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Silver Spring Networks Reports Fourth Quarter and Full Year 2016 Financial Results

SAN JOSE, Calif.--(BUSINESS WIRE)--

Silver Spring Networks, Inc. (SSNI) today announced preliminary financial results for its fourth quarter and full year ended December 31, 2016.

Fourth Quarter Financial Highlights (all comparisons made are against the prior year period, unless otherwise stated):

GAAP results:

  • Revenue was $66.3 million, versus $199.2 million.
  • Cost of revenue was $37.8 million, or 57.1% of revenue, versus $97.9 million or 49.1%.
  • Operating expense was $41.9 million, versus $35.6 million.
  • Tax expense was $0.2 million. Other income (expense) was ($0.2) million.
  • Basic share count was 52.0 million. In the case of a net income position, fully-diluted share count would have been 54.4 million.
  • Quarter-ending cash, cash equivalents, and short-term investments was $118.3 million.

Non-GAAP metrics1:

  • Billings were $77.7 million, up 4%.
  • Cost of billings was $39.0 million or 50.2% of billings, versus $39.6 million or 52.9%.
  • Non-GAAP operating expense was $35.3 million, versus $27.4 million.

“We enter 2017 in a strong position, with solid fourth quarter results and several new international awards. In 2016, we achieved record bookings, with major awards from Con Edison, Entergy and Pacific Power, generated over $20.7 million in operating cash flow for the year, and finished the year with more than 25.5 million cumulative network endpoints delivered,” said Mike Bell, President and Chief Executive Officer. “We are focused on ramping production of our Gen5 platform for our major upcoming deployments, driving international growth, and expanding our platform to additional smart utility applications and new vertical markets within the broader Internet of Important Things™ opportunity.”

Business Highlights (through February 21, 2017, unless otherwise stated):

  • Over 25.5 million cumulative network endpoints delivered from inception through December 31, 2016, up 11% from a year ago.
  • Working with customers that represent over 26 million incremental homes and businesses that are piloting or deploying our technology in phases.
  • Total backlog of $1.165 billion as of December 31, 2016, up over 50% from the end of last year.
  • We congratulate AEP Ohio, which recently received regulatory approval for its smart grid program from the Public Utility Commission of Ohio (PUCO), to deploy our multi-application IPv6 IoT network canopy and advanced metering infrastructure to nearly 900,000 homes and businesses in its Ohio service territory.
  • Selected by CESC Limited of India to deploy our multi-application IPv6 IoT platform to connect approximately 237,000 homes and businesses in CESC’s franchises in the cities of Kota and Bharatpur. Silver Spring Networks will also deploy Operations Optimizer™ to these cities through a SaaS model.
  • Selected by Dubai Electricity and Water Authority (DEWA) to deploy our multi-application IoT network canopy across the Emirate of Dubai to securely and reliably provide connectivity for various services, such as energy and water.
  • Selected by Oklahoma Gas & Electric (OGE) to deploy our IPv6 IoT platform and Streetlight.Vision control software to connect and manage up to 250,000 LED street lights within its Oklahoma service territory.
  • Expanded Starfish™ distribution channel through a reseller alliance with Ameresco to assist cities and other public lighting operators to deliver smart street lighting programs and other IoT applications and services such as smart water, traffic signals and distributed energy resources.
  • Extended smart city reach through a new go-to-market alliance with Panasonic Corporation of North America to leverage our Starfish Internet of Things (IoT) platform and Panasonic’s CityNOW portfolio to transform the street light into a multi-use host for multiple smart and sustainable applications.

Full Year 2016 Results (all comparisons made are against the prior year period, unless otherwise stated)

GAAP Results:

  • Revenue was $311.0 million, versus $489.6 million.
  • Cost of revenue was $172.8 million, or 55.6% of revenue, versus $263.8 million or 53.9%.
  • Operating expense was $158.1 million, versus $142.8 million.
  • Tax expense was $2.4 million. Other income (expense) was $0.7 million.
  • Basic share count was 51.4 million. In the case of a net income position, fully-diluted share count would have been 53.7 million.

Non-GAAP Metrics:

  • Billings were $294.6 million, up 4%.
  • Cost of billings was $150.9 million or 51.2% of billings, versus $159.3 million or 56.5%.
  • Non-GAAP operating expense was $130.2 million, versus $114.1 million.

Conference Call

Silver Spring Networks will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the fourth quarter and full year ended December 31, 2016 and its outlook for the future. During the course of this call, Silver Spring Networks 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.ssni.com. A dial-in replay of the conference call will be available until April 11, 2017 and can be accessed at 877-660-6853 (domestic) or 201-612-7415 (international) passcode 13653868. An audio webcast replay of the conference call will be available for one year at http://ir.ssni.com.

About Silver Spring Networks

Silver Spring Networks enables the Internet of Important Things™ by reliably and securely connecting things that matter. Cities, utilities, and companies on five continents use the company’s cost-effective, high-performance IoT network and data platform to operate more efficiently, get greener, and enable innovative services that can improve the lives of millions of people. With more than 25.5 million devices delivered, Silver Spring Networks provides a proven standards-based platform safeguarded with military grade security. Silver Spring Networks’ customers include Baltimore Gas & Electric, CitiPower & Powercor, ComEd, Consolidated Edison, CPS Energy, Florida Power & Light, Pacific Gas & Electric, Pepco Holdings, and Singapore Power. Silver Spring Networks has also deployed networks in Smart Cities including Copenhagen, Glasgow, Paris, Providence, and Stockholm. To learn more, visit www.ssni.com.

Non-GAAP and Other Financial Metrics

Silver Spring Networks supplements the results of operations presented in accordance with generally accepted accounting principles, or GAAP, with certain non-GAAP metrics. Silver Spring Networks manages its business, makes planning decisions, evaluates its performance and allocates resources by assessing non-GAAP and other financial metrics such as billings, cost of billings, non-GAAP operating expense, and total backlog. Silver Spring Networks believes that these non-GAAP and other financial metrics, when taken together with the corresponding GAAP financial measures, offer valuable supplemental information regarding the performance of its business, and will help investors better understand the sales volumes and profitability trends, as well as the cash flow characteristics, of its business. The non-GAAP metrics 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, operating expense, or any other performance measure derived in accordance with GAAP. Silver Spring Networks 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.

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. Billings excludes amounts for undelivered products, services to be performed in the future, and amounts paid or payable to customers. Billings are initially recorded as deferred revenue and are then recognized as revenue when all revenue recognition criteria has been met under Silver Spring Networks’ accounting policies as described in Silver Spring Networks’ filings with the Securities and Exchange Commission. Silver Spring Networks reconciles revenue to billings by adding revenue to the change in deferred revenue in a given period.

Cost of billings 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 Networks reconciles cost of revenue to cost of billings 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 operating expense consists of research and development, sales and marketing, and general and administrative expenses, excluding amortization and impairment of intangible assets, stock-based compensation, acquisition-related charges, restructuring and legal settlements.

Total backlog represents future product and service billings that Silver Spring Networks expects to generate pursuant to contracts entered into with its 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; future growth and market opportunity; the scope and timing of future deployments; expected benefits from our products; future investment; future innovation; customer and market activity; 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; receipt by our customers of required regulatory approvals; 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; the expansion of our target markets, including the IoT market; lengthy sales cycles with no assurances that a prospective customer will select Silver Spring Networks’ 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 Networks’ relationship with third-party manufacturers; execution and customer adoption risks related to new product introductions and innovation, including our fifth generation networking platform and products; the ability to attract and retain personnel, including members of Silver Spring Networks’ management team; changes in strategy; technological changes that make Silver Spring Networks’ 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 Networks’ 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 21, 2017. 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.

1 For this and future earnings reports, Silver Spring Networks will no longer report certain non-GAAP financial metrics, including gross profit on billings, gross margin on billings, and non-GAAP operating income (loss). Silver Spring Networks will continue to report billings, cost of billings, and non-GAAP operating expense. Silver Spring Networks will also provide additional GAAP measures used internally by management to adjust GAAP measures in order to assess its business performance, which can also be used by investors to derive metrics comparable to previously reported non-GAAP metrics. For more information, please refer to the conference call Silver Spring Networks hosted on February 13, 2017, a replay of which is available on our website at http://ir.ssni.com.

 
SILVER SPRING NETWORKS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)
       
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
Revenue:
Product $ 40,386 $ 143,202 $ 193,618 $ 353,041
Services   25,864     56,045     117,390     136,518  

Total revenue

66,250 199,247 311,008 489,559
 
Cost of revenue:
Product 19,915 83,903 106,583 202,430
Services   17,918     13,999     66,226     61,386  
Total cost of revenue 37,833 97,902 172,809 263,816
Gross profit 28,417 101,345 138,199 225,743
 
Operating expenses:
Research and development 19,090 13,714 70,673 61,295
Sales and marketing 10,809 7,343 39,406 33,452
General and administrative 12,049 14,483 45,801 46,372
Impairment of intangible assets 2,204
Restructuring       60     39     1,671  
Total operating expenses   41,948     35,600     158,123     142,790  
 
Operating (loss) income (13,531 ) 65,745 (19,924 ) 82,953
Other (expense) income, net   (217 )   (159 )   670     104  
(Loss) income before income taxes (13,748 ) 65,586 (19,254 ) 83,057
Provision for income taxes   (239 )   (3,708 )   (2,375 )   (3,071 )
Net (loss) income $ (13,987 ) $ 61,878   $ (21,629 ) $ 79,986  
Net (loss) income per share:
Basic $ (0.27 ) $ 1.23   $ (0.42 ) $ 1.60  
Diluted $ (0.27 ) $ 1.19   $ (0.42 ) $ 1.55  
Weighted average shares used to compute net (loss) income per share:
Basic   52,039     50,481     51,444     49,963  
Diluted   52,039     52,167     51,444     51,524  
 
SILVER SPRING NETWORKS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
   
 
December 31, December 31,
2016 2015 (a)
ASSETS
Current assets:
Cash and cash equivalents $ 50,383 $ 65,264
Short-term investments 67,876 59,181
Accounts receivable 44,770 47,813
Inventory 8,040 4,545
Deferred cost of revenue 194,769 196,868
Prepaid expenses and other current assets   12,536     10,835  
Total current assets 378,374 384,506
Property and equipment, net 28,986 14,106
Goodwill and intangible assets 11,005 14,390
Deferred cost of revenue, non-current 26,639 38,882
Deferred tax assets, non-current 481 1,069
Other long-term assets   1,643     4,772  
Total assets $ 447,128   $ 457,725  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 26,785 $ 30,623
Deferred revenue 292,260 305,471
Accrued and other liabilities   44,146     42,751  
Total current liabilities 363,191 378,845
Deferred revenue, non-current 93,149 96,342
Other liabilities, non-current   22,324     16,403  
Total liabilities   478,664     491,590  
Total stockholders’ deficit   (31,536 )   (33,865 )
Total liabilities and stockholders’ deficit $ 447,128   $ 457,725  
 
(a) Derived from audited consolidated financial statements.
 
SILVER SPRING NETWORKS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
OPERATING ACTIVITIES
Net (loss) income $ (13,987 ) $ 61,878 $ (21,629 ) $ 79,986

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Deferred taxes 520 (557 ) 614 (1,492 )
Impairment of intangible assets 2,204
Depreciation and amortization 2,291 1,930 8,623 7,822
Tax benefit from shared-based award activity 83 153 83 153
Excess tax benefit from share-based payment awards (83 ) (153 ) (83 ) (153 )
Stock-based compensation 7,970 4,942 29,809 26,479
Other non-cash adjustments 114 412 886 766
Changes in assets and liabilities:
Accounts receivable 316 (3,675 ) 3,142 7,398
Inventory (2,740 ) (853 ) (3,490 ) 2,190
Prepaid expenses and other assets (622 ) (936 ) 2,335 (5,128 )
Landlord incentives related to lease 6,788

Contingent consideration related to Detectent acquisition held in escrow

(4,000 )
Deferred cost of revenue (3,174 ) 56,978 14,421 97,286
Accounts payable 4,425 3,232 (4,483 ) 3,101
Customer deposits (970 ) (599 ) 61 (448 )
Deferred revenue 11,480 (124,115 ) (16,581 ) (208,305 )
Accrued and other liabilities   2,462     7,620     (1,938 )   14,032  
Net cash provided by operating activities   8,085     6,257     20,762     19,687  
 
INVESTING ACTIVITIES

Payments for business acquisition, net of cash and cash equivalents acquired

(7,098 )
Proceeds from sales of available-for-sale investments 2,000 4,204 41,217 15,690
Proceeds from maturities of available-for-sale investments 10,970 9,250
Purchases of available-for-sale investments (4,940 ) (5,270 ) (61,295 ) (24,180 )
Purchases of property and equipment   (1,447 )   (1,821 )   (24,816 )   (5,350 )
Net cash (used in) investing activities   (4,387 )   (2,887 )   (33,924 )   (11,688 )
 
FINANCING ACTIVITIES
Payments on capital lease obligations (169 ) (285 ) (1,163 )
Proceeds from issuance of common stock 281 139 4,519 3,794
Excess tax benefit from share-based payment awards 83 153 83 153
Taxes paid related to net share settlement of equity awards   (1,756 )   (1,820 )   (5,925 )   (5,788 )
Net cash (used in) financing activities   (1,392 )   (1,697 )   (1,608 )   (3,004 )
Effect of exchange rate changes on cash and cash equivalents 29 136 (111 ) (188 )
 
Net increase (decrease) in cash and cash equivalents 2,335 1,809 (14,881 ) 4,807
Cash and cash equivalents - beginning of period   48,048     63,455     65,264     60,457  
Cash and cash equivalents - end of period $ 50,383   $ 65,264   $ 50,383   $ 65,264  
 
SILVER SPRING NETWORKS, INC.
UNAUDITED RECONCILIATION OF REVENUE BETWEEN GAAP AND NON-GAAP (QUARTERLY)
(in thousands, except percentages)
           
Q4 Q1 Q2 Q3 Q4 YoY%

REVENUE AND BILLINGS BY TYPE

2015 2016 2016 2016 2016 Change

Revenue:

Product $ 143,202 $ 32,852 $ 69,917 $ 50,463 $ 40,386 -72 %
Services
Managed services and SaaS 37,142 11,068 24,570 14,090 15,581 -58 %
Professional services   18,903     4,700     27,465     9,633     10,283   -46 %
Total services   56,045     15,768     52,035     23,723     25,864   -54 %
Total revenue $ 199,247   $ 48,620   $ 121,952   $ 74,186   $ 66,250   -67 %
% Product 72 % 68 % 57 % 68 % 61 %
% Services 28 % 32 % 43 % 32 % 39 %
 

Change in deferred revenue:

Product $ (95,194 ) $ 12,883 $ (23,804 ) $ (568 ) $ 7,155
Services
Managed services and SaaS (22,896 ) 1,820 (9,650 ) 1,641 1,427
Professional services   (6,169 )   5,591     (16,652 )   885     2,867  
Total services   (29,065 )   7,411     (26,302 )   2,526     4,294  
Total change in deferred revenue $ (124,259 ) $ 20,294 $ (50,106 ) $ 1,958 $ 11,449
 

Billings

Product $ 48,008 $ 45,735 $ 46,113 $ 49,895 $ 47,541 -1 %
Services
Managed services and SaaS 14,246 12,888 14,920 15,731 17,008 19 %
Professional services   12,734     10,291     10,813     10,518     13,150   3 %
Total services   26,980     23,179     25,733     26,249     30,158   12 %
Total Billings $ 74,988   $ 68,914   $ 71,846   $ 76,144   $ 77,699   4 %
% Product 64 % 66 % 64 % 66 % 61 %
% Services 36 % 34 % 36 % 34 % 39 %
 

REVENUE AND BILLINGS BY SOLUTION

Revenue:

Advanced metering infrastructure $ 181,892 $ 40,514 $ 105,181 $ 66,203 $ 57,148 -69 %
New solutions   17,355     8,106     16,771     7,983     9,102   -48 %
Total revenue $ 199,247   $ 48,620   $ 121,952   $ 74,186   $ 66,250   -67 %
% Advanced metering infrastructure 91 % 83 % 86 % 89 % 86 %
% New solutions 9 % 17 % 14 % 11 % 14 %
 

Change in deferred revenue

Advanced metering infrastructure $ (123,525 ) $ 16,957 $ (45,184 ) $ (2,078 ) $ 2,528
New solutions   (734 )   3,337     (4,922 )   4,036     8,921  
Total change in deferred revenue $ (124,259 ) $ 20,294 $ (50,106 ) $ 1,958 $ 11,449
 

Billings

Advanced metering infrastructure $ 58,367 $ 57,471 $ 59,997 $ 64,125 $ 59,676 2 %
New solutions   16,621     11,443     11,849       12,019       18,023   8 %
Total Billings $ 74,988   $ 68,914   $ 71,846   $ 76,144   $ 77,699   4 %
% Advanced metering infrastructure 78 % 83 % 84 % 84 % 77 %
% New solutions 22 % 17 % 16 % 16 % 23 %
 

REVENUE AND BILLINGS BY GEOGRAPHY

Revenue:

United States $ 177,896 $ 45,222 $ 118,539 $ 43,381 $ 53,087 -70 %
International   21,351   null