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Q115 Earnings Call
May 7, 2015
1
© 2015
SilverNetworks
Spring Networks
© 2015 Silver
Spring
Forward-Looking Statements
This document contains forward-looking statements that involve risks and uncertainties. These forward-looking statements
include statements regarding the momentum in Silver Spring Networks’ business, future growth and future financial results,
including expected improvements in gross profit and our outlook for the second quarter and full year 2015. Statements
including words such as "anticipate", "believe", "estimate" or "expect" and statements in the future tense or about future events
are forward-looking statements. These forward-looking statements are preliminary estimates and expectations based on
current information and are subject to business and economic risks and uncertainties that could cause actual events or actual
future results to differ materially from the expectations set forth in the forward-looking statements. Important factors that could
cause results to differ materially from the statements herein include: timing around customer decisions and deployment pace;
dependence on a limited number of customers and key suppliers; general economic risks; specific economic risks in different
geographies and among different industries; failure to maintain or increase renewals and increase business from existing
customers; uncertainties around continued success in sales growth and market share gains; lengthy sales cycles with no
assurances that a prospective customer will select Silver Spring’s products and services; amounts included in backlog may not
result in billings or revenue; adverse publicity about, or consumer or political opposition to, the smart grid; security breaches
involving smart grid products or services; the ability to integrate technology into third-party devices and Silver Spring’s
relationship with third-party manufacturers; execution and customer adoption risks related to new product introductions and
innovation, including our recently announced fifth generation networking platform and products; the ability to attract and retain
personnel, including members of Silver Spring’s management team; changes in strategy; technological changes that make
Silver Spring’s products and services less competitive; competition, particularly from larger companies with more resources
than Silver Spring; international business uncertainties; the ability to acquire and integrate other businesses; and other risk
factors set forth from time to time in Silver Spring’s filings with the SEC, copies of which are available free of charge at the
SEC’s website at www.sec.gov.
All forward-looking statements in this document reflect Silver Spring’s expectations as of May 7, 2015. Silver Spring
undertakes no obligation, and expressly disclaims any obligation, to update any forward-looking statements in this document in
light of new information or future events.
In addition, the preliminary financial results set forth in this document are estimates based on information currently available to
Silver Spring. While Silver Spring believes these estimates are meaningful, they could differ from the actual amounts
that Silver Spring ultimately reports in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. Silver
Spring assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the quarter
ended March 31, 2015.
2
© 2015 Silver Spring Networks
State of the Business
• Q1 Ahead of Plan
• Our Business Model is Succeeding
- 40.3% gross margin
- Double-digit growth of Silver Spring content
- New solutions up 60% from prior year
- Managed services & SaaS above $50 million run-rate
• Silver Spring Powering Leading Smart Grid Deployments
• Five New International Signings
3
© 2015 Silver Spring Networks
Q115 Financial Review
Jim Burns, Chief Financial Officer
4
© 2015 Silver Spring Networks
Q115 Financial Results
$Millions, Endpoints in Millions
Non-GAAP Revenue
Network Footprint (Cumulative Endpoints)
$72
3rd-Party
+11%
$63
Double Digit
Growth
20.8
18.7
SSN Content*
Q114
Q115
Non-GAAP Revenue by Type
Q114
Q115
Non-GAAP Revenue by Solution
3rd-Party
Services*
$62
$48
AMI
$9
$15
New Solutions
Q114
Q115
Product*
Q114
Note: Some figures may not add due to rounding
* Excludes 3rd-Party
5
© 2015 Silver Spring Networks
Q115
Executing on our Business Model
$Millions, except Recurring Revenue per Cuml. Endpoint
Non-GAAP New Solutions Revenue
$15
Non-GAAP Services Revenue
$22
$20
+13%
+60%
+19%
$9
$13
Managed/SaaS
$9
$10
Prof. Services
Q114
Q115
$11
+5%
Q114
Q115
Recurring Revenue per Cuml. Endpoint
TTM*
$2.15
Non-GAAP Gross Margin
$2.24
+10.3 pts
40.3%
30.0%
Q114
Note: Some figures may not add due to rounding
* TTM refers to the trailing twelve month period
6
© 2015 Silver Spring Networks
Q115
Q114
Q115
Q115 Non-GAAP Gross Profit & Margin
$Millions
$25
$22
18%
Product
$17
Product
$15
Services
$7
Services
$8
Q114
Note: Some figures may not add due to rounding
7
© 2015 Silver Spring Networks
Q115
Q114
Q115
28.2%
42.4%
Managed / SaaS
40.9%
41.9%
Professional Service
27.5%
29.1%
Service
34.7%
36.4%
Total
30.0%
40.3%
Product
Q115 Financial Results
$Millions, except EPS
Non-GAAP Operating Expenses
Non-GAAP EPS
$30
$31
$8
$10
G&A
$7
$8
S&M
$15
$14
R&D
$(0.11)
$(0.19)
Q114
Q115
Non-GAAP Net Loss
Q114
+$0.08
Q115
Cash & Equivalents
Detectent acquisition
$121
$111
$(6)
$(9)
+$3M
Q114
Note: Some figures may not add due to rounding
8
© 2015 Silver Spring Networks
Q115
Q414
Q115
Change in GAAP Outlook
$Millions, except per share amounts
Q115
Prior Outlook
Actual Results
Revenue
~ $31M – $36M
~ $144M
EPS
~ ($0.70) – ($0.65)
$0.69
2015
Prior Outlook
New Outlook
~ $180M – $200M
~ $375M – $400M
~ ($1.75) at Midpoint
$0.40 – $0.80
Revenue
EPS
9
© 2015 Silver Spring Networks
Non-GAAP Outlook
$Millions, except per share amounts
Q215
Revenue
~ $65M – $70M
~ $270M – $290M
Gross Margin
~ 39% – 41%
~ 39% – 41%
Operating Expenses
$29M – $30M
Flat to Slightly Up Y/Y
~ $0.5M
~$2.0M*
~ ($0.08) – ($0.04)
~ ($0.05) at the midpoint
~ 50M
~ 50M – 52M
Income Taxes
Earnings per Share
Share Count
Note: Some figures may not add due to rounding
* Excludes one-time Detectent tax benefit
10
2015
© 2015 Silver Spring Networks
Silver Spring Networks
Q&A
11
© 2015 Silver Spring Networks
Supplemental
12
© 2015 Silver Spring Networks
Non-GAAP and Other Financial Measures
Silver Spring believes that its results of operations under generally accepted accounting principles, or GAAP, when considered in isolation, may only provide limited
insight into the performance of its business in any given period. As a result, Silver Spring manages its business, makes planning decisions, evaluates its performance
and allocates resources by assessing non-GAAP measures such as non-GAAP revenue, recurring non-GAAP revenue, recurring non-GAAP revenue per endpoint, cost
of non-GAAP revenue, non-GAAP gross profit (loss), non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP net income (loss), non-GAAP earnings
(loss) per share, and adjusted EBITDA, and total backlog, in addition to other financial measures presented in accordance with GAAP. Silver Spring believes that these
non-GAAP and other financial measures offer valuable supplemental information regarding the performance of its business, and will help investors better understand the
sales volumes, and gross margin and profitability trends, as well as the cash flow characteristics, of its business. The non-GAAP measures should not be considered in
isolation from, are not a substitute for, and do not purport to be an alternative to, revenue, cost of revenue, gross profit (loss), gross margin, operating income (loss), net
income (loss), earnings (loss) per share or any other performance measure derived in accordance with GAAP. Silver Spring may consider whether other significant nonrecurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.
Non-GAAP revenue represents amounts invoiced for products for which ownership, typically evidenced by title and risk of loss, has transferred or services that have
been provided to the customer, and for which payment is expected to be made in accordance with normal payment terms. Non-GAAP revenue excludes amounts for
undelivered products, services to be performed in the future, and amounts paid or payable to customers. Non-GAAP revenue is initially recorded as deferred revenue
and is recognized as revenue when all revenue recognition criteria have been met under Silver Spring’s accounting policies as described in Silver Spring’s filings with
the Securities and Exchange Commission. Silver Spring reconciles revenue to non-GAAP revenue by adding revenue to the change in deferred revenue in a given
period.
Recurring non-GAAP revenue is non-GAAP revenue from managed services and SaaS, as well as customer support and other service offerings. Recurring non-GAAP
revenue is primarily recurring in nature and includes managed services, hosting and software maintenance, and support fees, as well as one-time managed services
and SaaS set up fees. Customer support and other services are provided to customers outside of managed and SaaS offerings, and are also recurring in nature.
Recurring non-GAAP revenue per endpoint represents a trailing twelve month non-GAAP revenue per cumulative endpoints deployed inception-to-date.
Cost of non-GAAP revenue represents the cost associated with products and services that have been delivered to the customer, excluding stock-based compensation,
amortization of intangibles, and acquisition-related charges. Cost of product shipments for which revenue is not recognized in the period incurred is recorded as
deferred cost of revenue. Deferred cost of revenue is expensed in the statement of operations as cost of revenue when the corresponding revenue is recognized. Costs
related to services are expensed in the period incurred. Silver Spring reconciles cost of revenue to cost of non-GAAP revenue by adding cost of revenue and the change
in deferred cost of revenue, less stock-based compensation, amortization of intangibles, and acquisition-related charges included in cost of revenue, in a given period.
Non-GAAP gross profit (loss) is the difference between non-GAAP revenue and cost of non-GAAP revenue. Non-GAAP gross margin is non-GAAP gross profit (loss)
as a percentage of non-GAAP revenue.
Non-GAAP operating income (loss) represents operating loss adjusted for non-GAAP revenue and cost of non-GAAP revenue and excludes expenses related to the
amortization of intangible assets, stock-based compensation, acquisition-related charges, restructuring and legal settlements.
Non-GAAP net income (loss) represents net income (loss) adjusted for changes in deferred revenue and deferred cost of revenue, and excludes expenses related to
the amortization of intangible assets, stock-based compensation, acquisition-related charges, income tax benefit related to acquisitions, restructuring, and legal
settlements.
Non-GAAP income (loss) per share represents non-GAAP net income (loss) divided by weighted average shares outstanding for the period.
Adjusted EBITDA is net income (loss) adjusted for changes in deferred revenue and deferred cost of revenue, other (income) expense, net, (benefit) provision for
income taxes, depreciation and amortization, stock-based compensation, acquisition-related charges, restructuring, legal settlements, and certain other items
management believes affect the comparability of operating results.
13
© 2015 Silver Spring Networks
Services Reclassification
$M, Non-GAAP
Q114A
Services Revenue
Professional Services
Managed Services
$
19.6
9.6
10.0
Q214A
$
21.4
11.0
10.4
$
21.3
10.6
10.7
Q414A
$
20.3
9.6
10.7
Q115A
$
22.1
10.3
11.8
Q114A
$
19.6
9.1
10.5
Reclassed
Q214A
Q314A
Q414A
$
21.4
10.5
10.9
$
21.3
9.8
11.5
$
20.3
8.8
11.6
Q115A
$
22.1
9.5
12.6
Gross Profit
Professional Services
Managed Services
6.8
2.7
4.1
8.1
3.7
4.5
7.3
2.7
4.6
8.4
3.5
4.9
8.0
3.2
4.8
6.8
2.5
4.3
8.1
3.4
4.7
7.3
2.2
5.2
8.4
3.0
5.5
8.0
2.8
5.3
Gross Margin
Professional Services
Managed Services
34.7%
28.4%
40.7%
37.9%
33.2%
43.0%
34.3%
25.3%
43.2%
41.5%
36.8%
45.7%
36.4%
31.2%
40.9%
34.7%
27.5%
40.9%
37.9%
32.5%
43.1%
34.3%
22.0%
44.8%
41.5%
33.9%
47.2%
36.4%
29.1%
41.9%
Endpoints
Cumulative Endpoints
526
18,710
371
19,081
633
19,714
552
20,266
548
20,814
526
18,710
371
19,081
633
19,714
552
20,266
548
20,814
Mgd Svcs TTM Revenue
$
38.3
$
39.4
$
40.2
$
41.8
$
43.5
$
40.2
$
41.6
$
42.7
$
44.5
$
46.5
Recurring Rev per Cuml. EP
$
2.05
$
2.07
$
2.04
$
2.06
$
2.09
$
2.15
$
2.18
$
2.16
$
2.20
$
2.24
* TTM refers to the trailing twelve month period
14
Prior
Q314A
© 2015 Silver Spring Networks
Q115 GAAP to Non-GAAP Reconciliation
$Thousands,
except per share amounts
Product revenue
Service revenue
Net revenue
GAAP Financial
Statements
$
Product cost of revenue
Service cost of revenue
Total cost of revenue
Gross profit
105,035
38,605
143,640
$
56,617
15,568
72,185
$
71,455
(64,033)
(16,508)
(80,541)
Stock-based
Compensation
$
-
Amortization of
Intangibles
$
-
-
Restructuring &
Litigation
Acquisition
Related Costs $
$
-
-
Non-GAAP
Financial
Information
$
41,002
22,097
63,099
(32,516)
(32,516)
(228)
(1,495)
(1,723)
(262)
(262)
-
(11)
(11)
23,611
14,062
37,673
(48,025)
1,723
262
-
11
25,426
Product Margin
46.1%
42.4%
Service Margin
59.7%
36.4%
Total Margin
49.7%
40.3%
Operating Expenses
Research and development
Sales and marketing
General and administrative
Restructuring
Total operating expenses
15,694
9,297
12,129
194
37,314
-
Operating Loss
34,141
(48,025)
Operating Margin
(2,180)
(1,238)
(1,882)
(5,300)
(140)
(7)
(147)
(194)
(194)
(4)
(720)
(724)
13,510
7,919
9,520
30,949
7,023
409
194
735
(5,523)
-8.8%
288
(476)
Net loss
Income (Loss) per share
$
34,905
Basic
Diluted
Number of shares used in
computation
Basic
Diluted
$
$
0.71
0.69
49,306
50,899
Note: Some figures may not add due to rounding
* Net of Foreign Currency Translation
© 2015 Silver Spring Networks
-
23.8%
Other income (expense), net
(Benefit) Provision for income taxes
15
Change in Deferred
Revenue and Deferred
Cost of Revenue
$
(48,025)
$
7,023
$
409
$
194
890
$
(155)
288
414
$
(5,649)
$
$
(0.11)
(0.11)
49,306
49,306
Q114 GAAP to Non-GAAP Reconciliation
$Thousands,
except per share amounts
Product revenue
Service revenue
Net revenue
GAAP Financial
Statements
$
Product cost of revenue
Service cost of revenue
Total cost of revenue
Gross profit
Product Margin
Service Margin
Total Margin
28,227
16,002
44,229
Operating Loss
Operating Margin
$
-
$
-
-
Change in Fair
Value of Warrant
and Derivatives
$
-
Non-GAAP
Financial
Information
Litigation and
Restructuring
$
-
$
52,233
19,617
71,850
17,915
14,870
32,785
20,257
20,257
(632)
(2,060)
(2,692)
(48)
(48)
-
-
37,492
12,810
50,302
11,444
7,364
2,692
48
-
-
21,548
28.2%
34.7%
30.0%
17,725
9,223
11,667
38,615
-
(3,155)
(2,045)
(3,540)
(8,740)
(27,171)
7,364
11,432
48
-
-
14,570
7,178
8,127
29,875
-
-
(8,327)
-11.6%
(37)
599
Net loss
$
(27,807)
Loss per share, basic and diluted
$
(0.58)
47,693
Note: Some figures may not add due to rounding
* Net of Foreign Currency Translation
© 2015 Silver Spring Networks
24,006
3,615
27,621
Amortization of
Intangibles
-61.4%
Other expense, net
Provision for income taxes
16
$
Stock-based
Compensation
36.5%
7.1%
25.9%
Operating Expenses
Research and development
Sales and marketing
General and administrative
Total operating expenses
Number of shares used in
computation, basic and diluted
Change in Deferred
Revenue and Deferred
Cost of Revenue
$
7,364
$
11,432
$
48
$
-
$
(37)
599
-
$
(8,963)
$
(0.19)
47,693
GAAP Outlook
$Millions, except per share amounts
Q215
Revenue
Gross Margin
Operating Expenses
Income Taxes
Earnings per Share
Share Count
Note: Some figures may not add due to rounding
* Includes one-time Detectent tax benefit
17
© 2015 Silver Spring Networks
2015
~ $45M – $55M
~$375M – $400M
~ 33% – 36%
~ 42% – 45%
~ $34M – $35M
~ $134M – $140M
~ $0.5M
~ $1M*
~ ($0.40) – ($0.30)
~ $0.40 – $0.80
50M – 52M
50M – 52M
Outlook Reconciliation
$Millions, except per share amounts
Net revenue
GAAP net revenue
Change in deferred revenue, net of foreign currency translation
Non-GAAP net revenue
Gross profit
GAAP gross profit (loss)
Change in deferred revenue, net of foreign currency translation
Change in deferred cost of revenue, net of foreign currency translation
Stock-based compensation
Non-GAAP gross profit
GAAP gross margin % (as a % of GAAP net revenue)
Non-GAAP gross margin % (as a % of non-GAAP net revenue)
Q215 Guidance
High
Low
$
$
$
$
45
20
65
$
15
20
(11)
2
25
33%
39%
$
$
Net income (loss)
GAAP net loss
Change in deferred revenue, net of foreign currency translation
Change in deferred cost of revenue, net of foreign currency translation
Stock-based compensation, Amortization of Intangibles, Other*
Non-GAAP net income (loss)
$
(21)
20
(11)
8
(4)
Net loss per share
GAAP loss per share
Non-GAAP loss per share
$
$
(0.40)
(0.08)
Basic Share Count
Diluted Share Count
$
50
52
$
55
15
70
2015 Guidance
Low
High
$
$
375
(105)
270
$
156
(105)
48
7
105
42%
39%
$
$
$
41
(110)
40
28
0
$
$
0.80
0.00
18
15
(6)
2
29
33%
41%
$
$
$
(17)
15
(6)
6
(2)
$
21
(105)
48
31
(5)
$
$
(0.30)
(0.04)
$
$
0.40
(0.10)
$
50
52
$
$
$
50
52
* Stock-based compensation, Amortization of Intangibles, Other also include Acquisition-Related and Restructuring Charges
Note: Some figures may not add due to rounding
18
© 2015 Silver Spring Networks
400
(110)
290
182
(110)
40
7
119
45%
41%
50
52