Q215 Earnings Call. August 5, Silver Spring Networks. All rights reserved.

Transcription

1 Earnings Call August 5, 2015

2 Forward-Looking Statements This document contains forward-looking statements that involve risks and uncertainties. These forwardlooking 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 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 All forward-looking statements in this document reflect Silver Spring s expectations as of August 5, 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 June 30, Silver Spring assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the quarter ended June 30,

3 State of Business Solid Q2 results Cash Flow from Operations of $10 million Strongest deployment quarter in 2 years International sales up triple-digits Gross profit up 41% on double-digit growth for SSN technology Increased deal activity in every region we operate 3

4 Financial Review Jim Burns, CFO and Executive Vice President 4

5 Financial Results $Millions, Endpoints in Millions Non-GAAP Revenue Non-GAAP Revenue by Type 3 rd -Party $64 +9% Double Digit Growth $69 $21 +14% $24 Services SSN Content* +6% $42 $45 Product Non-GAAP Services Revenue +19% $13 Managed/SaaS $11 Network Footprint (Cumulative Endpoints) +13% Prof. Services +9% $11 $11 5 Note: Some figures may not add due to rounding * Excludes 3 rd -Party

6 Financial Results (continued) $Millions, except Recurring Revenue per Cuml. Endpoint Recurring Revenue per Cuml. Endpoint TTM* $2.18 $2.26 Non-GAAP New Solutions Revenue $52 +8% $56 AMI +11% $12 $13 New Solutions Non-GAAP Revenue by Region +125% International $7 $15 Non-GAAP Gross Margin 32.4% +10 pts 41.9% US $57 $54 6 Note: Some figures may not add due to rounding * TTM refers to the trailing twelve month period

7 Non-GAAP Gross Profit Margin $Millions 41% $29 $21 Product $12 Services $8 Product $19 Services $9 Product 29.5% 43.6% Managed / SaaS 43.1% 43.2% Professional Service 32.5% 33.7% Service 37.9% 38.8% Total 32.4% 41.9% Note: Some figures may not add due to rounding 7

8 Financial Results (continued) $Millions, except EPS Non-GAAP Operating Expenses $31-8% $28 Non-GAAP EPS $0.02 $9 $7 G&A $7 $7 S&M +$0.23 $15 $13 R&D $(0.20) Non-GAAP Net Income Cash & Equivalents $1 $111 $119 +$11M $(10) Note: Some figures may not add due to rounding Q115 8

9 Non-GAAP Outlook $Millions, except per share amounts Q Revenue ~ $70M $75M ~ $275M $287M Gross Margin ~ 42% 44% ~ 41% 42% Operating Expenses $29M $30M $117M $119M Income Taxes ~ $0.5M ~ $1.2M* Earnings per Share ~ $0.00 $0.05 ~ ($0.04) at midpoint Share Count ~ 52M ~ 50M 52M * Excludes one-time tax benefit associated with the Detectent acquisition 9

10 Silver Spring Networks Q&A 10

11 Supplemental 11

12 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 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 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. 12

13 GAAP to Non-GAAP Reconciliation $Thousands, except per share amounts GAAP Financial Statements Change in Deferred Revenue and Deferred Cost of Revenue * Stock-based Compensation Amortization of Intangibles Restructuring & Litigation Acquisition Related Costs Non-GAAP Financial Information Product revenue $ 54,711 $ (10,015) $ - $ - $ - $ - $ 44,696 Service revenue 22,456 1, ,444 Net revenue 77,167 (8,027) ,140 Product cost of revenue 40,533 (14,488) (560) (260) ,225 Service cost of revenue 16,678 - (1,649) - - (60) 14,969 Total cost of revenue 57,211 (14,488) (2,209) (260) - (60) 40,194 Gross profit 19,956 6,461 2, ,946 Product Margin 25.9% 43.6% Service Margin 25.7% 38.8% Total Margin 25.9% 41.9% Operating Expenses Research and development 16,050 - (2,832) - - (27) 13,191 Sales and marketing 8,912 - (1,287) (153) - - 7,472 General and administrative 10,455 - (2,333) (9) - (664) 7,449 Restructuring 1, (1,078) - - Total operating expenses 36,495 - (6,452) (162) (1,078) (691) 28,112 Operating Loss (16,539) 6,461 8, , Operating Margin -21.4% 1.2% Other income (expense), net (Benefit) Provision for income taxes (290) (166) Net loss $ (16,175) $ 6,461 $ 8,661 $ 422 $ 1,078 $ 627 $ 1,074 Income (Loss) per share Basic $ (0.32) $ 0.02 Diluted $ (0.32) $ 0.02 Number of shares used in computation Basic 49,862 49,862 Diluted 49,862 51,390 Note: Some figures may not add due to rounding * Net of Foreign Currency Translation 13

14 GAAP to Non-GAAP Reconciliation $Thousands, except per share amounts GAAP Financial Statements Change in Deferred Revenue and Deferred Cost of Revenue * Stock-based Compensation Amortization of Intangibles in Cost of Revenue Litigation and Restructuring Acquisition Related Costs Non-GAAP Financial Information Product revenue $ 24,751 $ 17,438 $ - $ - $ - $ - $ 42,189 Service revenue 16,856 4, ,415 Net revenue 41,607 21, ,604 Product cost of revenue 13,414 16,801 (442) (48) ,725 Service cost of revenue 14,781 - (1,488) ,293 Total cost of revenue 28,195 16,801 (1,930) (48) ,018 Gross profit 13,412 5,196 1, ,586 Product Margin 45.8% 29.5% Service Margin 12.3% 37.9% Total Margin 32.2% 32.4% Operating Expenses Research and development 17,342 - (2,695) ,647 Sales and marketing 8,854 - (1,754) ,100 General and administrative 11,888 - (3,183) ,805 Total operating expenses 38,084 - (7,632) ,552 Operating Loss (24,672) 5,196 9, (100) - (9,966) Operating Margin -59.3% -15.7% Interest income, net Provision for income taxes Net loss $ (24,591) $ 5,196 $ 9,562 $ 48 $ (100) $ - $ (9,885) Loss per share, basic and diluted Number of shares used in computation, basic and diluted $ (0.51) $ (0.20) 48,315 48,315 Note: Some figures may not add due to rounding * Net of Foreign Currency Translation 14

15 GAAP Outlook $Millions, except per share amounts Q Revenue ~ $50M $60M ~$400M $425M Gross Margin ~ 31% 36% ~ 40% 42% Operating Expenses $36M $37M ~ $146M $147M Income Taxes ~ $0.5M ~ $1.2M* Earnings per Share ~ ($0.42) ($0.31) ~ $0.30 $0.64 Share Count ~ 50M ~ 52M Note: Some figures may not add due to rounding * Includes one-time Detectent tax benefit 15

16 Outlook Reconciliation $Millions, except per share amounts Q315 Guidance 2015 Guidance Low High Low High Net revenue GAAP net revenue $ 50 $ 60 $ 400 $ 425 Change in deferred revenue, net of foreign currency translation (125) (138) Non-GAAP net revenue $ 70 $ 75 $ 275 $ 287 Gross profit GAAP gross profit $ 16 $ 22 $ 161 $ 179 Change in deferred revenue, net of foreign currency translation (125) (138) Change in deferred cost of revenue, net of foreign currency translation (8) (5) Amortization of intangibles in cost of revenue Stock-based compensation and amortization of intangibles Non-GAAP gross profit $ 29 $ 33 $ 113 $ 120 GAAP gross margin % (as a % of GAAP net revenue) 31% 36% 40% 42% Non-GAAP gross margin % (as a % of non-gaap net revenue) 42% 44% 41% 42% Net income (loss) GAAP net income (loss) $ (21) $ (16) $ 15 $ 33 Change in deferred revenue, net of foreign currency translation (125) (138) Change in deferred cost of revenue, net of foreign currency translation (8) (5) Amortization of intangibles in cost of revenue Stock-based compensation and other charges* Non-GAAP net income (loss) $ 0 $ 2 $ (5) $ 0 Net income (loss) per share GAAP net income (loss) per share $ (0.42) $ (0.31) $ 0.30 $ 0.64 Non-GAAP net income (loss) per share $ 0.00 $ 0.05 $ (0.09) $ 0.01 Basic Share Count Diluted Share Count * Stock-based compensation and other charges also includes Acquisition-Related and Restructuring Charges Note: Some figures may not add due to rounding 16