Silver Spring Networks Reports Fourth Quarter 2014 Financial Results

Silver Spring Networks, Inc. (NYSE: SSNI) today announced financial results for its fourth quarter and year ended December 31, 2014.

Fourth Quarter Results (all comparisons made are against the prior year period)

• Non-GAAP revenue for the fourth quarter was $70.4 million, down 22%.
• GAAP revenue was $77.4 million, down 20%.
• Non-GAAP gross margin was 41.3%, as compared with 30.0% a year ago.
• GAAP gross margin was 39.0% as compared with 34.7% a year ago.
• Non-GAAP net income was $1.5 million as compared with $0.1 million a year ago.
• GAAP net income was $0.5 million as compared with $0.4 million a year ago.
• Non-GAAP earnings per share was $0.03 versus $0.00 a year ago.
• GAAP earnings per share was $0.01 as compared with $0.01 a year ago.
• $13.6 million in cash flow from operations, as compared with $1.8 million a year ago.
• Total backlog of $921 million as of December 31, 2014, up 5% from a year ago.

“We ended 2014 in a strong financial position as shown in our Q4 results. We had record cash flow, strong gross margins and double digit growth in New Solutions and our Managed Services and SaaS business,” said Scott Lang, Chairman, President, and Chief Executive Officer. “I remain confident that our leading networking platform and proven value proposition positions us well to capture our vast market opportunity within the Internet-of-Things.”

Business Highlights (through February 9, 2015, unless otherwise stated)

• 20.3 million cumulative network endpoints delivered from inception through December 31, 2014, up 11% from a year ago.
• Working with customers that represent nearly 23M incremental homes and businesses that are piloting or deploying our technology in phases.
• Reduced third-party content, resulting in higher-quality revenue and improved non-GAAP gross margin.
• Unveiled its fifth generation networking platform, Gen5, whichoffers advancements in speed, latency, range, distributed intelligence, power optimization and size. Also introduced several new Gen5-based products, including “Milli 5” for new classes of Internet-of-Things sensors and devices.
• Selected by Horizon Power to deploy a multi-application AMI network in Western Australia.
• Florida Power & Light selects Silver Spring’s networking platform and Streetlight.Vision software as it expands its program to nearly 500,000 street lights.
• Closed acquisition of Detectent, Inc., a leading provider of utility data analytics solutions.
• New SilverLink™ Sensor Network engagements with customers including Florida Power & Light, The Hongkong Electric Company, Limited, and Pepco Holdings, Inc.

Full Year 2014 Results (all comparisons made are against the prior year period)

• Non-GAAP revenue was $276.7 million, down 20%.
• GAAP revenue was $191.3 million, down 41%.
• Non-GAAP gross margin was 33.6%, as compared with 33.1% a year ago.
• GAAP gross margin was 29.5% as compared to 35.3% a year ago.
• Non-GAAP net loss was $24.4 million as compared with $3.1 million a year ago.
• GAAP net loss was $89.2 million as compared with $171.8 million a year ago. 2013 GAAP net loss included non-cash charges of $42.1 million in connection with Silver Spring’s initial public offering and $105 million of non-cash deemed dividend to convertible preferred shareholders.
• Non-GAAP loss per share of $0.50 as compared with $0.08 a year ago.
• GAAP loss per share of $1.84 as compared with $4.54 a year ago.
• $8.8 million in negative cash flow from operations, versus break-even a year ago.

Conference Call

Silver Spring will host a conference call today at 1:30 pm PT (4:30 pm ET) to review its results for the fourth quarter and full year ended December 31, 2014 and its outlook for the future. During the course of this call, Silver Spring may also disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live at 877-407-0832 (U.S.) or 201-689-8433 (International) or via webcast at http://ir.silverspringnet.com. A dial-in replay of the conference call will be available until February 19, 2015 and can be accessed at 877-660-6853 (domestic) or 201-612-7415 (international) passcode 13598904. An audio webcast replay of the conference call will be available for one year at http://ir.silverspringnet.com.

About Silver Spring Networks

Silver Spring Networks is a leading networking platform and solutions provider for smart energy networks. Silver Spring’s pioneering IPv6 networking platform, with over 20 million Silver Spring enabled devices delivered, is connecting utilities to homes and business throughout the world with the goal of achieving greater energy efficiency for the planet. Silver Spring’s innovative solutions enable utilities to gain operational efficiencies, improve grid reliability, and empower consumers to monitor and manage energy consumption. Silver Spring Networks’ customers include major utilities around the globe such as Baltimore Gas & Electric, CitiPower & Powercor, Commonwealth Edison, CPS Energy, Florida Power & Light, Jemena Electricity Networks Limited, Pacific Gas & Electric, Pepco Holdings, Progress Energy, and Singapore Power, among others. To learn more, please visit www.silverspringnet.com.

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 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 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 non-recurring 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 GAAP 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 per endpoint represents a trailing twelve month non-GAAP Managed services and SaaS revenue per cumulative endpoints deployed inception to date. Non-GAAP Managed services and SaaS revenue is primarily recurring in nature and includes some one-time set-up costs related to the business.

Cost of non-GAAP revenue represents the cost associated with products and services that have been delivered to the customer, excluding stock-based compensation and amortization of intangibles. 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 non-GAAP cost of revenue by adding cost of revenue to the change in deferred cost of revenue, less stock-based compensation and amortization of intangibles 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, legal settlements, and stock-based compensation.

Non-GAAP net income (loss) represents net loss adjusted for non-GAAP revenue and cost of non-GAAP revenue, and excludes expenses related to the amortization of intangible assets, legal settlements, stock-based compensation, changes in fair value of preferred stock warrant liabilities and embedded derivatives, and loss on extinguishment of promissory notes.

Non-GAAP earnings (loss) per share represents non-GAAP net 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, provision for income taxes, depreciation and amortization, stock-based compensation and certain other items management believes affect the comparability of operating results.

Total backlog represents future product and service billings that we expect to generate pursuant to contracts that we have entered into with our utility customers and meter manufacturers. Total backlog includes order backlog, which represents future billings for open purchase orders and other firm commitments.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the momentum in Silver Spring Networks’ business; the performance, capabilities and benefits of recently announced new product introductions; future growth; and future financial results. Statements including words such as "anticipate", "believe", "estimate" or "expect" and statements in the future tense 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 new 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 press release reflect Silver Spring’s expectations as of February 9, 2015. Silver Spring undertakes no obligation, and expressly disclaims any obligation, to update any forward-looking statements in this press release in light of new information or future events. In addition, the preliminary financial results set forth in this press release are estimates based on information currently available to Silver Spring.