Control4, which is celebrating its 10th anniversary this year as a home automation brand, began trading on the NASDAQ stock exchange today. An initial public offering of 4,000,000 shares of its common stock was priced to the public at $16.00 per share, before underwriting discounts.
With the move to the market, Control4 became that rare custom integration channel brands to go public. So, I was curious to learn more about the process. Control4 CEO Martin Plaehn. who was noticeably careful about how he answered my questions, helped shed a little more light on the company’s motivations behind the move and how its status as a public company affects its plans for the future.
Here’s my unedited interview:
I figured that part of the goal of taking the company public was to achieve Control4’s goal of selling its products to a broader market. But even with that goal in mind for the company over the years, it’s rare to see a company that started in the CI channel go public. How do you see Control4 being different from other companies that have chosen to remain private in the channel.Control4 CEO Martin Plaehn on the day of his company’s public offering on NASDAQ, in New York City
Martin Plaehn: At Control4 our mission was to bring automation to the mainstream homeowners and families. And in order to do that we needed to build a platform in which thousands of devices could connect, so consumers had choice and could benefit from everything working together. When you link all of that together… if you want to deliver on that vision and dream, you’ve got to be the operating system in the home. And you have to pursue that with vigor and gain the traction you need to get to customers with a delivery channel that provides so much value, locally, consultative selling, installation, custom programming, support and services, ancillary products. It’s so important. Then we just keep growing. When we got to a scale like where we are today and we have the growth profile and the financial performance we have, additional tools become available to you through our free-market system and one of those tools is to become a publically traded company where you gain access to capital to strengthen your balance sheet and to have a public currency to continue to lead the industry and harness the efforts of other organizations.
I read somewhere that the company has not turned a profit in the 10 years its been in existence. Is this true?
From a GAAP [Generally Accepted Accounting Principles] accounting standpoint, in 2012 we had a very small loss from a net operating standpoint without taking into consideration stock option considerations and write offs for a lawsuit. We were profitable in the last three quarters of 2012. We were cash flow neutral. The first half of this year is very solid. We generated cash. We’re net income positive. The company is in rock solid shape.
So the company has turned the corner in recent years. Up until that point, was it just the growth pattern that you spend more than you make as a relatively young company?
I think if you look at the early mission, vision, ambition of the company, to achieve all of the necessary pieces, a software platform that could embrace other peoples innovations, an ecosystem of partner products that actually work with that system. To find a channel. To recruit it. To train it. To nurture it. To make it successful. That takes a ton of effort and it does take time. Our dealer network is 2,800 independent companies, all embracing Control4. That didn’t happen overnight and that didn’t happen through a referral system. It happened through exposure, because the opportunity is so strong, training, technology, products, customers, and that takes time and the scope of what Control4 saw in front of itself required a long and large investment. And now we’re benefiting from that ballast of investment.
So this new infusion of capital that you’re going to get from becoming a publically traded company, how is that going to change your ability to bring new products to market or even your channel play beyond your 2,800 independent dealers. To be able to broaden out and to become more mainstream, obviously you have to grown beyond them. Is there anything you can tell about how this is going to enable you to accomplish that initiative.
We’re going to continue to grow. I think having a strong balance sheet enables us to take on ideas that may be a little bit bigger than before, but we’re still going to do things in a step-by-step manner in a highly judicious way. We have the responsibility to report to public shareholders, so we have to be very diligent with the use of all of our assets, our employees, our cash, our technology, our channel, and we intend to continue to do that. I can’t say that there’s no change, but our focus remains steadfast.
What kinds of differences may a custom integrator notice from the company in the near term. Will there be anything that stands out as different other seeing a ticker symbol next to the company’s name?
I think in the near we’ll continue to execute on our existing product plan. We don’t have any intention, near-term, mid-term, or long-term, to deviate from having the powerful, skilled channel to deliver our products into local communities. We think that is a necessary part of our strategy to provide local services in the communities where our customers live, and we’ll continue to bring great products, better products, improve our existing ones, deliver new ones that are innovative. And we would do that as a private company or public company. I hope that what the dealers see in us is a continued progression of improvement and acceleration and it’s really independent of whether we’re public or private.
When is the timing right to do this? Is this something you plan for years, getting your books in order, or is there a sense the company gets and you start preparing then?
Well, there is no spontaneity to this process. It’s one that requires deliberate preparation, long before you even start the formal process of becoming a public company. And we began that many years ago and we thought that we were ready to begin that process in December 2012 and it took us seven and half months of executing the logistics of going through that actual mechanical process of becoming a public company. But in parallel we had started on internal processes and internal culture development on being predictable, consistent, and high quality on everything we do—products, service, finance, forecasts. Being public is a responsibility.
When you came on board was this immediately presented to you as the company’s goal or did it develop well after you were in the company?
I think the step of becoming public was always known inside Control4. I think what it meant to be ready was not always clear, but as we worked together lots of pieces came into the right place. There were lots and lots of pieces within Control4 that were rock-solid foundational elements and they just needed some tuning and some alignment, and as we began working together those things became clear and when we sat down as a management team, we made the decision that we were ready and that we want the extra tools of a stronger balance sheet and a public currency to augment all of the technical and business tools we had to grow the business. There are no selling shareholders. None of the investors in our company sold shares. They’re all bullish on the opportunity ahead. This was not about liquidity for anybody. Nobody’s going to the Bahamas. This is all about continuing to build a really great company and transferring the opportunity of home automation into an industry.