Silver Spring Networks: 5 Different Insiders Have Sold Shares This Year

Jan.26.14 | About: Silver Spring (SSNI)

In this article, I will feature one tech stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Silver Spring Networks (NYSE:SSNI) provides networking platform and solutions that enable utilities to transform the power grid infrastructure into the smart grid.

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Insider selling during the last 30 days

Here is a table of Silver Spring Networks' insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Eric Dresselhuys EVP Jan 2-22 9,860 Yes 13,762 shares 41.7%
Daniel Middleton EVP Dec 26-Jan 22 5,250 Yes 30,102 shares + 42,583 options 6.7%
Scott Lang CEO Jan 2-21 23,512 Yes

282,736 shares

7.7%
Thomas Kuhn Director Dec 30-Jan 21 2,000 Yes 18,763 shares + 10,000 options 6.5%
Anil Gadre EVP Jan 7 1,315 Yes 116 shares 91.9%
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There have been 41,937 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Silver Spring Networks' insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 40,187 0
December 2013 784,459 0
November 2013 164,794 0
October 2013 42,467 0
September 2013 160,008 539
August 2013 0 3,000
July 2013 0 0
June 2013 0 0
May 2013 0 5,000
April 2013 0 0
March 2013 0 0
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There have been 1,191,915 shares sold, and there have been 8,539 shares purchased by insiders since March 2013. The month of December has seen the most insider selling.

Financials

Silver Spring Networks reported the third-quarter financial results on October 30 with the following highlights:

Revenue $72.5 million
Net loss $12.3 million
Cash $143.4 million
Debt $1.8 million
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News

Silver Spring Networks reported preliminary fourth-quarter results on January 16 with the following highlights:

Q4/2013 FY2013
GAAP revenue $95-$96 million $325-$326 million
GAAP EPS -$0.02 to $0.00 -$4.55 to -$4.57
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The stock plunged after these results.

Competition

Silver Spring Networks' competitors include Alcatel Lucent (ALU), and
Echelon Corporation (NASDAQ:ELON). Here is a table comparing these companies.

Company SSNI ALU ELON
Market Cap: 768.67M 9.18B 140.42M
Employees: 608 72,344 223
Qtrly Rev Growth (yoy): 0.83 0.02 -0.38
Revenue: 279.77M 18.90B 91.83M
Gross Margin: 0.33 0.31 0.49
EBITDA: -55.30M 1.44B -5.91M
Operating Margin: -0.22 0.04 -0.11
Net Income: -193.18M -3.04B -17.69M
EPS: -3.08 -1.35 -0.42
P/E: N/A N/A N/A
PEG (5 yr expected): N/A 0.27 -0.50
P/S: 2.86 0.50 1.56
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Silver Spring Networks has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

Company Insider buying / shares Insider selling / shares
ALU N/A N/A
ELON 0 15,000
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Only Silver Spring Networks has seen intensive insider selling during the last 30 days.

Conclusion

There have been five different insiders selling Silver Spring Networks, and there have not been any insiders buying Silver Spring Networks during the last 30 days. Two of these five insiders decreased their holdings by more than 10%. Silver Spring Networks has an insider ownership of 1.40%.

Silver Spring Networks has a $9.0 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $9.0 price target. I would place a stop loss at $23.60, which is the six-month high. The four main reasons for the proposed short entry are bearish Point and Figure chart, negative earnings, relatively high P/S ratio, and the intensive insider-selling activity.

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Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SSNI, over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.