Silver Spring Networks Reports Third Quarter 2013 Financial Results

Silver Spring Networks, Inc. (NYSE: SSNI) today announced preliminary unaudited financial results for its third quarter and nine month period ended September 30, 2013.

Q3 Results

Non-GAAP revenue (billings) for the third quarter was $94.2 million, up 11% year-over-year, driven by new customer deployments. GAAP revenue was $72.5 million as compared to $39.6 million a year ago.

Non-GAAP gross profit margin was 42.0%, up from 31.4% a year ago, primarily due to a higher mix of higher margin revenue. GAAP gross profit margin was 32.0% as compared to 11.2% a year ago.

Non-GAAP net income was $9.7 million as compared with breakeven a year ago. GAAP net loss was $12.3 million as compared with a GAAP net loss of $26.9 million a year ago.

Silver Spring generated $21.1 million in operating cash flow during the quarter and ended the quarter with $143.4 million in cash and investments and no debt outstanding.

"I am pleased with our third quarter results, generating strong gross profit margins and cash flow, and we are on track to achieve our 2013 annual guidance with 18% growth,” said Scott Lang, Chairman, President, and Chief Executive Officer. "We are executing on our business model by delivering the most innovative technology and services to our clients.”

Business Highlights (through October 30, 2013, unless otherwise stated)

• 17.5 million cumulative network endpoints delivered from inception through September 30, 2013 – up 17% from a year ago.
• CPFL Energia in Brazil completes successful first phase of network and advanced metering deployment for industrial customers – first commercial scale smart grid deployment in Brazil driving significant energy and operational savings.
• EDP Distribuição in Portugal expands network, advanced metering and distribution automation pilot – technology minimizing customer interruptions and enabling smarter integration of renewables.
• Metrix partnership in New Zealand to network 37 thousand homes and businesses -- retailers now able to deliver comprehensive energy information to consumers in a disaggregated energy market.
• Citelum partnership in Copenhagen – to establish a citywide network connecting 20 thousand street lights.
• Sacramento Municipal Utility District renews managed services agreement for five years - helping drive greater operational efficiency, provide disaster recovery capability and deliver flexible and secure environments.

Year to Date Results

Non-GAAP revenue (billings) for the nine month period ended September 30, 2013, was $254.4 million, up 16% year-over-year, driven by growth in new customer deployments. GAAP revenue was $229.7 million as compared to $146.7 million a year ago.

Non-GAAP gross profit margin was 34.2%, as compared with 34.1% a year ago. GAAP gross profit margin was 35.5% as compared to 14.4% a year ago.

Non-GAAP net loss was $3.2 million as compared with a non-GAAP net loss of $6.3 million year ago. GAAP net loss was $67.2 million as compared with a GAAP net loss of $68.7 million a year ago. GAAP net loss includes non-cash charges of $42.1 million in connection with Silver Spring’s initial public offering.

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 third quarter ended September 30, 2013 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.

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 17.5 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 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 (billings), cost of non-GAAP revenue (billings), non-GAAP gross profit (loss), non-GAAP operating loss, non-GAAP net loss, non-GAAP earnings (loss) per share, and adjusted EBITDA, in addition to other financial measures presented in accordance with GAAP. Silver Spring believes that these non-GAAP 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. These 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), operating loss, net loss, 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 (billings) 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 billings by adding revenue to the change in deferred revenue in a given period.

Cost of non-GAAP revenue (billings) 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 operating income (loss) represents operating loss adjusted for non-GAAP revenue (billings) and cost of non-GAAP revenue (billings) 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 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.

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, 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: 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 risks related to new product introductions and innovation; 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; dependence on a limited number of key suppliers and customers; competition, particularly from larger companies with more resources than Silver Spring; risks related to retention of management; 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 October 30, 2013. 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. 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 fiscal quarter ended September 30, 2013. Silver Spring assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended September 30, 2013.