom (now owned by Siemens) that make the hard-wired routers and switches and specialized communications gear going onto the grid.
On the distribution grid networking and demand response fronts, Silver Spring saw a 13-percent decline in first-quarter revenues compared to the same period last year, Joyce said. But that’s primarily due to timing of customer projects -- the company expects to see DA and DR revenues grow 100 percent over the course of 2012, he said.
On the international front, Silver Spring saw its outside-the-U.S. business grow 14 percent in the first quarter compared to the same period last year. The company reported 8 percent of revenues and 16 percent of billings from international projects in 2012, and saw first-quarter growth from expanded projects with Brazilian utility CPFL Energia, as well as new projects in New Zealand, Singapore and Malaysia.
In Japan, Silver Spring is part of Hitachi’s bid for smart meter projects being planned by Tokyo Electric Power Co. (TEPCO), though Lang said that the company wasn’t expecting to see that happen this year. As for the great debate over utility-owned wireless mesh technologies (like those Silver Spring and AMI competitors have built their business on) versus cellular solutions for the smart grid, Lang said that Silver Spring’s cellular solutions are being used “very pragmatically by our customers,” but that no utility he knows of is thinking of switching entirely over to cellular.
