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Silver Spring Networks Reports First Quarter 2015 Financial Results

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Silver Spring Networks, Inc. (NYSE:SSNI) today announced financial results for its first quarter ended March 31, 2015.

First Quarter Results (all comparisons made are against the prior year period, unless otherwise stated)

  • Non-GAAP revenue for the first quarter was $63.1 million, down 12%.
  • GAAP revenue was $144 million, up 225%.
  • Non-GAAP gross margin was 40.3%, as compared with 30% a year ago.
  • GAAP gross margin was 50% as compared with 26% a year ago.
  • Non-GAAP net loss was ($5.6) million as compared with net loss of ($9.0) million a year ago.
  • GAAP net income was $34.9 million as compared with ($27.8) million a year ago.
  • Non-GAAP loss per share was ($0.11) as compared with ($0.19) a year ago.
  • GAAP diluted income per share was $0.69 as compared with a ($0.58) loss per share a year ago.
  • $111 million net cash balance, as compared with $121 million last quarter primarily due to the Detectent acquisition.

“We are pleased with our strong Q1 results, demonstrating solid execution of our business model,” said Scott Lang, Chairman, President, and Chief Executive Officer. “Our proven benefits with leading customers have led to five high-profile international wins. Our advanced networking platform positions us to extend our market leadership in the Smart Grid and Smart Cities to the broader Internet-of-Things opportunity.”

Business Highlights (through May 7, 2015, unless otherwise stated):

  • Delivered another strong quarter of 40%-plus non-GAAP gross margin performance, due to strong growth in New Solutions and managed services and SaaS businesses, and reduced third-party content.
  • Entered Mexico with an Advanced Metering Infrastructure (AMI) win from CFE to deploy cabinet-based theft detection solutions to an initial deployment of 140,000 homes and businesses.
  • Selected by AusNet Services to support its AMI roll-out within its territory across Eastern Victoria.
  • Metrix selected Silver Spring technology to provide AMI services to TrustPower’s 225,000 retail customers.
  • The City of Paris has moved from a Smart City pilot to full-deployment of a Silver Spring network canopy to connect controllers for street and traffic lights across the city.
  • Selected for the “Bristol is Open” Smart City program in the UK for a city-wide network canopy to connect a variety of smart city sensors as part of the city’s project to create a “living innovation lab.”
  • Five of the top seven utilities in Fortune Magazine’s 2015 list of “Most Admired Electric and Gas Utilities” are Silver Spring customers.
  • 20.8 million cumulative network endpoints delivered from inception through March 31, 2015, up 11% from a year ago.

Change in accounting estimate for GAAP revenue recognition

The first quarter 2015 GAAP results of $0.69 diluted earnings per share on $144 million of revenue included revenue of $112 million which otherwise would have been deferred before a change in accounting estimate of the impact of customer-specific acceptance criteria described below.

Based on the completion of analyses of historical experience for arrangements that contain customer-specific acceptance criteria, when initial acceptance criteria has been successfully achieved in a customer deployment, or when substantially similar acceptance criteria have been met in similar deployments, Silver Spring, in certain circumstances, will recognize GAAP revenue when goods and services have been delivered and all other revenue recognition criteria are met. In these circumstances, receipt of a customer’s acceptance is no longer considered necessary for GAAP revenue recognition. Silver Spring will continue to defer GAAP revenue until either substantially similar acceptance criteria have been met in similar deployments, or substantially similar acceptance criteria have been met in the initial area within the customer’s deployment.

This continues to be in accordance with Staff Accounting Bulletin No. 104, and was applied on a cumulative catch-up basis for existing customer arrangements, as well as prospectively for new customer arrangements, effective January 1, 2015. This did not impact non-GAAP financial results, other than a modest tax impact due to higher GAAP earnings. Silver Spring intends to continue to report both GAAP on non-GAAP revenue and operating results.

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 first quarter ended March 31, 2015 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 May 25, 2015 and can be accessed at 877-660-6853 (domestic) or 201-612-7415 (international) passcode 13607731. 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 20.5 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 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 income (loss) per share, 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), income (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 then recognized as revenue when all revenue recognition criteria has 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 services and SaaS offerings, and are also recurring in nature. Silver Spring reconciles recurring GAAP revenue to recurring 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 recurring non-GAAP revenue per cumulative endpoint shipped from 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 reconcile 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 income (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.

Total backlog represents future product and service billings that Silver Spring 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; 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 May 7, 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.

SILVER SPRING NETWORKS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31,
2015 2014
Revenue:
Product revenue $ 105,035 $ 28,227
Service revenue 38,605 16,002
Net revenue 143,640 44,229
Cost of revenue:
Product cost of revenue 56,617 17,915
Service cost of revenue 15,568 14,870
Total cost of revenue 72,185 32,785
Gross profit 71,455 11,444
Operating expenses:
Research and development 15,694 17,725
Sales and marketing 9,297 9,223
General and administrative 12,129 11,667
Restructuring 194
Total operating expenses 37,314 38,615
Operating income (loss) 34,141 (27,171 )
Other income (expense), net 288 (37 )
Income (loss) before income taxes 34,429 (27,208 )
Benefit (provision) for income taxes 476 (599 )
Net income (loss) $ 34,905 $ (27,807 )
Net income (loss) per share:
Basic $ 0.71 $ (0.58 )
Diluted $ 0.69 $ (0.58 )
Weighted average shares used to compute net income (loss) per share:
Basic 49,306 47,693
Diluted 50,899 47,693

Non-GAAP results (in thousands, except per share data)

The following tables reconcile the Company’s net income (loss) and income (loss) per share as presented in its unaudited Condensed Consolidated Statements of Operations and prepared in accordance with GAAP to its non-GAAP net income (loss) and non-GAAP income (loss) per share.
Three Months Ended
March 31,
2015 2014
Net income (loss) $ 34,905 $ (27,807 )
Change in deferred revenue, net of foreign currency translation (80,541 ) 27,621
Change in deferred cost of revenue, net of foreign currency translation 32,516 (20,257 )
Amortization of intangibles 409 48
Stock-based compensation 7,023 11,432
Acquisition-related charges 735
Income tax benefit related to Detectent acquisition (890 )
Restructuring 194
Non-GAAP net loss $ (5,649 ) $ (8,963 )
Non-GAAP net loss per share:
Basic and Diluted $ (0.11 ) $ (0.19 )
Weighted average shares used to compute Non-GAAP net loss per share:
Basic and Diluted 49,306 47,693
SILVER SPRING NETWORKS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2015 2014 (a)
ASSETS
Current assets:
Cash and cash equivalents $ 50,695 $ 60,457
Short-term investments 60,520 60,339
Accounts receivable 47,921 54,740
Inventory 7,337 6,722
Deferred cost of revenue 188,310 29,585
Deferred tax assets 367 5,278
Prepaid expenses and other current assets 7,492 5,146
Total current assets 362,642 222,267
Property and equipment, net 12,598 12,860
Goodwill and intangible assets 15,997 8,221
Deferred cost of revenue, non-current 112,214 303,445
Deferred tax assets, non-current 20,874 354
Other long-term assets 3,887 1,047
Total assets $ 528,212 $ 548,194
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable $ 30,408 $ 27,530
Accrued liabilities 24,755 23,258
Deferred revenue 295,960 91,688
Current portion of capital lease obligations 897 1,163
Deferred tax liability 20,778 249
Total current liabilities 372,798 143,888
Deferred revenue, non-current 234,024 517,905
Deferred tax liability, non-current 17 5,146
Other liabilities 15,672 15,074
Total liabilities 622,511 682,013
Total stockholders’ deficit (94,299 ) (133,819 )
Total liabilities and stockholders’ deficit $ 528,212 $ 548,194
(a) Derived from audited consolidated financial statements
SILVER SPRING NETWORKS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Three Months Ended
March 31,
2015 2014
OPERATING ACTIVITIES
Net income (loss) $ 34,905 $ (27,807 )
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred taxes (890 ) 407
Depreciation and amortization 1,949 1,466
Stock-based compensation 7,023 11,432
Other non-cash adjustments 53 102
Changes in assets and liabilities:
Accounts receivable 7,301 8,301
Inventory (604 ) (509 )
Prepaid expenses and other assets (904 ) (1,144 )
Contingent consideration related to Detectent acquisition held in escrow (4,000 )
Deferred cost of revenue 32,516 (20,366 )
Accounts payable 2,878 (3,124 )
Customer deposits (200 ) 107
Deferred revenue (80,561 ) 27,675
Accrued and other liabilities 79 200
Net cash used in operating activities (455 ) (3,260 )
INVESTING ACTIVITIES
Payments for business acquisition, net of cash and cash equivalents acquired (7,098 )
Proceeds from sales of available-for-sale investments 13,966
Proceeds from maturities of available-for-sale investments 4,000 4,500
Purchases of available-for-sale investments (4,056 ) (17,354 )
Purchases of property and equipment (1,374 ) (1,742 )
Net cash used in investing activities (8,528 ) (630 )
FINANCING ACTIVITIES
Payments on capital lease obligations (410 ) (356 )
Proceeds from issuance of common stock, net of repurchases 1,905 4,555
Taxes paid related to net share settlement of equity awards (2,057 ) (4,413 )
Net cash used in financing activities (562 ) (214 )
Effect of exchange rate changes on cash and cash equivalents (217 )
Net decrease in cash and cash equivalents (9,762 ) (4,104 )
Cash and cash equivalents – beginning of period 60,457 82,596
Cash and cash equivalents – end of period $ 50,695 $ 78,492
SILVER SPRING NETWORKS, INC.
UNAUDITED RECONCILIATION OF NET REVENUE BETWEEN GAAP AND NON-GAAP
(in thousands, except percentages)
Q1 Q2 Q3 Q4 Q1 YoY%

TYPE

2014 2014 2014 2014 2015 Change
GAAP net revenue:
Product net revenue $ 28,227 $ 24,751 $ 16,321 $ 60,034 $ 105,035 272 %
Service net revenue
Managed services and SaaS (a) 8,521 8,584 7,546 10,569 12,974 52 %
Professional services 7,481 8,272 4,174 6,808 25,631 243 %
Total service net revenue 16,002 16,856 11,720 17,377 38,605 141 %
Total GAAP net revenue $ 44,229 $ 41,607 $ 28,041 $ 77,411 $ 143,640 225 %
% Product 64 % 59 % 58 % 78 % 73 %
% Service 36 % 41 % 42 % 22 % 27 %
Change in deferred net revenue:
Change in deferred product revenue $ 24,006 $ 17,438 33,238 $ (9,991 ) $ (64,034 )
Change in deferred service revenue:
Managed services and SaaS 2,014 2,326 3,960 984 (419 )
Professional services 1,601 2,233 5,649 1,962 (16,088 )
Total change in deferred service revenue 3,615 4,559 9,609 2,946 (16,507 )
Total change in deferred revenue $ 27,621 $ 21,997 $ 42,847 $ (7,045 ) $ (80,541 )
Non-GAAP revenue:
Product net revenue $ 52,233 $ 42,189 49,559 50,043 41,001 -22 %
Service net revenue:
Managed services and SaaS (a) 10,535 10,910 11,506 11,553 12,555 19 %
Professional services 9,082 10,505 9,823 8,770 9,543 5 %
Total service net revenue 19,617 21,415 21,329 20,323 22,098 13 %
Total non-GAAP net revenue $ 71,850 $ 63,604 $ 70,888 $ 70,366 $ 63,099 -12 %
% Product 73 % 66 % 70 % 71 % 65 %
% Service 27 % 34 % 30 % 29 % 35 %

RECURRING REVENUE PER ENDPOINT

Recurring GAAP revenue (TTM) (a) 64,935 35,391 32,987 35,220 39,673
Changes in deferred revenue, net of foreign currency translations (24,699 ) 6,179 9,688 9,284 6,935
Recurring non-GAAP revenue (TTM) (a) $ 40,236 $ 41,570 $ 42,675 $ 44,504 $ 46,608
Cumulative network endpoints delivered 18,710 19,081 19,714 20,266 20,814
Recurring GAAP revenue per endpoint delivered (a) $ 3.47 $ 1.85 $ 1.67 $ 1.74 $ 1.91 -45 %
Recurring non-GAAP revenue per endpoint delivered (a) $ 2.15 $ 2.18 $ 2.16 $ 2.20 $ 2.24 4 %

SOLUTION

GAAP net revenue
Advanced metering infrastructure $ 40,023 $ 33,610 21,417 $ 72,456 $ 112,865 182 %
New solutions 4,206 7,997 6,624 4,955 30,775 632 %
Total GAAP net revenue $ 44,229 $ 41,607 $ 28,041 $ 77,411 $ 143,640 225 %
% Advanced metering infrastructure 90 % 81 % 76 % 94 % 79 %
% New solutions 10 % 19 % 24 % 6 % 21 %
Change in deferred net revenue
Advanced metering infrastructure $ 22,422 $ 16,691 $ 39,099 $ (12,441 ) $ (64,828 )
New solutions 5,199 5,306 3,748 5,396 (15,713 )
Total change in deferred net revenue $ 27,621 $ 21,997 42,847 $ (7,045 ) $ (80,541 )
Non-GAAP net revenue
Advanced metering infrastructure $ 62,445 $ 50,301 60,516 $ 60,015 $ 48,037 -23 %
New solutions 9,405 13,303 10,372 10,351 15,062 60 %
Total Non-GAAP net revenue $ 71,850 $ 63,604 70,888 $ 70,366 $ 63,099 -12 %
% Advanced metering infrastructure 87 % 79 % 85 % 85 % 76 %
% New solutions 13 % 21 % 15 % 15 % 24 %

GEOGRAPHY

GAAP net revenue
United States $ 21,843 $ 34,251 15,700 $ 30,017 $ 122,582 461 %
International 22,386 7,356 12,341 47,394 21,058 -6 %
Total GAAP net revenue $ 44,229 $ 41,607 28,041 $ 77,411 $ 143,640 225 %
% United States 49 % 82 % 56 % 39 % 85 %
% International 51 % 18 % 44 % 61 % 15 %
Change in deferred net revenue
United States $ 41,256 $ 22,799 48,248 $ 29,176 $ (66,533 )
International (13,635 ) (802 ) (5,401 ) (36,221 ) (14,008 )
Total change in deferred net revenue $ 27,621 $ 21,997 42,847 $ (7,045 ) $ (80,541 )
Non-GAAP net revenue
United States $ 63,099 $ 57,050 63,948 $ 59,193 $ 56,049 -11 %
International 8,751 6,554 6,940 11,173 7,050 -19 %
Total non-GAAP net revenue $ 71,850 $ 63,604 70,888 $ 70,366 $ 63,099 -12 %
% United States 88 % 90 % 90 % 84 % 89 %
% International 12 % 10 % 10 % 16 % 11 %

(a) Certain amounts have been reclassified in 2014 from Professional services to Managed services and SaaS related to product support which is recurring in nature to comform to current period presentation.

SILVER SPRING NETWORKS, INC.
UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION
(in thousands, except percentages and headcount)
Q1 Q2 Q3 Q4 Q1 YoY%
CASH FLOW DATA 2014 2014 2014 2014 2015 Change
Operating cash flow $ (3,260 ) $ (3,395 ) $ (15,734 ) $ 13,624 $ (455 ) 88 %
Operating cash flow – TTM 5,667 16,320 (20,545 ) (8,765 ) (5,960 ) -204 %
BALANCE SHEET DATA
Cash, cash equivalents and short-term investments $ 140,495 $ 125,321 $ 110,466 120,796 111,215 -21 %
Deferred net revenue
End of quarter 552,328 575,106 617,416 609,593 529,984
Less: Beginning of quarter (524,653 ) (552,328 ) (575,106 ) (617,416 ) (609,593 )
Foreign currency translation adjustment and other (54 ) (781 ) 537 778 (932 )
Change in deferred net revenue, net of foreign currency translation and other $ 27,621 $ 21,997 $ 42,847 $ (7,045 ) $ (80,541 )
Deferred cost of revenue
End of quarter $ 296,489 $ 313,458 $ 338,633 333,030 300,524
Less: Beginning of quarter (276,123 ) (296,489 ) (313,458 ) (338,633 ) (333,030 )
Foreign currency translation adjustment (109 ) (168 ) 69 68 (10 )
Change in deferred cost of revenue, net of foreign currency translation $ 20,257 $ 16,801 $ 25,244 $ (5,535 ) $ (32,516 )
STOCK-BASED COMPENSATION
Cost of goods sold $ 2,692 $ 1,930 $ 2,770 218 1,723 -36 %
Research and development 3,155 2,695 3,042 785 2,180 -31 %
Sales and marketing 2,045 1,754 1,783 479 1,238 -39 %
General and administrative 3,540 3,183 2,881 909 1,882 -47 %
$ 11,432 $ 9,562 $ 10,476 $ 2,391 $ 7,023 -39 %
EMPLOYEES 617 639 589 576 623 1 %
HOMES & BUSINESSES
Cumulative network endpoints delivered* 18,710 19,081 19,714 20,266 20,814 11 %
*Endpoints refer to communication modules in electric meters
SILVER SPRING NETWORKS
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data and percentages)
Q1 Q2 Q3 Q4 Q1 YOY %
QUARTERLY RECONCILIATION OF RESULTS 2014 2014 2014 2014 2015 Change
Net revenue
GAAP net revenue $ 44,229 $ 41,607 $ 28,041 $ 77,411 $ 143,640 225 %
Change in deferred revenue, net of foreign currency translation 27,621 21,997 42,847 (7,045 ) (80,541 )
Non-GAAP net revenue $ 71,850 $ 63,604 $ 70,888 $ 70,366 $ 63,099 -12 %
Gross profit
GAAP gross profit $ 11,444 $ 13,412 $ 1,303 $ 30,178 $ 71,455 524 %
Change in deferred revenue, net of foreign currency translation 27,621 21,997 42,847 (7,045 ) (80,541 )
Change in deferred cost of revenue, net of foreign currency translation (20,257 ) (16,801 ) (25,244 ) 5,535 32,516
Amortization of intangible assets 48 48 182 140 262
Stock-based compensation 2,692 1,930 2,770 218 1,723
Acquisition-related charges 11
Non-GAAP gross profit $ 21,548 $ 20,586 $ 21,858 $ 29,026 $ 25,426 18 %
GAAP gross margin % (as a % of GAAP net revenue) 26 % 32 % 5 % 39 % 50 %
Non-GAAP gross margin % (as a % of non-GAAP net revenue) 30 % 32 % 31 % 41 % 40 %
Operating income (loss)
GAAP operating income (loss) $ (27,171 ) $ (24,672 ) $ (37,420 ) $ 1,392 $ 34,141 226 %
Change in deferred revenue, net of foreign currency translation 27,621 21,997 42,847 (7,045 ) (80,541 )
Change in deferred cost of revenue, net of foreign currency translation (20,257 ) (16,801 ) (25,244 ) 5,535 32,516
Amortization of intangible assets 48 48 299 219 409
Stock-based compensation 11,432 9,562 10,476 2,391 7,023
Acquisition-related charges 735
Restructuring 1,888 (99 ) 194
Legal settlements (100 )
Non-GAAP operating income (loss) $ (8,327 ) $ (9,966 ) $ (7,154 ) $ 2,393

$ (5,523 ) 34 %
GAAP operating margin % (as a % of GAAP revenue) -61 % -59 % -133 % 2 % 24 %
Non-GAAP operating margin % (as a % of non-GAAP net revenue) -12 % -16 % -10 % 3 % -9 %
Adjusted EBITDA
GAAP net income (loss) $ (27,807 ) $ (24,591 ) $ (37,273 ) $ 501 $ 34,905 226 %
Change in deferred revenue, net of foreign currency translation 27,621 21,997 42,847 (7,045 ) (80,541 )
Change in deferred cost of revenue, net of foreign currency translation (20,257 ) (16,801 ) (25,244 ) 5,535 32,516
Other (income) expense, net 37 (85 ) (7 ) (68 ) (288 )
(Benefit) provision for income taxes 599 4 (140 ) 959 (476 )
Depreciation and amortization 1,466 1,467 1,771 1,763 1,949
Stock-based compensation 11,432 9,562 10,476 2,391 7,023
Acquisition-related charges (a) 735
Restructuring 1,888 (99 ) 194
Legal settlements (100 )
Adjusted EBITDA $ (6,909 ) $ (8,547 ) $ (5,682 ) $ 3,937 $ (3,983 ) 42 %
Net income (loss)
GAAP net income (loss) $ (27,807 ) $ (24,591 ) $ (37,273 ) $ 501 $ 34,905 226 %
Change in deferred revenue, net of foreign currency translation 27,621 21,997 42,847 (7,045 ) (80,541 )
Change in deferred cost of revenue, net of foreign currency translation (20,257 ) (16,801 ) (25,244 ) 5,535 32,516
Amortization of intangible assets

48 48 299 219 409
Stock-based compensation 11,432 9,562 10,476 2,391 7,023
Acquisition-related charges 735
Income tax benefit related to Detectent acquisition (890 )
Restructuring 1,888 (99 ) 194
Legal settlements (100 )
Non-GAAP net income (loss) $ (8,963 ) $ (9,885 ) $ (7,007 ) $ 1,502 $ (5,649 ) 37 %
GAAP net margin % (as a % of GAAP revenue) -63 % -59 % -133 % 1 % 24 %
Non-GAAP net margin % (as a % of non-GAAP net revenue) -12 % -16 % -10 % 2 % -9 %
GAAP income (loss) per share:
Basic $ (0.58 ) $ (0.51 ) $ (0.77 ) $ 0.01 $ 0.71
Diluted $ (0.58 ) $ (0.51 ) $ (0.77 ) $ 0.01 $ 0.69
Weighted average number of shares used in computation:
Basic 47,693 48,315 48,551 48,929 49,306
Diluted 47,693 48,315 48,551 50,191 50,899
Non-GAAP income (loss) per share:
Basic $ (0.19 ) $ (0.20 ) $ (0.14 ) $ 0.03 $ (0.11 )
Diluted $ (0.19 ) $ (0.20 ) $ (0.14 ) $ 0.03 $ (0.11 )
Weighted average number of shares used in computation:
Basic 47,693 48,315 48,551 48,929 49,306
Diluted 47,693 48,315 48,551 50,191 49,306

(a) Acquisition-related charges in 2014 were not included.

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