SILVER SPRING NETWORKS INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - SILVER SPRING NETWORKS INC	ssni-20140930ex3113397a6.htm
EX-32.2 - EX-32.2 - SILVER SPRING NETWORKS INC	ssni-20140930ex322139a5c.htm
EX-31.2 - EX-31.2 - SILVER SPRING NETWORKS INC	ssni-20140930ex312bed41f.htm
EX-32.1 - EX-32.1 - SILVER SPRING NETWORKS INC	ssni-20140930ex321be0882.htm
EXCEL - IDEA: XBRL DOCUMENT - SILVER SPRING NETWORKS INC	Financial_Report.xls

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35828

Silver Spring Networks, Inc.

(Exact name of registrant as specified in its charter)



Delaware	43-1966972
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

555 Broadway Street

Redwood City, California 94063

(Address of principal executive offices) (Zip Code)

(650) 839-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2014, there were approximately 48,775,523 shares of the Registrant’s Common Stock outstanding.

SILVER SPRING NETWORKS, INC.

TABLE OF CONTENTS



		Page
		No.

Note About Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults upon Senior Securities	64
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
Signatures		67

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our revenue, non-GAAP revenue, backlog, and other aspects of our future results of operations, financial position and cash flows, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SILVER SPRING NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value)


	September 30,		December 31,
	2014		2013
		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	50,114	$	82,596
Short-term investments		60,352		63,256
Accounts receivable		67,929		69,724
Inventory		4,511		4,350
Deferred cost of revenue		25,700		37,460
Prepaid expenses and other current assets		7,372		4,758
Total current assets		215,978		262,144

Property and equipment, net		12,381		12,364
Deferred cost of revenue, non-current		312,933		238,663
Deferred tax assets, non-current		1,232		1,613
Other long-term assets		10,403		1,567
Total assets	$	552,927	$	516,351

Total liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	28,412	$	31,317
Accrued liabilities		27,829		21,282
Deferred revenue		74,380		111,293
Current portion of capital lease obligations		1,399		1,615
Deferred tax liability		1,206		1,176
Total current liabilities		133,226		166,683

Deferred revenue, non-current		543,036		413,360
Other liabilities		15,709		14,426

Commitments and contingencies (Note 4)

Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000 shares authorized and no shares issued or outstanding as of September 30, 2014 and December 31, 2013		—		—
Common stock and additional paid-in capital, $0.001 par value, 1,000,000 shares authorized; 48,734 and 47,384 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively		567,824		539,013
Accumulated other comprehensive income		64		130
Accumulated deficit		(706,932)		(617,261)
Total stockholders’ deficit		(139,044)		(78,118)
Total liabilities and stockholders’ deficit	$	552,927	$	516,351

See accompanying Notes to Condensed Consolidated Financial Statements.

SILVER SPRING NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Revenue:
Product revenue	$	16,321	$	56,650	$	69,299	$	146,366
Service revenue		11,720		15,831		44,578		83,328
Total revenue, net		28,041		72,481		113,877		229,694
Cost of revenue:
Product cost of revenue		10,791		34,844		42,120		100,152
Service cost of revenue		15,947		14,411		45,598		47,932
Total cost of revenue		26,738		49,255		87,718		148,084
Gross profit		1,303		23,226		26,159		81,610

Operating expenses:
Research and development		16,986		16,980		52,053		60,851
Sales and marketing		10,131		7,424		28,208		26,514
General and administrative		9,601		10,937		33,256		35,952
Restructuring and other		2,005		—		1,905		—
Total operating expenses		38,723		35,341		115,422		123,317
Operating loss		(37,420)		(12,115)		(89,263)		(41,707)

Other income (expense), net:
Interest income (expense), net		7		(54)		55		(1,290)
Conversion of promissory notes and remeasurement of warrants and derivatives		—		—		—		(23,676)
Other income (expense), net		7		(54)		55		(24,966)
Loss before income taxes		(37,413)		(12,169)		(89,208)		(66,673)
(Benefit) provision for income taxes		(140)		100		463		492
Net loss	$	(37,273)	$	(12,269)	$	(89,671)	$	(67,165)

Deemed dividend to convertible preferred stockholders		—		—		—		(105,000)
Net loss attributable to common stockholders	$	(37,273)	$	(12,269)	$	(89,671)	$	(172,165)

Net loss per share
Basic	$	(0.77)	$	(0.26)	$	(1.86)	$	(4.96)
Diluted	$	(0.77)	$	(0.26)	$	(1.86)	$	(4.96)
Weighted average shares used to compute net loss per share
Basic		48,551		46,729		48,189		34,733
Diluted		48,551		46,729		48,189		34,733

See accompanying Notes to Condensed Consolidated Financial Statements

SILVER SPRING NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014			2013	2014			2013
Net loss	$	(37,273)	$	(12,269)	$	(89,671)	$	(67,165)
Other comprehensive income (loss):
Changes in foreign currency adjustment		75		(62)		63		45
Net unrealized holding gain (loss) on available for sale investments		(74)		131		(129)		131
Other comprehensive income (loss)		1		69		(66)		176
Comprehensive loss	$	(37,272)	$	(12,200)	$	(89,737)	$	(66,989)

See accompanying Notes to Condensed Consolidated Financial Statements

SILVER SPRING NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Nine Months Ended
	September 30,
	2014		2013
Cash flows used in operating activities:
Net loss	$	(89,671)	$	(67,165)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Restructuring and other		1,072		—
Depreciation and amortization		4,704		4,990
Stock-based compensation		31,470		44,503
Conversion of promissory notes and remeasurement of warrants and derivatives		—		23,676
Other non-cash adjustments		1,262		1,565
Changes in operating assets and liabilities:
Accounts receivable		1,795		(3,126)
Inventory		(779)		534
Prepaid expenses and other current assets		(2,775)		(2,248)
Deferred cost of revenue		(62,510)		(29,938)
Other long-term assets		185		3,846
Accounts payable		(3,165)		(1,746)
Accrued liabilities		1,333		2,379
Customer deposits		33		(247)
Deferred revenue		92,413		24,490
Other liabilities		2,244		(3,343)
Net cash used in operating activities		(22,389)		(1,830)

Cash flows provided by (used in) investing activities:
Acquisitions, net		(8,750)		—
Proceeds from sales and maturities of short-term investments		49,209		—
Payment on purchases of short-term investments		(46,621)		(61,451)
Acquisitions of property, plant and equipment		(4,222)		(3,343)
Net cash used in investing activities		(10,384)		(64,794)

Cash flows provided by (used in) financing activities:
Payment upon termination of preferred stock warrants of a related party		—		(12,000)
Proceeds from initial public offering, net of offering costs		—		84,472
Proceeds from private placement of common stock with a related party		—		12,000
Payments on capital lease obligations		(1,145)		(1,485)
Proceeds from issuance of common stock, net of repurchases		6,846		578
Taxes paid related to net share settlement of equity awards		(5,410)		(7,722)
Net cash provided by financing activities		291		75,843

Net increase (decrease) in cash and cash equivalents		(32,482)		9,219
Cash and cash equivalents—beginning of period		82,596		72,646
Cash and cash equivalents—end of period	$	50,114	$	81,865

Supplemental cash flow information—cash paid for taxes	$	544	$	186
Supplemental cash flow information—cash paid for interest	$	106	$	212
Non-cash investing and financing activities:
Conversion of convertible preferred stock into common stock	$	—	$	270,725
Fair value of common stock issued on conversion of convertible promissory notes	$	—	$	79,441
Deferred offering costs not yet paid	$	—	$	245
Property and equipment acquired under capital lease	$	—	$	1,768

See accompanying Notes to Condensed Consolidated Financial Statements

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Summary of Significant Accounting Policies

We have over ten years of experience creating, building and successfully deploying large scale networks and solutions enabling the “internet of things” for critical infrastructure. The “internet of things” refers to a system where a diversity of physical devices has the capacity to communicate using internet technologies. Our first area of focus was in energy, creating a leading grid network by applying advanced networking technology and solutions to the power grid. We have recently broadened beyond the smart grid to networking other critical infrastructure such as street lights, enabling smarter and more efficient cities.

We provide a networking platform and solutions that enable utilities to transform the power grid infrastructure into the smart grid. The foundation of our technology is a standards-based and secure Internet Protocol, or IP, network. Our networking platform provides two-way communications between the utility back office and devices on the power grid. In addition to our networking platform, we offer a suite of solutions that run on top of our network and complementary services. Our solutions include advanced metering, distribution automation and demand-side management. Our service offerings include professional services to implement our products, managed services and software as a service, or SaaS, to assist utilities with managing the network and solutions, and ongoing customer support. We have recently broadened beyond the smart grid to networking other critical infrastructure, such as street lights, that enables cities to be smarter and more efficient.

We believe our technology is particularly well suited for a range of other solutions across the broad category of “internet of things.” We are focused on critical infrastructure that requires similar networking performance as the current market we serve. Our first expansion beyond the power grid has been to city infrastructure, specifically networking street lights. We believe that by applying advanced networking technology, we can enable cities to achieve their goals of increasing energy and operating efficiency while improving quality of life. We expect to expand our offerings in this area as the market opportunity evolves.

Silver Spring Networks, Inc., headquartered in Redwood City, California, was founded in July 2002 and incorporated in the State of Delaware on July 3, 2002 as Real Time Techcomm, Inc. On August 6, 2002, we changed our name to Silver Spring Networks, Inc.

Reverse Stock Split

Prior to our initial public offering (“IPO”) in March 2013, our Board of Directors and holders of the requisite number of outstanding shares of our capital stock approved an amendment to our restated certificate of incorporation to effect a 5-for-1 reverse stock split of our outstanding capital stock. The reverse stock split was effected on February 11, 2013 and did not result in an adjustment to par value. The reverse stock split is reflected in the accompanying condensed consolidated financial statements and related notes on a retroactive basis for all periods presented.

Accounting Principles and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013.

The condensed consolidated balance sheet as of December 31, 2013, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The condensed consolidated financial statements include the accounts of Silver Spring Networks, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income (loss), and cash flows for the interim periods but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.

There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting period. Estimates are used for revenue and cost recognition, inventory valuation, warranty obligations, stock-based compensation, classification of current and non-current deferred revenue and deferred cost of revenue, intangible assets, income taxes and deferred income tax assets and associated valuation allowances. These estimates generally involve complex issues and require judgments, involve the analysis of historical and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

Inventory

Inventory is stated at the lower of cost or market. Inventory consisted of the following (in thousands):


	September 30,		December 31,
	2014		2013
Component parts	$	1,945	$	690
Finished goods		2,566		3,660
Inventory	$	4,511	$	4,350

Total inventory also included consigned inventory of $ 3.7 million and $2.8 million as of September 30, 2014 and December 31, 2013, respectively.

Product Warranty

We provide warranties for substantially all of our products. Our standard warranty period extends from one to five years. We accrue for costs of standard warranty at the time of product shipment and record changes in estimates to warranty accruals when it is probable a liability has been incurred and the amount of loss can be reasonably estimated.

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Product warranty obligation is presented as follows on the condensed consolidated balance sheets (in thousands):


	September 30,		December 31,
	2014		2013
Current warranty obligation—classified in accrued liabilities	$	4,126	$	2,985
Non-current warranty obligation—classified in other liabilities		3,157		3,104
	$	7,283	$	6,089

Product warranty activity was as follows (in thousands):


	Nine Months Ended
	September 30,
	2014		2013
Warranty obligation—beginning of period	$	6,089	$	6,316
Warranty expense for new warranties issued		506		1,107
Utilization of warranty obligation		(2,101)		(1,288)
Changes in estimates for pre-existing warranties		2,789		178
Warranty obligation—end of period	$	7,283	$	6,313

During the nine months ended September 30, 2014 and 2013, we revised our estimated warranty liability to reflect changes in cost estimates and, to a lesser extent, product field reliability experience and recorded an increase (reduction) of product warranty liability and product cost of revenue of $2.8 million and $0.2 million, respectively.

At the time of product shipment, we estimate and accrue for the amount of standard warranty cost and record the amount as a cost of revenue. Determining the amount of warranty costs requires management to make estimates and judgments based on historical claims experience, industry benchmarks, test data and various other assumptions including estimated field failure rates that are believed to be reasonable under the circumstances. The amount of warranty costs accrued are net of warranty obligations to be fulfilled by our suppliers. The results of these judgments formed the basis for our estimate of the total charge to cover anticipated customer warranty, repair, return and replacement and other associated costs. Should actual product failure rates, claim levels, material usage or supplier warranties on parts used in our products differ from our original estimates, revisions to the estimated warranty liability could result in adjustments to our cost of revenue in future periods.

Certain of our standard product warranty obligations require us to reimburse a customer for installation and other related costs in the event that field reliability rates fall below contractually specified thresholds. We consider the probability that we will have to pay such incremental warranty costs based on the expected performance of a delivered product when we record new warranty obligations issued in a period as well as when we determine if any changes are required to our original estimates for pre-existing warranty obligations.

Our warranty obligations are affected by product failure rates, claims levels, material usage and supplier warranties on parts included in our products. Because our products are relatively new and we do not have the benefit of long-term experience observing the products’ performance in the field, it is possible that the estimates of a product’s lifespan and incidence of claims could vary from period to period.

In certain customer arrangements, we have provided extended warranties for periods of up to 15 years following the initial standard warranty period. We recognize revenue associated with extended warranties over the extended warranty period when the extended warranty period commences. Costs associated with providing extended warranties are expensed as incurred during the extended warranty period. As of September 30, 2014 and December 31, 2013, we had deferred revenue associated with extended warranty arrangements of $0.5 million and $0.2

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

million, respectively, included in other current liabilities, and $8.0 million and $7.1 million, respectively, included in other long-term liabilities on our condensed consolidated balance sheets.

Conversion of Convertible Promissory Notes and Embedded Derivatives

In connection with our IPO in March 2013, the conversion of the convertible notes and issuance of common stock were accounted for as debt extinguishments and accordingly, the convertible notes, unamortized debt issuance costs and bifurcated compound embedded derivatives were removed at their respective carrying amounts and the shares of common stock issued were measured at fair value based on the closing price on the date our IPO closed. As a result, we recorded a loss on debt extinguishments of $22.9 million in the three months ended March 31, 2013.

Accumulated Other Comprehensive Income (AOCI)

The components of AOCI, net of tax, were as follows (in thousands):


			Unrealized Gains
	Foreign Currency		(Losses) on Available
	Adjustment		for Sale Securities		Total
Balance as of December 31, 2013	$	46	$	84	$	130
Other comprehensive income before reclassification		63		(13)		50
Amounts reclassified from AOCI		—		(116)		(116)
Other comprehensive income (loss)		63		(129)		(66)
Balance as of September 30, 2014	$	109	$	(45)	$	64

Other Long-Term Assets

Other long-term assets consisted of the following:


	September 30,		December 31,
	2014		2013

Acquired intangible assets, net	$	4,130	$	224
Goodwill		5,131		447
Prepaid expenses, deposits, and receivables, non-current		1,142		896
Other long-term assets	$	10,403	$	1,567

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the full retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

2. Net income (loss) per share

In connection with our IPO, all of our outstanding convertible preferred stock converted into common stock. In addition, we recognized a deemed dividend of $105.0 million to common stockholders on the date of conversion. Basic net loss per share applicable to common stockholders is computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share applicable to common stockholders is computed by giving effect to all potential shares of common stock, including stock options and restricted stock units, to the extent dilutive.

The following table sets forth the computation of basic and diluted net loss per share applicable to common stockholders (in thousands, except per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Net loss	$	(37,273)	$	(12,269)	$	(89,671)	$	(67,165)
Deemed dividend to convertible preferred stockholders		—		—		—		(105,000)
Net loss available to common stockholders	$	(37,273)	$	(12,269)	$	(89,671)	$	(172,165)
Weighted average common shares outstanding—basic		48,551		46,729		48,189		34,733
Weighted average common shares outstanding—diluted		48,551		46,729		48,189		34,733
Basic loss per common share	$	(0.77)	$	(0.26)	$	(1.86)	$	(4.96)
Diluted loss per common share	$	(0.77)	$	(0.26)	$	(1.86)	$	(4.96)

The following potential common shares outstanding were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive (in thousands):


	September 30,
	2014		2013
Employee equity incentive plans		7,512		6,749
Total common stock equivalents		7,512		6,749

3. Financial Instruments

Cash, Cash Equivalents and Short-Term Investments

Cash equivalents consist of highly liquid investments with insignificant interest rate risk and original or remaining maturities at the time of purchase of three months or less, and consist primarily of money market funds and U.S. Government securities. Short-term investments consist of high investment grade securities with original or remaining maturities at the time of purchase of greater than three months, and are available for use in current operations. We classify all of our cash equivalents and short-term investments as available-for-sale and record at fair value. Unrealized gains and losses are included in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ deficit. Realized gains and losses are included in other income and expense, net. Determining whether a decline in fair value is other-than-temporary requires management judgment based on the specific facts and circumstances of each security. We evaluate our short-term investments for impairment each reporting period. Amounts are reclassified out of accumulated other comprehensive income (loss) into earnings using the specific identification method.

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following (in thousands):


	As of September 30, 2014
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Current assets:
Cash	$	43,917	$	—	$	—	$	43,917
Cash equivalents:
Money market mutual funds		6,197		—		—		6,197
Total cash equivalents		6,197		—		—		6,197
Short-term fixed income securities:
U.S. government and agency obligations		38,686		45		(30)		38,701
U.S. and foreign corporate debt securities		19,659		16		(21)		19,654
Foreign governments and multi-national agency obligations		2,001		—		(4)		1,997
Total short-term investments		60,346		61		(55)		60,352
Total cash, cash equivalents and short-term investments	$	110,460	$	61	$	(55)	$	110,466


	As of December 31, 2013
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Current assets:
Cash	$	52,346	$	—	$	—	$	52,346
Cash equivalents:
Money market mutual funds		30,250		—		—		30,250
Total cash equivalents		30,250		—		—		30,250
Short-term fixed income securities:
U.S. government and agency obligations		41,991		84		(21)		42,054
U.S. and foreign corporate debt securities		18,366		76		(1)		18,441
Foreign governments and multi-national agency obligations		2,764		—		(3)		2,761
Total short-term investments		63,121		160		(25)		63,256
Total cash, cash equivalents and short-term investments	$	145,717	$	160	$	(25)	$	145,852

As of September 30, 2014, approximately 45%, 42%, and 5% of our cash, cash equivalents, and short-term investments were held with three separate financial institutions. As of December 31, 2013, approximately 41%, 34%, and 21% of our cash, cash equivalents, and short-term investments were held with three separate financial institutions.

Contractual Maturities

The contractual maturities of cash equivalents and short-term investments consisted of the following (in thousands):


	September 30, 2014				December 31, 2013
	Amortized		Aggregate		Amortized		Aggregate
	Cost Basis		Fair Value		Cost Basis		Fair Value
Due within one year	$	21,981	$	21,996	$	44,477	$	44,474
Due after 1 year through 3 years		44,562		44,553		48,894		49,032
Total cash equivalents & short-term investments	$	66,543	$	66,549	$	93,371	$	93,506

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Measurements

We measure certain financial assets at fair value on a recurring basis.

The measurements of fair value were established based on a fair value hierarchy that prioritizes the inputs. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1—Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3—Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions.

Level 1 measurements are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 measurements are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. We did not have any transfers of financial instruments between valuation levels during the nine months ended September 30, 2014 and the year ended December 31, 2013.

As of September 30, 2014, the fair value of these financial assets measured at fair value on a recurring basis was determined using the following inputs (in thousands):


	Fair Value Measurement Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Cash equivalents:
Money-market funds	$	6,197	$	—	$	—	$	6,197
Total cash equivalents		6,197		—		—		6,197
Short-term investments:
U.S. government and agency obligations		—		38,701		—		38,701
U.S. and foreign corporate debt securities		—		19,654		—		19,654
Foreign governments and multi-national agency obligations		—		1,997		—		1,997
Total short-term investments		—		60,352		—		60,352
Total assets measured at fair value	$	6,197	$	60,352	$	—	$	66,549

As of December 31, 2013, the fair value of these financial assets recorded at fair value on a recurring basis was determined using the following inputs (in thousands):

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Fair Value Measurement Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Cash equivalents:
Money-market funds	$	30,250	$	—	$	—	$	30,250
Total cash equivalents		30,250		—		—		30,250
Short-term investments:
U.S. government and agency obligations		—		42,054		—		42,054
U.S. and foreign corporate debt securities		—		18,441		—		18,441
Foreign governments and multi-national agency obligations		—		2,761		—		2,761
Total short-term investments		—		63,256		—		63,256
Total assets measured at fair value	$	30,250	$	63,256	$	—	$	93,506

We periodically review our marketable debt securities for other-than-temporary impairment. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. We also consider whether it is more likely than not that we will be required to (i) sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the nine months ended September 30, 2014, we did not recognize any other-than-temporary impairment loss. The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):


	As of September 30, 2014				As of December 31, 2013
	Total (Less Than 12 Months)				Total (Less Than 12 Months)
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
U.S. and foreign corporate debt securities	$	9,124	$	(21)	$	4,247	$	(1)
Foreign governments and multi-national agency obligations		1,996		(4)		2,761		(3)
U.S. government and agency obligations		18,854		(30)		12,566		(21)
Total	$	29,974	$	(55)	$	19,574	$	(25)

As of September 30, 2014 and December 31, 2013, there were no investments with unrealized losses for a period in excess of 12 months.

4. Commitments and contingencies

Operating and Capital Leases

The future minimum commitments under our operating and capital leases were as follows (in thousands):


	September 30, 2014
	Operating Leases		Capital Leases
2014	$	1,359	$	430
2015		5,401		1,162
2016		4,198		112
2017		455		—
2018		466		—

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2019 and thereafter		1,290		—
Net minimum lease payments	$	13,169		1,704
Less amount representing interest				(76)
Present value of net minimum capital lease payments			$	1,628

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Legal Contingencies

EON Patent Litigation. In June 2011, EON Corp. IP Holdings, LLC, a non-producing entity, or EON, filed suit in United States District Court for the Eastern District of Texas, Tyler Division against us and a number of smart grid providers. Other defendants include Landis+Gyr AG (acquired by Toshiba Corporation), Aclara Power-Line Systems Inc., Elster Solutions, LLC, Itron, Inc. and Trilliant Networks Inc. This lawsuit alleges infringement of United States Patent Nos. 5,388,101 (the “’101 Patent”), 5,481,546 (the “’546 Patent”), and 5,592,491 (the “’491 Patent,” and together with the ‘101 Patent and the ‘546 Patent, the “EON Patents”) by certain networking technology and services that we and the other defendants provide. We filed amended answers, affirmative defenses and counterclaims in August 2012, September 2012, October 2012 and November 2012 denying the plaintiff’s allegations and asserting that the plaintiff’s patents are invalid. All of the other named defendants in the case settled with EON prior to trial, which was held in June 2014. After the trial, the jury determined that we had infringed certain, but not all, of the claims under the EON Patents, and returned a verdict against us in the amount of $18.8 million. However, the court ruled that there was insufficient evidence to support EON’s allegation of willful infringement and granted our motion to dismiss that claim. In June 2014, we filed post-trial motions with the court seeking, among other things, judgment as a matter of law to set aside the jury verdict or, in the alternative, a new trial. In its post-trial motions, EON sought pre-judgment interest and attorneys’ fees. All of the EON Patents have expired and therefore EON is not seeking, and EON may not recover, any additional sums as royalties for our sales of products going forward.

In October 2014, the court issued an order under seal ruling on some of the parties’ post-trial motions. In the ruling, the court reduced the damage award from $18.8 million to $13.0 million, and in November 2014, the court entered an order directing us to pay damages in the reduced amount. The court has also directed EON to recompute its request for pre-judgment interest to account for the reduction in the damages award.

We continue to believe that the evidence and the law do not support the jury’s findings of infringement, validity, and the award of damages, and intend to continue vigorously defending the action, including exercising all available appeals. As of fiscal year ended December 31, 2013, we had accrued an immaterial charge in our financial statements for this lawsuit, and as of September 30, 2014, we had not made any further accrual related to this matter. However, given the inherent uncertainty in predicting the ultimate outcome of post-trial motions and the appeals process, we believe it is reasonably possible that a material loss of up to $13.0 million may result from these proceedings. In continuing to assess the impact of the jury verdict and the judge’s order on our financial statements, we will continue to evaluate the jury verdict, the court’s recent order ruling on the post-trial motions, and the likelihood of a successful appeal.

Transdata/OG&E Patent Litigation. In September 2011, TransData, Inc., or TransData, filed suit in United States District Court for the Western District of Oklahoma, against Oklahoma Gas & Electric Company (“OG&E”), alleging infringement of United States Patent Nos. 6,181,294, 6,462,713, and 6,903,699 by certain wireless communication-enabled meters, including General Electric Company (“GE”) meters with our wireless modules. We have agreed with GE to contribute to the indemnification and defense of OG&E in connection with the TransData suit. An early claim construction hearing was held regarding one claim term in February 2013, which the court ruled upon in June 2013. A hearing for the full claim construction was held in September 2013, on which the court issued an order in October 2013. In May 2014, GE filed reexamination requests on the TransData patents at issue with the U.S. Patent and Trademark Office (the “USPTO”). In October 2014, OG&E filed a motion to stay the litigation pending the reexamination of the patents by the USPTO. We believe that OG&E has meritorious defenses to TransData’s allegations, and we intend to vigorously defend against the action together with OG&E and GE.

Linex Patent Litigation. In March 2013, Linex Technologies, Inc., a non-producing entity, or Linex, filed suit against us in United States District Court for the Southern District of Florida. Linex alleged that certain of our networking technology infringes United States Patent Nos. 6,493,377 and 7,167,503. We filed an answer in May 2013. In January 2014, the court granted the plaintiff’s request for a stay of the matter, pending reexamination of the patents at issue by the USPTO. In September 2014, Linex amended certain patent claims and canceled certain other patent claims based upon the USPTO’s completed reexaminations, and in October 2014, the court lifted the stay of

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the matter. The trial has been scheduled for November 2015. We believe that we have meritorious defenses to Linex’s allegations and intend to continue vigorously defending against the action.

Other than as described above, the Company has not recorded any amounts for contingent losses associated with the matters described above based on its belief that losses, while reasonably possible, are not probable. Unless otherwise stated, the Company is currently unable to predict the final outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

We are directly involved with various unresolved legal actions and claims, and are indirectly involved with proceedings by administrative bodies such as public utility commissions, arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such legal actions and claims, individually or in the aggregate, would have a material effect on our consolidated financial statements. There are many uncertainties associated with any litigation or claim, and we cannot be certain that these actions or other third-party claims will be resolved without costly litigation, fines and/or substantial settlement payments. If that occurs, our business, financial condition and results of operations could be materially and adversely affected. If information becomes available that causes us to determine that a loss in any of our pending litigation matters, claims or settlements is probable, and a reasonable estimate of the loss associated with such events can be made, we will record the estimated loss at that time.

Customer Performance and Other Commitments

Certain customer agreements require us to obtain letters of credit or surety bonds in support of our obligations under such arrangements. These letters of credit or surety bonds typically provide a guarantee to the customer for future performance, which usually covers the deployment phase of a contract and may on occasion cover the operations and maintenance phase of service contracts. We have available a line of credit with a bank, which provides for advances and the issuance of letters of credit of up to $50 million. At September 30, 2014, we have not made any drawdown on our line of credit.

During the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated either by us or ourselves. These letters of credit or guarantee instruments are related to performance guarantees, facility leases and workers compensation insurance. These letters of credit are subject to compliance with financial covenants and other customary conditions to borrowings. As of September 30, 2014, we were in compliance with the financial covenants in the credit agreement. As of September 30, 2014 and December 31, 2013, we had a total of $3.2 million and $9.8 million, respectively, of standby letters of credit issued under the credit facility with a financial institution, of which $0.6 million (AUD$0.6 million) and $0.6 million (AUD$0.6 million), respectively, were denominated in Australian dollars.

As of September 30, 2014, we had a $15.0 million unsecured surety bond. The surety bond provides a financial guarantee to support performance obligations under certain customer agreements. In the event any such letters of credit or surety bonds are called, we would be obligated to reimburse the issuer of the letter of credit or surety bond. We do not believe there will be any claims against currently outstanding letters of credit or surety bonds.

Our contracts with customers and meter manufacturers typically contain provisions that could result in payments or other liabilities related to late or improper delivery of products, services, installations or operations or failure to meet product or performance specifications or other product defects. Any payments made to customers pursuant to the terms of these provisions are recorded as reductions of deferred revenue.

Indemnification Commitments

Directors, Officers and Employees. In accordance with our bylaws and/or pursuant to indemnification agreements we have entered into with directors, officers and certain employees, we have indemnification obligations to our directors, officers and certain employees for claims brought against these persons arising out of certain events or occurrences while they are serving at our request in such a capacity. We maintain director and officer liability

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

insurance coverage to reduce our exposure to such obligations, and payments made under indemnification agreements. To date, there have been no indemnification claims by these directors, officers and employees.

Customers and Meter Manufacturers. Our contracts with customers and meter manufacturers typically provide indemnification for claims filed by third parties alleging that our products and services sold to the customer or manufacturer infringe or misappropriate any patent, copyright, trademark or other intellectual property right. Refer to the discussion above under the heading “Legal Contingencies” for a description of certain matters involving our indemnification obligations.

In our customer contracts, we also typically provide an indemnification for third-party claims resulting from death, personal injury or property damage caused by the negligence or willful misconduct of our employees and agents in connection with the performance of certain contracts.

Under our customer and meter manufacturer indemnities, we typically agree to defend the customer or meter manufacturer, as the case may be, from such claims, and pay any resulting costs, damages and attorneys’ fees awarded against the indemnified party with respect to such claims, provided that (a) the indemnified party promptly notifies us in writing of the claim, (b) the indemnified party provides reasonable assistance to us at our expense, and (c) we have sole control of the defense and all related settlement negotiations.

Insurance. We maintain various insurance coverage policies, subject to policy limits and certain conditions that enable us to recover a portion of amounts paid by us in connection with our obligation to indemnify our customers and meter manufacturers. However, because our maximum liability associated with such indemnification obligations generally is not stated explicitly in the related agreements, and further because many states prohibit limitations of liability for such indemnified claims, the maximum potential amount of future payments we could be required to make under these indemnification provisions could significantly exceed insurance policy limits.

Historically, payments made by us under these indemnification provisions have not had a material effect on our results of operations, financial position or cash flows.

5. Stock-Based Compensation

Equity Incentive Plan and Employee Stock Purchase Plan

Our Board of Directors adopted the 2012 Equity Incentive Plan, or the 2012 Plan, which became effective on March 12, 2013 and serves as the successor to our 2003 Stock Option Plan, or the 2003 Plan. Pursuant to the 2012 Plan, 3,400,000 shares of our common stock were initially reserved for grant, plus (1) any shares that were reserved and available for issuance under the 2003 Plan at the time the 2012 Plan became effective, and (2) any shares that become available upon forfeiture or repurchase by us under the 2003 Plan and a stock option plan assumed in connection with a previous acquisition, will be reserved for issuance. Under the 2012 Plan, we may grant both incentive and non-statutory stock options, restricted stock and restricted stock units to employees, directors and service providers. We may grant options to purchase shares of common stock to employees, directors and service providers at prices not less than the fair market value at date of grant for both Incentive Stock Options, or ISOs, or Nonqualified Stock Options, or NQSOs. ISOs granted to a person who, at the time of the grant, owns more than 10% of the voting power of all classes of stock must be at no less than 110% of the fair market value and expire five years from the date of grant. All other options generally have a contractual term of 10 years. Options generally vest over four years. Restricted stock units, or RSUs, generally vest between two to four years. We have also granted to certain executive officers awards with performance and service-based conditions. The potential shares to be awarded related to performance-based awards are derived from fiscal 2014 operating performance metrics which will be determined at the end of the year. As of September 30, 2014 and December 31, 2013, there were 3.6 million and 2.5 million shares, respectively, of common stock reserved for future issuance under our stock plan.

Our Board of Directors adopted the 2012 Employee Stock Purchase Plan, or ESPP, which became effective on March 12, 2013, pursuant to which 400,000 shares of our common stock have been reserved for future issuance.

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Eligible employees can enroll and elect to contribute up to 15% of their compensation through payroll withholdings in each offering period, subject to certain limitations. Each offering period is six months in duration, with the exception of the initial offering period, which commenced in March 2013 upon the date our IPO was declared effective and that ended on February 14, 2014. The purchase price of the stock is the lower of 85% of the fair market value on (a) the first day of the offering period or (b) the purchase date.

We recorded stock-based compensation expense as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of revenue	$	2,770	$	1,376	$	7,392	$	10,631
Research and development		3,042		1,905		8,892		15,056
Sales and marketing		1,783		950		5,582		5,822
General and administrative		2,881		2,759		9,604		12,994
Stock-based compensation expense	$	10,476	$	6,990	$	31,470	$	44,503

The following table summarizes our stock option activity and related information for the nine months ended September 30, 2014 (in thousands, except per share data):


	Options Outstanding
		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
	Shares	Share		Term (years)	Value
Balance at December 31, 2013	4,726	$	11.88
Options granted	732		14.67
Options exercised	(284)		3.31
Options cancelled or expired	(316)		17.83
Balance at September 30, 2014	4,858	$	12.41	5.81	$	11,176
As of September 30, 2014:
Options vested and expected to vest	4,770	$	12.34	5.74	$	11,176
Options exercisable	3,515	$	10.86	4.63	$	11,176

The following table summarizes our restricted stock unit activity and related information for the nine months ended September 30, 2014 (in thousands, except per share data):


	Restricted Stock
	Units Outstanding
		Weighted
		Average Grant
	Number of	Date Fair Value
	Shares	per Share
Balance at December 31, 2013	2,759	$	19.14
Restricted stock units granted	1,085		13.18
Restricted stock units vested	(912)		17.46
Restricted stock units cancelled	(375)		17.94
Balance at September 30, 2014	2,557	$	17.36

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In March 2013, as approved by our Board of Directors, we modified certain stock options held by employees and directors to purchase 1,752,895 shares of our common stock with an exercise price of $34.90 per share or greater to reduce the exercise price to $17.00 per share, the IPO price. There were no changes to vesting terms or conditions. As a result of the modification to these stock options, we incurred an incremental charge to stock-based compensation of $5.5 million and $4.1 million for the nine months ended September 30, 2014 and 2013, respectively, and expect to incur $0.3 million of incremental stock-based compensation over a weighted average period of 0.7 years.

As of September 30, 2014, there was $10.2 million and $24.5 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements related to options and RSUs, respectively, which are expected to be recognized over a weighted-average period of 3.0 and 2.0 years, respectively.

6. Income Taxes

Our provision for income taxes for the three months ended September 30, 2014 and 2013 reflects an effective tax rate of 0.4% and (0.8)%, respectively. Our provision for income taxes for the three months ended September 30, 2014 consists primarily of withholding taxes, offset by a tax benefit related to foreign losses, while our provision for income taxes for the three months ended September 30, 2013 consisted primarily of foreign income and withholding taxes. Our provision for income taxes for the nine months ended September 30, 2014 and 2013 reflects an effective tax rate of (0.5)% and (0.7)%, respectively, and consists primarily of foreign income and withholding taxes.

7. Business Acquisition

On May 6, 2014, we entered into a purchase agreement to acquire 100% of the outstanding shares of Streetlight.Vision (“SLV”), a company incorporated under the laws of France, which provides street light control and management software. On May 23, 2014, we completed the acquisition of SLV, a société par actions simplifiée, and paid approximately $8.8 million in cash, of which $2.6 million was deposited in an escrow account to satisfy indemnification claims that we may have for a period 24 months pursuant to the terms of the purchase agreement. If there remains more than $1.3 million in the escrow account 12 months after the completion of the acquisition after taking into account any pending indemnification claims, such amount over $1.3 million shall be paid to the SLV shareholders. The remaining $1.3 million will be paid to the SLV shareholders after the conclusion of the 24-month period, subject to any pending indemnification claims.

In accordance with ASC 805, Business Combinations, the acquisition of SLV was recorded as a purchase business acquisition since SLV was considered a business. Under the purchase method of accounting, the fair value of the consideration was allocated to net assets acquired at their fair values. The results of operations of SLV, which are not material for the nine months ended September 30, 2014, are included in our consolidated financial results.

The $8.8 million total consideration was preliminarily allocated primarily to $4.7 million, $4.3 million, and $(0.2) million of goodwill, intangible assets, and net liabilities, respectively.

8. Restructuring Charges

The following table presents restructuring and other charges included in cost of revenues and restructuring and other charges in the Condensed Consolidated Statements of Operations (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

SILVER SPRING NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	2014		2013		2014		2013
Severance	$	1,888	$	—	$	1,888	$	—
Other		117		—		17		—
Total restructuring and other	$	2,005	$	—	$	1,905	$	—

Activity in our restructuring reserve is summarized as follows (in thousands):


		Balance December 31, 2013	Additions	Utilization	Balance September 30, 2014
Fiscal 2014 Plan
Severance reserve (1)	$	—	1,888	(1,026)	862


(1) The reserve is recorded in the Condensed Consolidated Balance Sheets under "Accrued liabilities."

Restructuring and other charges noted above are based on our 2014 Restructuring Plan (as defined below). Any changes in the estimates of executing the approved plans are reflected in our results of operations.

2014 Restructuring Plan

During the three months ended September 30, 2014, we initiated a restructuring plan (the “2014 Restructuring Plan”) to refocus our strategy, optimize our structure, and improve operational efficiencies.

During the three and nine months ended September 30, 2014, we recorded $1.9 million of severance costs to restructuring and other charges in the Condensed Consolidated Statement of Operations.

In connection with the 2014 Restructuring Plan, we expect to record aggregate future charges of approximately $1.6 million to $2.1 million of additional severance.

The remaining restructuring costs under the 2014 Restructuring Plan are expected to be incurred by the first half of 2015.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. In addition, the following discussion contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly the section entitled “Risk Factors.”

Overview

We have over ten years of experience creating, building and successfully deploying large scale networks and solutions enabling the “internet of things” for critical infrastructure. The “internet of things” refers to a system where a diversity of physical devices has the capacity to communicate using internet technologies. Our first area of focus was in energy, creating a leading smart grid network by applying advanced networking technology and solutions to the power grid. We have recently broadened beyond the smart grid to networking other critical infrastructure such as street lights, which enables smarter and more efficient cities.

For the smart grid, we provide a leading networking platform and solutions that enable utilities to transform the power grid infrastructure into the smart grid. The smart grid intelligently connects millions of devices that generate, control, monitor and consume power, providing timely information and control to both utilities and consumers. We believe that the application of networking technology to the power grid has the potential to transform the energy industry through better communication just as the application of networking technology to the computing industry enabled the Internet.

We believe the power grid is one of the most significant elements of contemporary industrial infrastructure that has yet to be extensively networked with modern technology. To address this challenge, we pioneered a fundamentally new approach to connect utilities with millions of devices on the power grid. We believe our technology will yield significant benefits to utilities, consumers and the environment, both in the near term and the future. These benefits include more efficient management of energy, improved grid reliability, capital and operational savings, integration with renewable-generation sources, consumer empowerment, and assistance in complying with evolving regulatory mandates through reduced carbon emissions. We believe networking the power grid will fundamentally transform the world’s relationship with energy.

We believe our technology is particularly well suited for a range of other solutions across the broad category of the “internet of things.” We are focused on critical infrastructure that requires similar networking performance as the current market we serve. Our first expansion beyond the power grid has been in city infrastructure, specifically networking street lights. We believe that by applying advanced networking technology, we can enable cities to achieve their goals of increasing energy and operating efficiency while improving quality of life. We expect to expand our offerings in this area as the market opportunity evolves.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”) enacted in April 2012. Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Financial Overview

Revenue

We derive revenue from sales of products and services that enable customers to deploy our networking platform. For the nine months ended September 30, 2014, product revenue represented 61% and service revenue represented 39% of our total revenue. For the nine months ended September 30, 2014 and 2013, we shipped 1.5 million and 1.7 million endpoints, respectively. We have shipped 19.7 million cumulative endpoints since inception.

Our product revenue is derived from sales of hardware such as communications modules, access points, relays and bridges, and software. To date, in our typical customer deployments, we have sold our communications modules to third-party device manufacturers and our other hardware and software products directly to our customers. In such sales of communications modules to third-party device manufacturers, we only record revenue related to the communications modules pursuant to a contractual relationship between us and the third-party device manufacturer. However, in some cases, we have sold third-party devices such as meters integrated with our communications modules directly to our customers. In those circumstances where we sell third party devices directly to our customers, we recognize the sale on a gross basis as we are acting as principal. Whether our customer purchases the third party device from us or the third party device manufacturer is dependent on the nature and extent of the business relationship our customer has with the third-party device manufacturer and how our customer prefers to manage their deployment.

Our service revenue includes fees for professional services, managed services and SaaS, and ongoing customer support. Our professional services revenue for the nine months ended September 30, 2014 and 2013 was $21.2 million and $31.4 million, respectively. Our managed and SaaS services revenue for the nine months ended September 30, 2014 and 2013 was $23.4 million and $51.9 million, respectively.

To date, a substantial majority of our revenue is attributable to a limited number of customer deployments of our advanced metering solution. In the nine months ended September 30, 2014, the deployments for Progress Energy Service Company, LLC, Oklahoma Gas & Electric Company, and Singapore PowerAssets Ltd represented 20%, 13%, and 13% of our revenue, respectively.

Each of these total revenue percentages includes amounts related to the customers’ deployments that were invoiced directly to third party device manufacturers, as well as direct revenue from our customers. We expect that a limited number of customers will continue to account for a substantial portion of our revenue in future periods although these customers have varied and are likely to vary from period to period.

Cost of Revenue and Gross Profit

Product cost of revenue consists of contract manufacturing costs, including raw materials, component parts and associated freight, and normal yield loss in the period in which we recognize the related revenue. In addition, product cost of revenue includes compensation, benefits and stock-based compensation provided to our supply chain management personnel, overhead and other direct costs, which are recognized in the period in which we recognize the related revenue. Further, we recognize certain costs, including logistics costs, manufacturing ramp-up costs, expenses for inventory obsolescence, warranty obligations, lower of cost or market adjustments to inventory, and amortization of intangibles, in the period in which they are incurred or can be reasonably estimated. We record a lower of cost or market adjustment in instances where the selling price of the products delivered or expected to be delivered is less than cost. We also include the cost of third-party devices in cost of revenue in instances when our customers contract with us directly for such devices. In accordance with our accounting policies, we recognize product cost of revenue in the periods we recognize the related revenue.

Service cost of revenue includes compensation and related costs for our service delivery, customer operations and customer support personnel, facilities and infrastructure cost and depreciation, and data center costs. In accordance with our accounting policies, we recognize service cost of revenue in the period in which it is incurred even though the associated service revenue may be required to be deferred.

Our gross profit varies from period to period based on the volume, average selling prices, and mix of products and services recognized as revenue, as well as product and service costs, expense for warranty obligations, and inventory write-downs. The timing of revenue recognition and related costs, which depends primarily on customer acceptance, can fluctuate significantly from period to period and have a material impact on our gross profit and gross margin results.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses, as well as amortization of acquired intangibles. Personnel-related expense represents a significant component of our operating expenses. Our regular full-time employee headcount was 589 as of September 30, 2014.

Research and Development

Research and development expense represents the largest component of our operating expenses and consists primarily of:

compensation, benefits and stock-based compensation provided to our hardware and software engineering personnel, as well as facility costs and other related overhead;

cost of prototypes and test equipment relating to the development of new products and the enhancement of existing products; and

fees for design, testing, consulting, legal and other related services.

We expense our research and development costs as they are incurred.

Sales and Marketing

Sales and marketing expense consists primarily of:

compensation, benefits, sales commissions and stock-based compensation provided to our sales, marketing and business development personnel, as well as facility costs and other related overhead;

marketing programs, including expenses associated with industry events, trade shows; and

travel costs.

General and Administrative

General and administrative expense consists primarily of:

compensation, benefits and stock-based compensation provided to our executive, finance, legal, human resource and administrative personnel, as well as facility costs and other related overhead; and

fees paid for professional services, including legal, tax and accounting services.

Restructuring and Other

During the three and nine months ended September 30, 2014, we recorded $1.9 million of severance costs to restructuring and other charges in the Condensed Consolidated Statement of Operations.

In connection with the 2014 Restructuring Plan, we expect to record aggregate future charges of approximately $1.6 million to $2.1 million of additional severance.

The remaining restructuring costs under the 2014 Restructuring Plan are expected to be incurred by the first half of 2015. If actual events differ from our current assumptions, we will record the related benefit or expense in the period incurred.

Key Non-GAAP Financial Measures

We believe that our results of operations under GAAP, when considered in isolation, may only provide limited insight into the performance of our business in any given period. As a result, we manage our business, make planning decisions, evaluate our performance and allocate resources by assessing non-GAAP measures such as non-GAAP revenue, recurring non-GAAP revenue per endpoint, cost of non-GAAP revenue, gross profit on non-GAAP revenue, and adjusted EBITDA, in addition to other financial measures presented in accordance with GAAP. We believe that these non-GAAP measures offer valuable supplemental information regarding the performance of our business, and will help investors better understand the sales volumes, and gross margin and profitability trends, as well as the cash flow characteristics, of our 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), net income (loss) or any other performance measure derived in accordance with GAAP.

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 our accounting policies. We reconcile revenue to non-GAAP revenue by adding revenue to the change in deferred revenue in a given period.

To date, a substantial portion of our non-GAAP revenue is attributable to a limited number of customer deployments of our advanced metering solution. In the nine months ended September 30, 2014, the deployments for Commonwealth Edison Company and Baltimore Gas and Electric Company represented 17% and 16% of our non-GAAP revenue, respectively.

Each of these total non-GAAP revenue percentages includes amounts related to the customers’ deployments that were invoiced directly to third party device manufacturers, as well as direct invoices to our customers.

Recurring non-GAAP revenue per endpoint on a trailing twelve month basis as of September 30, 2014 and 2013 was $2.04 per endpoint and $2.17 per endpoint, respectively. This metric represents a trailing twelve-month non-GAAP recurring revenue per cumulative endpoints deployed inception-to-date.

Cost of Non-GAAP Revenue and Gross Profit on Non-GAAP Revenue

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 acquired 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 invoiced services are expensed in the period incurred. We reconcile cost of revenue to cost of non-GAAP 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.

Gross profit on non-GAAP revenue is the difference between non-GAAP revenue and cost of non-GAAP revenue.

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.

The non-GAAP financial measures set forth below for the three and nine months ended September 30, 2014 and 2013 have been derived from our condensed consolidated financial statements. Reconciliations to the comparable GAAP measures are contained in the notes below.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(unaudited, in thousands, except for percentages)				(unaudited, in thousands, except for percentages)
Non-GAAP revenue(1)	$	70,888	$	94,216	$	206,342	$	254,438
Cost of non-GAAP revenue(2)		49,030		54,673		142,350		167,337
Gross profit on non-GAAP revenue(3)	$	21,858	$	39,543	$	63,992	$	87,101
Gross margin on non-GAAP revenue		31%		42%		31%		34%
Adjusted EBITDA(4)	$	(5,565)	$	11,392	$	(21,021)	$	2,502

(1)The following table reconciles revenue to non-GAAP revenue:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(unaudited, in thousands)				(unaudited, in thousands)
Revenue, net	$	28,041	$	72,481	$	113,877	$	229,694
Change in deferred revenue, net of foreign currency translation		42,847		21,735		92,465		24,744
Non-GAAP revenue	$	70,888	$	94,216	$	206,342	$	254,438

(2)The following table reconciles cost of revenue to cost of non-GAAP revenue:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(unaudited, in thousands)				(unaudited, in thousands)
Cost of revenue	$	26,738	$	49,255	$	87,718	$	148,084
Change in deferred cost of revenue, net of foreign currency translation		25,244		6,842		62,302		30,028
Less: Stock-based compensation included in cost of revenue		(2,770)		(1,376)		(7,392)		(10,631)
Less: Amortization of intangibles included in cost of revenue		(182)		(48)		(278)		(144)
Cost of non-GAAP revenue	$	49,030	$	54,673	$	142,350	$	167,337

(3)The following table reconciles gross profit to gross profit on non-GAAP revenue:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(unaudited, in thousands)				(unaudited, in thousands)
Gross profit	$	1,303	$	23,226	$	26,159	$	81,610
Change in deferred revenue, net of foreign currency translation		42,847		21,735		92,465		24,744
Change in deferred cost of revenue, net of foreign currency translation		(25,244)		(6,842)		(62,302)		(30,028)
Stock-based compensation included in cost of revenue		2,770		1,376		7,392		10,631
Amortization of intangibles included in cost of revenue		182		48		278		144
Gross profit on non-GAAP revenue	$	21,858	$	39,543		63,992	$	87,101
Gross margin on non-GAAP revenue		31%		42%		31%		34%

(4)The following table reconciles net loss to adjusted EBITDA:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(unaudited, in thousands)				(unaudited, in thousands)
Net loss	$	(37,273)	$	(12,269)	$	(89,671)	$	(67,165)
Change in deferred revenue, net of foreign currency translation		42,847		21,735		92,465		24,744
Change in deferred cost of revenue, net of foreign currency translation		(25,244)		(6,842)		(62,302)		(30,028)
Other (income) expense, net		(7)		54		(55)		24,966
Provision (benefit) for income taxes		(140)		100		463		492
Depreciation and amortization		1,771		1,624		4,704		4,990
Stock-based compensation		10,476		6,990		31,470		44,503
Restructuring expenses		1,888		—		1,888		—
Legal settlements and other		117		—		17		—
Adjusted EBITDA	$	(5,565)	$	11,392	$	(21,021)	$	2,502

Non-GAAP measures have limitations and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. The most significant of these limitations include:

our non-GAAP measures do not reflect the effect of customer acceptance provisions as required under GAAP;

our non-GAAP measures do not reflect the effect of contingent revenue recognition limits due to potential refunds and penalty provisions related to future delivery or performance as required under GAAP;

our non-GAAP measures are based on contractual invoiced amounts and therefore do not reflect the effect of relative selling price allocations between separate units of accounting as required under GAAP;

our non-GAAP measures do not reflect the impact of issuing equity-based compensation to our management team and employees or in connection with acquisitions;

our non-GAAP measures do not reflect the impact of the amortization of acquired intangibles arising from acquisitions;

our non-GAAP measures do not reflect other (income) expense primarily related to gains and losses from the remeasurement of embedded derivative and preferred stock warrant liabilities, and interest expense or loss on conversion from our promissory notes;

our non-GAAP measures do not reflect income tax expense or legal settlement costs;

although depreciation and amortization are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures;

our non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs; and

other companies, including companies in our industry, may not use such measures, may calculate non-GAAP measures differently or may use other financial measures to evaluate their performance, all of which reduce the usefulness of our non-GAAP measures as comparative measures.

Results of Operations and Other Financial Measures

The following table sets forth our condensed consolidated results of operations for the periods shown:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(unaudited, in thousands)				(unaudited, in thousands)
Revenue, net	$	28,041	$	72,481	$	113,877	$	229,694
Cost of revenue		26,738		49,255		87,718		148,084
Gross profit		1,303		23,226		26,159		81,610

Operating expenses:
Research and development		16,986		16,980		52,053		60,851
Sales and marketing		10,131		7,424		28,208		26,514
General and administrative		9,601		10,937		33,256		35,952
Restructuring and other		2,005		—		1,905		—
Total operating expenses		38,723		35,341		115,422		123,317
Operating loss		(37,420)		(12,115)		(89,263)		(41,707)

Other income (expense), net:		7		(54)		55		(24,966)

Loss before income taxes		(37,413)		(12,169)		(89,208)		(66,673)
Provision (benefit) for income taxes		(140)		100		463		492
Net loss	$	(37,273)	$	(12,269)	$	(89,671)	$	(67,165)

Revenue

The following table sets forth our revenue for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Product revenue	$	16,321	$	56,650	$	(40,329)	$	69,299	$	146,366	$	(77,067)
Service revenue		11,720		15,831		(4,111)		44,578		83,328		(38,750)
Revenue, net	$	28,041	$	72,481	$	(44,440)	$	113,877	$	229,694	$	(115,817)

Of the $28.0 million total revenue recognized in the three months ended September 30, 2014, 100%, or $28.0 million, was due to the receipt of customer acceptances and the performance of related services for follow-on phases of deployment of our networking platform and solutions from customers for which acceptance of initial phases of deployment was achieved prior to the three months ended September 30, 2014. Revenue from our advanced metering, demand-side management, and distribution automation solutions represented 78%, 15%, and 7%, respectively, of total revenue for the three months ended September 30, 2014.

Of the $72.5 million total revenue recognized in the three months ended September 30, 2013, 88%, or $64.0 million, was due to the receipt of customer acceptances and the performance of related services for follow-on phases of deployment of our networking platform and solutions from utility customers for which acceptance of initial phases of deployment was achieved prior to 2013, and 12%, or $8.5 million, was due to the receipt of customer acceptances of initial phases of deployment of our networking platform and solutions in the first half of 2013 as there was no new initial acceptance in the third quarter of fiscal year 2013. Revenue from our advanced

metering, demand-side management, and distribution automation solutions represented 92%, 4%, and 4%, respectively, of total revenue for the three months ended September 30, 2013.

Of the $113.9 million total revenue recognized in the nine months ended September 30, 2014, 83%, or $94.4 million, was due to the receipt of customer acceptances and the performance of related services for follow-on phases of deployment of our networking platform and solutions from customers for which acceptance of initial phases of deployment was achieved prior to 2014, and 17%, or $19.5 million, was due to the receipt of customer acceptances of initial phases of deployment of our networking platform and solutions during the nine months ended September 30, 2014. Revenue from our advanced metering, demand-side management, and distribution automation solutions represented 84%, 10%, and 6%, respectively, of total revenue for the nine months ended September 30, 2014.

Of the $229.7 million total revenue recognized in the nine months ended September 30, 2013, 92%, or $210.2 million, was due to the receipt of customer acceptances and the performance of related services for follow-on phases of deployment of our networking platform and solutions from utility customers for which acceptance of initial phases of deployment was achieved prior to 2013, and 8%, or $19.5 million, was due to the receipt of customer acceptances of initial phases of deployment of our networking platform and solutions during 2013. Revenue from our advanced metering, demand-side management, and distribution automation solutions represented 91%, 4%, and 5%, respectively, of total revenue for the nine months ended September 30, 2013.

Product Revenue. The $40.3 million decrease in product revenue for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was due to a decrease of $27.8 million and $12.5 million, respectively, in hardware revenue and software revenue. The $27.8 million decrease in hardware revenue was primarily due to $37.1 million decease related to lower volume, partially offset by $9.5 million increase related to product mix. The $12.5 million decrease in software revenue was primarily due to decreased software purchase by a customer.

The $77.1 million decrease in product revenue for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was due to a decrease of $61.7 million in hardware revenue and a decrease of $15.4 million in software revenue. The $61.7 million decrease in hardware revenue was primarily due to $81.7 million decreases related to lower volume, partially offset by $22.3 million increases related to product mix. The $15.4 million software revenue decrease was primarily due to software purchase by a customer

Service Revenue. The $4.1 million decrease in service revenue for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily due to $3.2 million resulting from the recognition of services revenue during the three months ended September 30, 2013 that was previously deferred subject to contingency provisions for a customer. Revenue from managed and SaaS services and professional services represented 26% and 16%, respectively, of total revenue for the three months ended September 30, 2014 and 14% and 8%, respectively, of total revenue for the three months ended September 30, 2013.

The $38.8 million decrease in service revenue for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily due to $46.1 resulting from the recognition of services revenue during the nine months ended September 30, 2013 that was previously deferred subject to contingency provisions for two customers, partially offset by an increase of $8.4 million for services associated with the receipt of customer acceptances for follow-on phases of deployment of our networking platform and solutions. Revenues from managed and SaaS services and professional services represented 21% and 19%, respectively, of total revenue for the nine months ended September 30, 2014, and 23% and 14%, respectively, of total revenue for the nine months ended September 30, 2013.

We expect revenue to fluctuate from period to period for the remainder of 2014 and beyond, which may lead to gross losses primarily due to the timing of when we expect to meet the completion and acceptance criteria in our customer arrangements.

Non-GAAP Revenue

The following table sets forth our non-GAAP revenue for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Non-GAAP revenue	$	70,888	$	94,216	$	(23,328)	$	206,342	$	254,438	$	(48,096)

The $23.3 million decrease in non-GAAP revenue for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily due to a decrease of $20.4, $2.0 million, and $1.0 million in product mix, lower volumes, and lower service billings, respectively.

Non-GAAP revenue from our advance metering solution and demand-side management and distribution automation solutions represented 81% and 19%, respectively, of total non-GAAP revenue for the three months ended September 30, 2014, and 91% and 9%, respectively, of total non-GAAP revenue for the three months ended September 30, 2013.

Non-GAAP revenue from product, managed services and SaaS, and professional services represented 70%, 15%, and 15%, respectively, of total non-GAAP revenue for the three months ended September 30, 2014, and 77%, 11% and 12%, respectively, of total non-GAAP revenue for the three months ended September 30, 2013.

The $48.1 million decrease in non-GAAP revenue for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was due to a decrease of $24.6 million and $26.5 million in software revenue and third-party product mix, respectively, partially offset by an increase of $2.9 million in service billings.

Non-GAAP revenue from our advance metering solution and demand-side management and distribution automation solutions represented 85% and 15%, respectively, of total non-GAAP revenue for the nine months ended September 30, 2014, and 91% and 9%, respectively, of total non-GAAP revenue for the nine months ended September 30, 2013.

Non-GAAP revenue from product, managed services and SaaS, and professional services represented 70%, 15%, and 15%, respectively, of total non-GAAP revenue for the nine months ended September 30, 2014, and 77%, 11% and 12%, respectively, of total non-GAAP revenue for the nine months ended September 30, 2013.

We expect that non-GAAP revenue will be lower year-over-year for the three and twelve months ended December 31, 2014 primarily due to continued effect of the long and unpredictable sales cycles of our existing and potential customers.

Cost of Revenue and Gross Profit

The following table sets forth our cost of revenue and gross profit for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Product cost of revenue	$	10,791	$	34,844	$	(24,053)	$	42,120	$	100,152	$	(58,032)
Service cost of revenue		15,947		14,411		1,536		45,598		47,932		(2,334)
Cost of revenue	$	26,738	$	49,255	$	(22,517)	$	87,718	$	148,084	$	(60,366)

Product gross profit	$	5,530	$	21,806	$	(16,276)	$	27,179	$	46,214	$	(19,035)
Service gross profit (loss)		(4,227)		1,420		(5,647)		(1,020)		35,396		(36,416)
Gross profit	$	1,303	$	23,226	$	(21,923)	$	26,159	$	81,610	$	(55,451)

Product Cost of Revenue. The $24.1 million decrease in product cost of revenue for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily due to a decrease of $88.2 million from lower volumes, partially offset by a $69.1 million increase related to product mix.

The $58.0 million decrease in product cost of revenue for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily due to a decrease of $67.7 million from lower volumes, partially offset by a $12.3 million increase related to higher costs and product mix.

Service Cost of Revenue. The $1.5 million increase in service cost of revenue for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily due to a $0.5 million increase in higher managed services costs driven by incremental non-GAAP revenue and $0.9 million increase due to higher bonus attainment.

The $2.3 million decrease in service cost of revenue for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily due to a decrease of $2.7 million and $2.0 million in stock-based compensation related to our IPO and professional & outside services, respectively, partially offset by a $2.4 million increase in payroll compensation and benefits.

Changes in our service cost of revenue are disproportionate to changes in our service revenue because we recognize service cost of revenue in the period in which it is incurred even though the associated service revenue may be required to be deferred, as described under “Financial Overview—Cost of Revenue and Gross Profit (Loss)” above. In addition, we may incur gross losses primarily due to the timing of when we expect to meet the completion and acceptance criteria in our customer arrangements.

Cost of Non-GAAP Revenue and Gross Profit on Non-GAAP Revenue

The following table sets forth our cost of non-GAAP revenue for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Cost of non-GAAP revenue	$	49,030	$	54,673	$	(5,643)	$	142,350	$	167,337	$	(24,987)

Cost of non-GAAP revenue decreased by $5.6 million during the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 due to decrease of $6.9 million related to lower volumes, partially offset by an increase of $0.9 million and $0.4 million related to product mix and higher costs, respectively.

Cost of non-GAAP revenue decreased by $25.0 million during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 due to decreases of $22.1 million and $5.2 million related to lower volumes and higher costs, respectively, partially offset by an increase of $2.3 million related to product mix.

The following table sets forth our gross profit and gross margin on non-GAAP revenue for the periods shown:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			Change		2014			2013			Change
	(unaudited, in thousands)								(unaudited, in thousands)
Gross profit on non-GAAP revenue	$	21,858		$	39,543		$	(17,685)	$	63,992		$	87,101		$	(23,109)
Gross margin on non-GAAP revenue		31	%		42	%				31	%		34	%

Gross profit on non-GAAP revenue decreased by $17.7 million during the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 primarily due to a decrease of $20.2 million and $1.0 million in one-time software licenses and lower services gross profits, respectively, partially offset by an increase of $3.5 million in hardware content mix.

Gross profit on non-GAAP revenue decreased by $23.1 million during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily due to a decrease of $25.2 million and $0.5 million in lower one-time software license revenue and lower hardware content mix, respectively, partially offset by an increase of $2.6 million related to higher services revenue.

Operating Expenses

The following table sets forth our operating expenses for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Research and development	$	16,986	$	16,980	$	6	$	52,053	$	60,851	$	(8,798)
Sales and marketing		10,131		7,424		2,707		28,208		26,514		1,694
General and administrative		9,601		10,937		(1,336)		33,256		35,952		(2,696)
Restructuring and other		2,005		-		2,005		1,905		-		1,905
Operating expenses	$	38,723	$	35,341	$	3,382	$	115,422	$	123,317	$	(7,895)

Personnel-related expenses represent the most significant component of our operating expenses and increased from period to period. We intend to continue to manage our operating expenses in line with our existing cash and available financial resources and anticipate continued spending in future periods in order to execute our long-term business plan. In addition, the timing of additional hires could materially affect our operating expenses, both in absolute dollars and as a percentage of revenue.

Stock-based compensation in operating expenses increased by $2.1 million during the three months ended September 30, 2014 due to higher stock-based compensation during the three months ended September 30, 2014. Stock-based compensation in operating expenses was lower by $9.8 million during the nine months ended September 30, 2014 due to higher stock-based compensation for equity instruments vested upon our IPO during the nine months ended September 30, 2013.

Research and Development. Research and development expense for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 remained flat.

The $8.8 million decrease in research and development expense for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily due to decreases of $6.2 million and $0.9 million in stock-based compensation and outside services, respectively.

We intend to continue to invest significantly in our research and development efforts, which we believe are essential to enhancing our competitive position and developing new products.

Sales and Marketing. The $2.7 million increase in sales and marketing expense for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily due to an increase of $1.3 million and $0.8 million in payroll compensation and stock-based compensation, respectively.

The $1.7 million increase in sales and marketing expense for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 is primarily due to an increase of $1.7 million and $0.3 million in compensation & benefits and travel & entertainment expense, respectively, partially offset by an decrease of $0.2 million in stock-based compensation.

General and Administrative. The $1.3 million decrease in general and administrative expense for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was due to decreases of $1.5 million in legal expenses and $0.3 million in fees charged related to letter of credit activities, partially offset by an increase of $0.3 million in benefits and payroll compensation expenses, including stock-based compensation.

The $2.7 million decrease in general and administrative expense for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily due to a $3.4 million decrease in stock-based compensation, partially offset by increases of $0.7 million in payroll compensation.

Restructuring and Other. The $2.0 million and $1.9 million increase in restructuring and other expense for the three and nine months ended September 30, 2014, respectively, as compared to the three and months ended September 30, 2013 was primarily due to severance costs related to workforce reductions.

Operating Loss

The following table sets forth our operating loss for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change

	(unaudited, in thousands)						(unaudited, in thousands)
Operating loss	$	(37,420)	$	(12,115)	$	(25,305)	$	(89,263)	$	(41,707)	$	(47,556)

The approximately $25.3 million increase in operating loss for the three months ended September 30, 2014 as compared to the operating loss for the three months ended September 30, 2013 was due to a decrease of $21.9 million in gross profit, coupled by an increase of $3.4 million in operating expenses.

The approximately $47.6 million increase in operating loss for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was due to a decrease of $55.5 million in gross profit, offset by a decrease of $7.9 million in operating expenses.

Other Income (Expense), Net

The following table sets forth our other income (expense), net, for the periods shown:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Interest income (expense), net	$	7	$	(54)	$	61	$	55	$	(1,290)	$	1,345
Conversion of promissory notes and remeasurement of warrants and derivatives		—		—		—		—		(23,676)		23,676
Other income (expense), net	$	7	$	(54)	$	61	$	55	$	(24,966)	$	25,021

Other income (expense), net, was higher for the nine months ended September 30, 2014 primarily due to the $22.9 million loss on conversion of convertible promissory notes, $0.9 million of interest expense on our convertible promissory notes, and $0.8 million loss on termination of warrants, all of which were related to our IPO and were recorded during the nine months ended September 30, 2013.

Net Loss


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		Change		2014		2013		Change
	(unaudited, in thousands)						(unaudited, in thousands)
Net loss	$	(37,273)	$	(12,269)	$	(25,004)	$	(89,671)	$	(67,165)	$	(22,506)

The approximately $25.0 million increase in net loss for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily due to a decrease of $25.3 million in operating loss, offset by an increase of $0.1 million in other income, net.

The approximately $22.5 million increase in net loss for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2014 was due to an increase of $47.6 million in operating loss, offset by a decrease of $25.0 million in other income, net.

Provision for Income Taxes

Since inception, we have incurred net losses and have not recorded provisions for U.S. federal and state income taxes, except state minimum taxes. We have not reported a benefit for federal and state income taxes in the condensed consolidated financial statements as the deferred tax asset arising from our net operating losses has been offset by a valuation allowance because it was more likely than not that the tax benefit of the net operating losses will not be realized. We have recorded a provision for foreign taxes associated with our foreign subsidiaries.

Liquidity and Capital Resources

As of September 30, 2014, we had $50.1 million in cash and cash equivalents and $60.4 million in short-term investments. Our investment portfolio consisted of money market funds and fixed income securities. Our fixed income securities were denominated in U.S. dollars and consisted of highly liquid debt instruments of the U.S. government and its agencies, foreign government and agency securities, and U.S. and foreign corporate debt securities. We limit the amount of our domestic and international investments with any single issuer and any single financial institution, and also monitor the diversity of the portfolio, thereby diversifying the credit risk. Within our

portfolio, we held $19.7 million of foreign government and agency securities as of September 30, 2014. These sovereign debt securities had an average credit rating of AAA and were predominantly from Canada. None of the securities deemed sovereign debt was from Greece, Ireland, Italy, Portugal or Spain. We believe our existing balances of cash, cash equivalents and short-term investments will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with our existing operations at least through December 2015.

We expect that operating expenses will constitute a material use of our cash balances. In the near term, we intend to continue to manage our operating expenses in line with our existing cash and available financial resources and anticipate increased spending in future periods in order to execute our long-term business plan. In addition, we may use cash to fund acquisitions or invest in other businesses, technologies or product lines. We have incurred net losses and negative cash flows from operating activities since our inception, and we expect we will continue to incur operating and net losses and cash flows to fluctuate from period to period in 2014 and beyond. We believe that our available cash balances and credit facilities will be sufficient to meet our presently anticipated working capital, capital expenditure and business expansion requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of customer wins and related billings and the expansion of our production capacity, as well as sales and marketing activities, timing and extent of spending on research and development efforts and the continuing market acceptance of our networking platform and solutions.

Prior to fiscal year 2013, we funded our operations primarily through private sales of equity securities and debt financing. In March 2013, we completed our IPO in which we issued and sold 5,462,500 shares of common stock at a public offering price of $17.00 per share. We received net proceeds of $84.5 million after deducting underwriting discounts and commissions of $6.5 million and paid offering costs of $1.9 million, but before deducting previously paid and unpaid offering expenses of approximately $4.5 million. Our convertible notes converted into 3,764,954 shares of common stock. We paid $12.0 million in consideration for the termination of certain preferred stock warrants of a related party. Concurrently with our IPO, we issued and sold in a private placement with a related party 705,881 shares of common stock at the IPO price of $17.00 per share and we received net proceeds of $12.0 million.

We have available a line of credit with a bank, which provides for advances and the issuance of letters of credit of up to $50 million. As of September 30, 2014, there were no borrowings outstanding under the credit agreement; however, $3.2 million of letters of credit were outstanding, leaving $46.8 million of available capacity for cash borrowings or additional letters of credit, subject to compliance with financial covenants and other customary conditions to borrowings. As of September 30, 2014, we were in compliance with the financial covenants in the credit agreement.

We are occasionally required to provide performance bonds to secure our performance under customer contracts. Our ability to obtain such bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and external factors beyond our control, including the overall capacity of the surety market. Surety companies consider those factors in relation to the amount of our tangible net worth and other underwriting standards that may change from time to time. Surety companies may require that we collateralize a percentage of the bond with our cash or other form of credit enhancement. Events that affect surety markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. In addition, some of our customers also require collateral in the form of letters of credit to secure performance or to fund possible damages as the result of an event of default under our contracts with them. If we enter into significant long-term agreements that require the issuance of letters of credit, our liquidity could be negatively impacted. Our inability to obtain adequate bonding or letters of credit to meet bid requirements or enter into significant long-term agreements could have a material adverse effect on our future revenues and business prospects.

Cash Flows

The following table sets forth the major sources and uses of cash for each of the periods set forth below:

	Nine Months Ended
	September 30,
	2014		2013		Change
	(unaudited, in thousands)
Cash used in operating activities	$	(22,389)	$	(1,830)	$	(20,559)
Cash used in investing activities		(10,384)		(64,794)		54,410
Cash provided by financing activities		291		75,843		(75,552)

Cash Flows from Operating Activities

Cash flows used in operating activities totaled $22.4 million during the nine months ended September 30, 2014, primarily as a result of a net loss of $89.7 million, which was partially offset by the change in our operating assets and liabilities of $29.0 million, non-cash stock-based compensation of $31.7 million, and depreciation and amortization of $4.7 million.

Cash flows used in operating activities totaled $1.8 million during the nine months ended September 30, 2013, primarily as a result of a net loss of $67.2 million and the change in our operating assets and liabilities of $9.4 million, which were partially offset by non-cash stock-based compensation expense of $44.5 million, non-cash loss on conversion of convertible promissory notes and termination of warrants of $23.7 million, and depreciation and amortization of $5.0 million.

Cash Flows from Investing Activities

Cash flows used in investing activities totaled $10.4 million during the nine months ended September 30, 2014, primarily as a result of $46.6 million in purchases of short-term investments, $8.8 million for the acquisition of Streetlight.Vision, and $4.2 million in purchases of property and equipment, partially offset by $49.2 million in proceeds from sales and maturities of short-term investments.

Cash flows used in investing activities totaled $64.8 million during the nine months ended September 30, 2013, primarily as a result of $61.5 million in purchases of short-term investments and $3.3 million in purchases of property and equipment.

Cash Flows from Financing Activities

Cash flows provided in financing activities totaled $0.3 million during the nine months ended September 30, 2014 primarily as a result of $6.8 million in proceeds from our employee stock purchase program and the exercise of stock options, partially offset by $5.4 million for taxes paid related to the net share settlement of equity awards.

Cash provided by financing activities totaled $75.8 million during the nine months ended September 30, 2013 and consisted primarily of $84.5 million in net proceeds from the sale of 5,462,500 shares of common stock in our IPO, $12.0 million proceeds from the sale of 705,881 shares of common stock in a private placement, partially offset by the payment of $12.0 million payment for the termination of certain Series A and Series C preferred stock warrants, and $7.7 million for taxes paid related to the net share settlement of equity awards.

Concentration of Credit Risk

We typically extend credit to our customers and meter manufacturers and do not require collateral or other security in support of accounts receivable. We attempt to mitigate the credit risk in our trade receivables through our credit evaluation process and payment terms. We analyze the need to reserve for potential credit losses and record allowances for doubtful accounts when necessary. As of September 30, 2014, Commonwealth Edison Company and Virginia Electric and Power Company accounted for 23% and 12%, respectively, of our accounts receivable. As of December 31, 2013, Baltimore Gas and Electric Company, Landis+Gyr AG (acquired by Toshiba Corporation),

Commonwealth Edison Company, and Virginia Electric and Power Company accounted for 26%, 11%, 10%, and 10%, respectively, of our accounts receivable.

To date, we have not had any significant write-offs of uncollectable accounts receivable, and there was no allowance for doubtful accounts as of September 30, 2014 and December 31, 2013.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes.

During the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated either by us or our subsidiaries. As of September 30, 2014, our financial guarantees that were not recorded on our balance sheet consisted of $44.0 million of standby letters of credit and $15.0 million of surety bonds related to performance guarantees, facility leases, and workers compensation insurance.

Contractual Obligations

There were no material changes in our commitments under contractual obligations, as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make certain estimates and judgments that affect the amounts reported in our consolidated financial statements. We base our estimates on historical experience, anticipated future trends and other assumptions we believe to be reasonable under the circumstances. Because these accounting policies require significant judgment, our actual results may differ materially from our estimates.

There have been no material changes in our critical accounting policies and estimates during the nine months ended September 30, 2014 as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

Fixed Income Securities

Our fixed income investment portfolio is denominated in U.S. dollars and consists of various holdings, types and maturities. Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. At any time, a sharp rise in interest rates or credit spreads could have a material adverse impact on the fair value of our fixed income investment portfolio. A sensitivity analysis was performed on our investment portfolio as of September 30, 2014. The analysis is based on an estimate of the hypothetical changes in market value of the portfolio that would result from an immediate parallel

shift in the yield curve of various magnitudes; however, interest rates do not always move in such a manner and actual results may differ materially. A shift in the yield curve of 100 basis points would have resulted in a change of less than 2% of the fair value of our fixed income securities.

We monitor our interest rate and credit risk, including our credit exposures to specific rating categories and to individual issuers. There were no impairment charges on our cash equivalents and fixed income securities during the quarter. These instruments are not leveraged and we do not enter into speculative securities for trading purposes.

Interest rate risk also reflects our exposure to movements in interest rates associated with our credit facility. The interest bearing credit facility is denominated in U.S. dollars and the interest expense is based on the bank’s prime interest rate plus an additional margin. As of September 30, 2014, we had not drawn on this credit facility. Our capital leases do not change based on changes in market interest rates.

Foreign Currency Exchange Risk

Our sales contracts are denominated primarily in U.S. dollars and, to a lesser extent, Australian dollars and Brazilian real. Consequently, we are subject to foreign currency exchange risk on our customer billings denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian dollar and Brazilian real. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statement of operations. To date, we have not entered into derivatives or hedging strategies as our exposure to foreign currency exchange rates has not been material to our historical operating results, but we may do so in the future if our exposure to foreign currency should become more significant. There were no significant foreign exchange gains or losses in the nine months ended September 30, 2014 and 2013.

Item 4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2014. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2014, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that there has not been any material change in our internal control over financial reporting during the quarter covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

EON Patent Litigation. In June 2011, EON Corp. IP Holdings, LLC, a non-producing entity, or EON, filed suit in United States District Court for the Eastern District of Texas, Tyler Division against us and a number of smart grid providers. Other defendants include Landis+Gyr AG (acquired by Toshiba Corporation), Aclara Power-Line Systems Inc., Elster Solutions, LLC, Itron, Inc. and Trilliant Networks Inc. This lawsuit alleges infringement of United States Patent Nos. 5,388,101 (the “’101 Patent”), 5,481,546 (the “’546 Patent”), and 5,592,491 (the “’491 Patent,” and together with the ‘101 Patent and the ‘546 Patent, the “EON Patents”) by certain networking technology and services that we and the other defendants provide. We filed amended answers, affirmative defenses and counterclaims in August 2012, September 2012, October 2012 and November 2012 denying the plaintiff’s allegations and asserting that the plaintiff’s patents are invalid. All of the other named defendants in the case settled with EON prior to trial, which was held in June 2014. After the trial, the jury determined that we had infringed certain, but not all, of the claims under the EON Patents, and returned a verdict against us in the amount of $18.8 million. However, the court ruled that there was insufficient evidence to support EON’s allegation of willful infringement and granted our motion to dismiss that claim. In June 2014, we filed post-trial motions with the court seeking, among other things, judgment as a matter of law to set aside the jury verdict, or in the alternative, a new trial. In its post-trial motions, EON sought pre-judgment interest and attorneys’ fees. All of the EON Patents have expired and therefore EON is not seeking, and EON may not recover, any additional sums as royalties for our sales of products going forward.

In October 2014, the court issued an order under seal ruling on some of the parties’ post-trial motions. In the ruling, the court reduced the damage award from $18.8 million to $13.0 million, and in November 2014, the court entered an order directing us to pay damages in the reduced amount. The court has also directed EON to recomputed its request for pre-judgment interest to account for the reduction in the damages award.

2013. In January 2014, the court granted the plaintiff’s request for a stay of the matter, pending reexamination of the patents at issue by the USPTO. In September 2014, Linex amended certain patent claims and canceled certain other patent claims based upon the USPTO’s completed reexaminations, and in October 2014, the court lifted the stay of the matter. The trial has been scheduled for November 2015. We believe that we have meritorious defenses to Linex’s allegations and intend to continue vigorously defending against the action.

In addition to the matters described above, from time to time we may be subject to other legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting infringement of their intellectual property rights. We may, from time to time, also be subject to various legal or government claims, disputes, or investigations. Such matters may include, but not be limited to, claims, disputes, or investigations related to warranty, refund, breach of contract, employment, intellectual property, government regulation, compliance or other matters. Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability and validity of third party rights or to establish our rights. There can be no assurance with respect to the outcome of any current or future litigation brought against us or pursuant to which we have indemnification obligations and the outcome could have a material adverse impact on our business, operating results and financial condition.

Item 1A. Risk Factors.

Our business is subject to many risks and uncertainties, which may affect our future performance. If any of the events or circumstances described below occurs, our business and financial performance could be harmed, our actual results could differ materially from our expectations and the market value of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may harm our business and financial performance.

We have a history of losses, anticipate continued losses and may incur negative operating cash flow in future periods, and we may not achieve or sustain profitability on a quarterly or annual basis.

We have incurred significant losses to date, with an accumulated deficit of $706.9 million as of September 30, 2014. For the nine months ended September 30, 2014 and the years ended December 31, 2013, 2012, and 2011, we incurred net loss of $89.7 million, $66.8 million, $89.7 million, and $92.4 million, respectively. We expect these losses to continue. We may incur negative operating cash flow in future periods, as we expect to incur significant costs to sell our products and operating expenses in connection with the continued development and expansion of our business. Our expenses include research and development expenses, general and administrative expenses, selling and marketing expenses and customer service and support expenses. Some of these expenses relate to prospective customers that may never place any orders and products that may not be introduced or generate revenue until later periods, if at all. There can be no assurance that we will ever achieve or sustain profitability on a quarterly or annual basis.

Our quarterly results are inherently unpredictable and subject to substantial fluctuations, and, as a result, we may fail to meet the expectations of securities analysts and investors, which could adversely affect the trading price of our common stock.

Our revenue, non-GAAP revenue and other operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control. While our revenue and non-GAAP revenue have increased in recent periods, there can be no assurances that our revenue and non-GAAP revenue will continue to increase or will not decrease on a quarterly or annual basis. For example, we had lower revenue and non-GAAP revenue for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 and lower revenue and non-GAAP revenue for the three months ended September 30, 2014 compared to the three months ended June 30, 2014. We expect revenue, non-GAAP revenue, non-GAAP gross margin and adjusted EBITDA to fluctuate from period to period throughout 2014 and beyond. We also expect operating losses in certain future periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Key Non-GAAP Financial Measures” above.

The factors that may affect the unpredictability of our quarterly results and cause our stock price to fluctuate include, but are not limited to:

long, and sometimes unpredictable, sales and customer deployment cycles;

changes in the mix of products and services sold;

our dependence on a limited number of customers;

the timing of acceptance of our products and services by our customers, which can have a material impact on when we recognize related revenue under our revenue recognition policies;

changing market conditions;

competition;

failures of our products, components that we use in our products or third-party devices containing our products that delay deployments, cause bodily injury, death or property damage, harm our reputation or result in high warranty costs, contractual penalties or terminations;

product or project failures by third-party vendors, customers or competitors that result in the cancellation, slowing down or deferring of projects;

liquidated damages provisions in our contracts, which could result in significant financial penalties if triggered or, even if not triggered, could affect our ability to recognize revenue in a given period;

the ability of our suppliers and manufacturers to deliver supplies and products to us on a timely basis;

delays associated with government funding programs for smart grid projects;

delays in regulatory approvals for our customers and customer deployments;

political and consumer sentiment and the related impact on the scope and timing of smart grid and smart city deployments; and

economic, regulatory and political conditions in the markets where we operate or anticipate operating.

As a result, we believe that quarter to quarter comparisons of operating results are not necessarily a good indication of what our future performance will be. It is likely that in some future quarters our operating results may be below our expectations or the expectations of securities analysts or investors, in which case the price of our common stock may decline.

Sales cycles to our customers can be lengthy and unpredictable and require significant employee time and financial resources with no assurances that a prospective customer will select our products and services.

Sales cycles with our prospective customers, particularly to utilities, which are our primary set of prospective customers, tend to be long and unpredictable. Utilities generally have extensive budgeting, procurement, competitive bidding, technical and performance review, and regulatory approval processes that can take up to several years to complete. Utilities may choose, and many historically have often chosen, to follow industry trends rather than be early adopters of new products or services, which can extend the lead time for or prevent acceptance of more recently introduced products or services such as ours. In addition, in many instances, a utility may require one or more pilot programs to test our new products and services before committing to a larger deployment. These pilot programs may be quite lengthy and further delay the sales cycle with no assurance that they will lead to a larger deployment or future sales. Furthermore, to the extent our products are required to be deployed with the products of others, such as meters, delays related to such third-party products will further lengthen the sales cycle.

This extended sales process requires us to dedicate significant time by our senior management, and sales and marketing and customer services personnel, and to use significant financial resources without any assurance of success or recovery of our related expenses. Similarly, we are likely to incur these significant operating expenses well ahead of recognizing the related revenue because our ability to recognize revenue is typically dependent on meeting contractual customer acceptance and other requirements.

The lengthy sales cycles of our products and services also make it difficult to forecast new customer deployments, as well as the volume and timing of orders, which, in turn makes forecasting our future results of operations challenging. In the event that we publicly disclose any forecasts of our future results of operations or other performance metrics and those forecasts ultimately turn out to be inaccurate, the value of our common stock could significantly decline.

In addition, our agreement with our primary contract manufacturer provides for tiered volume-based pricing. To the extent our volumes decrease below specific thresholds, our gross profit and gross margins will be negatively impacted, which has occurred previously. Alternatively, in order to take advantage of the tiered volume-based pricing in any one quarter, we may purchase, and have previously purchased, additional inventory exposing us to the risk that we may incur costs for excess and obsolete inventory.

Our revenue is not predictable and recognition of a significant portion of it will be deferred into future periods.

Once a customer decides to move forward with a large-scale deployment of our products and services, the timing of and our ability to recognize related revenue will depend on several factors, some of which may not be under our control. These factors include shipment schedules that may be delayed or subject to modification, the rate at which our customers choose to deploy our solutions, customer acceptance of all or any part of our products and services, our contractual commitments to provide new or enhanced functionality at some point in the future, other contractual provisions such as liquidated damages, our manufacturers’ ability to provide an adequate supply of components, our customers’ requirement to obtain regulatory approval, and our ability to deliver quality products according to expected schedules. In light of these factors, the application of complex revenue recognition rules to our products and services has required us to defer, and in the future could continue to require us to defer, a significant amount of revenue until undetermined future periods. As of September 30, 2014 and December 31, 2013, we had $617.4 million and $524.7 million in deferred revenue, respectively. It may be difficult to predict the amount of revenue that we will recognize in any given period, and amounts recognized may fluctuate significantly from one period to the next.

Amounts included in our total backlog and order backlog may not result in actual non-GAAP revenue or revenue or translate into profits.

Our total backlog represents future product and service revenue and non-GAAP revenue that we expect to generate pursuant to contracts that we have entered into with our customers and third-party device manufacturers. Our total backlog includes our order backlog, which represents future revenue and non-GAAP revenue for open purchase orders and other firm commitments. We anticipate that our total backlog and order backlog will fluctuate from period to period throughout 2014 and beyond.

We cannot guarantee that our total backlog or order backlog will result in actual non-GAAP revenue or revenue in the originally anticipated period or at all. In addition, the contracts reflected in our total backlog and order backlog may not generate margins equal to or better than our historical operating results. We have a short history of tracking total backlog and order backlog on a consistent basis as performance measures and as a result, we do not have significant experience in determining the level of realization that we will actually achieve on our total backlog and order backlog. Our customer contracts are typically structured as master purchase and service agreements, or MSAs, under which the customer may place purchase orders over the course of a deployment. These deployments can extend for a number of years. Because our MSAs do not typically require a customer to purchase a minimum amount of product or services, total backlog is an estimate based upon contractual terms, existing purchase orders and other available information regarding the amount and timing of expected future purchase orders to be placed by our customers, including non-binding forecasts. No assurance can be made that firm purchase orders will be placed under these MSAs in the amounts we estimate, within the time period we expect, or at all. Total backlog is subject to adjustments due to the long-term nature of our customer deployments. Adjustments can result from a variety of factors, including changes in the nature or scope of customer deployments, the impact of contingency provisions related to future delivery or performance, customer cancellations, market conditions, delayed regulatory approvals and customer defaults. Delays due to external market factors or delays in deployments and required regulatory approvals have in the past and may in the future cause us to extend the deployment schedule or make modifications under customer contracts. For example, regulatory uncertainties previously delayed the timing

of Commonwealth Edison Company’s deployment. In addition, under our MSAs, our customers generally have the right to terminate the MSA for any reason, including for their sole convenience, a material breach or insolvency on our part or their inability to obtain required regulatory approval. The occurrence of such adjustments or terminations could materially reduce the amount of, or delay the fulfillment of, our total and order backlog. If our total backlog or order backlog fails to materialize as expected, we could experience a material reduction in future non-GAAP revenue, revenue, operating results or cash flow.

We are dependent on the utility industry, which has experienced volatility in capital spending. This volatility could cause our results of operations to vary significantly from period to period.

We derive a substantial portion of our revenue and non-GAAP revenue from sales of products and services directly and indirectly to utilities. Similar to other industries, the utility industry has been affected by recent economic factors, including continued global economic uncertainty, concerns over the U.S. debt ceiling and continued monetary, financial and sovereign debt uncertainties in European and other foreign countries, and economic weakness in emerging markets. Purchases of our products and services may be reduced or deferred as a result of many factors including economic downturns and uncertainty, slowdowns in new residential and commercial construction, a utility’s access to capital on acceptable terms, the timing and availability of government grants or incentives, utility specific financial circumstances, mergers and acquisitions, regulatory decisions, weather conditions, consumer opposition and fluctuating interest rates. Even with economic recovery, it may take time for our customers to establish new budgets and return to normal purchasing patterns. We cannot predict the recurrence of any economic slowdown or the strength or sustainability of the economic recovery, worldwide, in the United States or in our industry. We have experienced, and may in the future experience, variability in operating results on an annual and a quarterly basis as a result of these factors. Because a significant portion of our expenses is fixed in the short term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall of sales. This could materially and adversely affect our operating results, financial condition and cash flows.

Substantially all of our current products depend on the availability and are subject to the regulation of radio spectrum in the United States and abroad.

Substantially all of our current products are designed to communicate wirelessly via radio frequencies and therefore depend on the availability of adequate radio spectrum in order to operate. While these products could be designed to operate in a variety of different frequencies or by using other technologies such as cellular, in the United States they are primarily designed to form a wireless RF mesh using the unlicensed 902-928 megahertz, or MHz, band. The 902-928 MHz band is available for a wide variety of uses and requires us to manage interference by other users who operate in accordance with the Federal Communications Commission, or FCC, rules. The unlicensed frequencies are also often the subject of proposals to the FCC requesting a change in the rules under which such frequencies may be used. In the past, the FCC has re-allocated spectrum for new or additional uses, and has adopted changes to the requirements for equipment using radio spectrum. It is possible that the FCC or the U.S. Congress could adopt additional changes, which may be incompatible with our current or future product offerings, as well as products currently installed in the field, or require them to be modified at significant, or even prohibitive, cost. If the unlicensed frequencies become unacceptably crowded, restrictive or subject to changed laws, regulations or rules governing their use, our business, financial condition and results of operations could be materially and adversely affected.

Our international growth and future success also depend on the availability of radio spectrum that is compatible with our products or on our ability to develop products that use alternative communications technology, such as Gen4, our next-generation networking technology, which is available to customers in some products today and supports cellular communications, with more products coming to market as we continue to integrate it with products from additional device partners. In Australia, we primarily use unlicensed spectrum in the 915-928 MHz band with relatively minimal modifications needed to our products. In Europe, the European Telecommunications Standards Institute (ETSI), the pan-European spectrum coordinator, has designated spectrum in the 870-876MHz band for unlicensed use in applications such as those provided by us. However, each EU member state must implement this allocation independently, and we were required to make relatively minimal modifications to our products to operate within the designated spectrum. Additionally, we have sought rights and sought to certify our products for use using a variety of spectrum in New Zealand, Singapore, Brazil, the UK and a number of other

markets, however we may not be granted such rights or certifications in all countries. In many other countries, there may not be spectrum available or we may be required to obtain a license to operate in a frequency band that is not immediately compatible with our products. Licenses to appropriate spectrum in these countries may be unavailable or only available at unreasonably high prices. Similarly, in the event that we were only able to obtain a license in a different frequency band, the cost of modifying or redesigning our products to make them compatible with available spectrum could be significant or even cost-prohibitive. Alternatively, if we are not able to obtain available spectrum on financially advantageous terms, we may not be able to compete without investing in alternative communication technology. Moreover, interference caused by others who do not comply with regulatory or statutory requirements could further limit the availability of spectrum that is compatible with our products. If limitations on the availability of spectrum or the cost of making necessary modifications or investments in new technology preclude us from selling our products in markets outside of the United States, our growth, prospects, financial condition and results of operations could be materially and adversely affected.

A limited number of our customers are responsible for a significant portion of our non-GAAP revenue, revenue and cash flow. A decrease in sales to these customers or delays in customer deployments could have a material adverse effect on our operating results and financial condition.

A substantial majority of our revenue, non-GAAP revenue and cash flow depends on relatively large sales to a limited number of customers. The combination of lengthy sales cycles and relatively large sales to a small number of customers increases the risk of quarterly fluctuations in our non-GAAP revenue, revenue and operating results. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above for further information regarding customer concentration. Our master purchase and service agreements, or MSAs, do not impose purchase obligations on our customers until we have received a purchase order or agreed to a statement of work. Further, the MSAs are typically subject to termination for any reason, including for convenience following a specified notice period. We expect that a limited number of customers will continue to account for a substantial portion of our revenue and non-GAAP revenue in future periods. Changes in the business requirements, vendor selection, or purchasing behavior of our customers could significantly decrease our sales. In addition, our MSAs are complex, often requiring close coordination with our customers over extended preparation and deployment periods and involving large-scale delivery of our products and services. From time to time we have experienced and may in the future experience challenges in satisfying our customers throughout these preparation and deployment periods regarding all aspects of our performance. Additionally, we have, in the past, received correspondence from customers claiming that there have been deficiencies in our timeliness and coordination regarding hardware, software and services for deployment, and requesting that we remedy the deficiencies noted. If we are unable to address customers’ concerns, we could be required to pay penalties, liquidated damages or other expenses, the customer could terminate our MSA and our reputation could be damaged. Additionally, delays in customer deployments have in the past, and could in the future, affect our results of operations. For example, regulatory uncertainties previously delayed the timing of Commonwealth Edison Company’s deployment. Any of these factors could materially and adversely affect our business, financial condition, and results of operations.

Our marketing efforts depend significantly on our ability to receive positive references from our existing customers.

Our marketing efforts depend significantly on our ability to call on our current customers to provide positive references to new, potential customers. Given our limited number of customers, the loss or dissatisfaction of any customer could substantially harm our brand and reputation, inhibit the market acceptance of our products and services, and impair our ability to attract new customers and maintain existing customers. Any of these consequences could have a material adverse effect on our business, financial condition and results of operations.

The market for our products and services, and smart grid and smart city technology generally, is still developing. If the market develops less extensively or more slowly than we expect, our business could be harmed.

The market for our products and services, and smart grid and smart city technology generally, is still developing, and it is uncertain whether our products and services will achieve and sustain high levels of demand and market acceptance. Our near-term and long-term success will depend to a substantial extent on the willingness and ability of utilities to implement smart grid technology. Many utilities lack the financial resources and/or technical expertise required to evaluate, deploy and operate smart grid technology. Utilities’ activities are governed by

regulatory agencies, including public utility commissions, which may not create a regulatory environment that is conducive to the implementation of smart grid technologies in a particular jurisdiction. Furthermore, some utilities may be reluctant or unwilling to adopt smart grid technology because they do not perceive the benefits or are unable to develop a business case to justify the up-front and ongoing expenditures. If utilities do not implement smart grid technology or do so in fewer numbers or more slowly than we expect, our business and operating results would be adversely affected. For example, in the past, the rate of smart grid adoption slowed due to uncertainty surrounding the timing and tax treatment of U.S. government stimulus funding, negative publicity and consumer opposition, and regulatory investigations. These uncertainties caused many potential customers that had been considering smart grid programs in the United States to further evaluate their smart grid initiatives and delay their procurement processes or extend their deployment schedules. Smart grid adoption in international markets has trailed adoption in the United States as international markets continue to explore the technology and define the benefits and regulatory requirements for the smart grid.

Our success in the smart grid market also depends on our ability to expand beyond advanced metering sales and sell additional products and services, such as distribution automation, demand-side management, and our recently introduced street lights and data analytics platform. There can be no assurance that these products and services will be accepted by utilities or consumers. Similarly, our future success depends on our ability to expand our business beyond the smart grid into smart city infrastructure. We have only recently introduced our street light solution. There can be no assurance that this or other smart city products and services will be accepted by cities or other potential customers. Other competing products and services for both the smart grid and smart city may emerge and may be more successful.

Adverse publicity about, or consumer or political opposition to, the smart grid could inhibit the growth of the overall market.

The safety and security of the power grid, the accuracy and protection of the data collected by meters and transmitted via the smart grid, concerns about the safety of smart meters following recent meter-related fires, and concerns about the safety and perceived health risks of using radio frequency communications have been the focus of adverse publicity. For example, in Northern California, PG&E’s full-scale deployment of our networking platform and advanced metering solution has been subject to continued scrutiny following allegations of inaccurate bills generated by newly-installed “smart meters” and safety concerns about the levels of radio frequency electromagnetic fields emitted by the wireless communications technology used by the meters. As a result, the California State Senate created a special committee and the California Public Utilities Commission, or CPUC, hired an independent investigator to review the installation and use of advanced metering products. Negative publicity and consumer opposition in California, Maine and elsewhere have caused other utilities or their regulators to respond by delaying or modifying planned smart grid initiatives, mandating that utilities allow their customers to opt out of smart metering programs, or calling for investigations and/or implementation of unfavorable regulations and legislation. For example, in January 2012, the CPUC ruled that PG&E must let its customers retain or receive an analog meter, for nominal initial and monthly fees, if they, for any reason, opt out of PG&E’s deployment of PG&E’s smart meters. Similarly, outside the United States, public concern over smart grid projects in places such as Victoria, Australia has resulted in increased government scrutiny. Additionally, testing commissioned by the CPUC and other organizations could, in the future, contain negative information regarding the accuracy and safety of smart grid solutions. Finally, smart grid projects by other companies may be, or could be viewed by the public as, unsuccessful. Any of the foregoing factors could directly impact our current or future deployments, as well as inhibit the growth of the overall smart grid market, either of which could cause our business to suffer.

Security breaches involving our products or services, publicized breaches in smart grid or smart city products and services offered by others, or the public perception of security risks or vulnerability created by the deployment of the smart grid or smart city in general, whether or not valid, could harm our business.

The security technologies we have integrated into our networking platform and solutions that are designed to detect unauthorized activity and prevent or minimize security breaches may not function as expected and there can be no assurance that our products and services, those of other companies with whose products our products and services are integrated or interact, or even the products of other smart grid and smart city solutions providers will not be subject to significant real or perceived security breaches.

Our networking and analytics platforms allows utilities to collect, monitor, store, compile and analyze sensitive information related to consumers’ energy usage, as well as the performance of different parts of the power grid. As part of our data transfer and managed services and SaaS, we may store and/or come into contact with sensitive consumer information and data when we perform operational, installation or maintenance functions for our customers. If, in handling this information, we, our partners or our customers fail to comply with privacy or security laws, we could face significant legal and financial exposure to claims of government agencies, customers and consumers whose privacy is compromised. Even the perception that we, our partners or our customers have improperly handled sensitive, confidential information could have a negative effect on our business. In addition, third parties may attempt to breach our security measures or inappropriately use or access our network services or the network hardware and software we have in the field through computer viruses, physical or electronic break-ins, and other means. If a breach is successful, sensitive information may be improperly obtained, manipulated or corrupted, and we may face legal and financial exposure. In addition, a breach could lead to a loss of confidence in our products and services and our business could suffer.

Our current and anticipated future products and services allow authorized personnel to remotely control equipment at residential and commercial locations, at various points on the power grid, and at various points in a city’s critical infrastructure. For example, our software allows a utility to remotely connect and disconnect electricity at specific customer locations. If an unauthorized third party were to breach our security measures and disrupt, gain access to or take control of any of our products or services, our business and reputation could be severely harmed.

Our products and services may also be integrated or interface with products and services sold by third parties, and rely on the security of those products and their secure transmission of proprietary data over the Internet and cellular networks. Because we do not have control over the security measures implemented by third parties in their products or in the transmission of data over the Internet and cellular networks, we cannot ensure the complete integrity or security of such third-party products and transmissions.

Concerns about security, customer or consumer privacy may result in the adoption of state or federal legislation that restricts the implementation of smart grid and smart city technology or requires us to make modifications to our products, which could significantly limit the deployment of our technologies or result in significant expense to modify our products.

Any real or perceived security breach could seriously harm our reputation and result in significant legal and financial exposure, including increased remediation costs and security protection costs, inhibit market acceptance of our products and services, halt or delay the deployment by customers of our products and services, cause us to lose customers, harm our reputation, trigger unfavorable legislation and regulatory action, and inhibit the growth of the overall market for the smart grid and smart cities. Any of these risks could have a material adverse effect on our business, financial condition and results of operations.

If our products contain defects or otherwise fail to perform as expected, we could be liable for damages and incur unanticipated warranty, recall and other related expenses, our reputation could be damaged, we could lose market share and, as a result, our financial condition or results of operations could suffer.

Our products are complex and may contain defects or experience failures due to any number of issues in design, materials, deployment and/or use. If any of our products contain a defect, compatibility or interoperability issue or other error, we may have to devote significant time and resources to find and correct the issue. Such efforts could divert the attention of our management team and other relevant personnel from other important tasks. We have in the past experienced product defects due to a faulty component supplied by a third-party, and recorded significant costs associated with warranty claims, write-offs of returned products and customer repair programs implemented as a result. A product defect, product recall or a significant number of product returns could be expensive, damage our reputation and relationships with our customers and third-party vendors, result in property damage or physical injury, result in the loss of business to competitors, and result in litigation against us. Costs associated with field replacement labor, hardware replacement, re-integration with third-party products, handling charges, correcting defects, errors and bugs, or other issues could be significant and could materially harm our financial results.

Estimated future product warranty claims are based on the expected number of field failures over the warranty commitment period, the term of the product warranty period, and the costs for repair, replacement and

other associated costs. Our warranty obligations are affected by product failure rates, claims levels, material usage and product re-integration and handling costs. Because our products are relatively new and we do not yet have the benefit of long-term experience observing the products’ performance in the field, our estimates of a product’s lifespan and incidence of claims may be inaccurate. Should actual product failure rates, claims levels, material usage, product re-integration and handling costs, defects, errors, bugs or other issues differ from the original estimates, we could end up incurring materially higher warranty or recall expenses than we anticipate.

Our customer contracts typically contain provisions that could cause us to incur penalties, be liable for damages, and/or incur unanticipated expenses with respect to the functionality, deployment, operation and availability of our products and services, and that provide the customer with the right to terminate the contract for any reason.

In addition to the risk of unanticipated warranty or recall expenses, our customer contracts typically contain provisions that could cause us to incur penalties, be liable for damages, including liquidated damages, or incur other expenses, if we experience difficulties with respect to the functionality, deployment, operation and availability of our products and services. In the event of late deliveries, late or improper installations or operations, failure to meet product or performance specifications or other product defects, interruptions or delays in our managed service offerings, our customer contracts may expose us to penalties, significant damages and other liabilities. For example, we have in the past agreed to reimburse customers for their costs and incurred liquidated damages by failing to timely meet contractual milestones or other contractual requirements. In addition, our customer contracts are typically subject to termination for any reason, including for convenience following a specified notice period, our material breach or insolvency, or the failure to obtain required regulatory approval. If a customer terminates its customer contract for any reason, our estimates of total backlog and order backlog will be reduced. Reductions in total backlog and order backlog may have a negative effect on future revenue, non-GAAP revenue, profitability and liquidity. In the event we were to incur contractual penalties, such as liquidated damages or other related costs that exceed our expectations, or our customers terminate their contracts with us, our business, financial condition and operating results could be materially and adversely affected.

Our success depends in part on our ability to integrate our technology into devices and our relationship with device manufacturers.

Our business depends on our ability to integrate our communications modules into devices manufactured by third-party vendors. For example, for our advanced metering solution, our communications modules are integrated into electricity meters that are manufactured by third parties such as General Electric Company, Landis+Gyr AG (acquired by Toshiba Corporation), and Secure Meters Limited, or Secure Meters. A similar structure is used in our street light solution, where fulfillment of our communications modules is often completed by our partners who manufacture lighting fixtures or control modules. In a typical deployment, our customer purchases our communications modules from one or more third-party device manufacturers after integration into the device. Accordingly, even if demand for our products is strong, we have in the past and may in the future be constrained by the production capacity and priorities of the device manufacturers. In addition, several of these device manufacturers offer competing products, partner with other providers or may otherwise choose not to integrate our communications modules with their devices. If for technical or any other reason we were to lose the ability to integrate our communications modules with devices manufactured by third parties, or if our relationships with device manufacturers were to be terminated or renegotiated on unfavorable terms, our business, financial condition, and operating results could suffer. Further, there have been instances where devices with which our technology had been integrated experienced defects or had other problems that were unrelated to our technology. If this occurs in the future and the defects or problems are more significant or occur more frequently, our reputation could suffer and our business could be harmed.

From time to time, we have worked and expect to continue to work with third parties to pursue smart grid and smart city market opportunities. If we were unable to establish and maintain these relationships, or if our initiatives with these third parties are unsuccessful, our business may suffer.

For some of our existing and anticipated future products and services, we expect to maintain and may seek to establish relationships with third parties in order to take advantage of smart grid and smart city market opportunities. For example, we have designed our products to interface with in-home devices and data analytics

products, and will need to work with third parties to successfully deploy these products. Before a customer is willing to move forward with a deployment of our products, they may require that we partner with third-party vendors and/or obtain a certification from these vendors that our products will function as intended when integrated with their products. In addition, third-party vendors may offer competing products, partner with other networking providers or otherwise choose not to partner with us. In the event that we are unable to establish or maintain new relationships on favorable terms, or at all, our ability to successfully sell our existing and anticipated future products and services could be jeopardized.

We may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future.

Strategic business relationships may be an important factor in the growth and success of our business. However, there are no assurances that we will be able to identify or secure suitable business relationship opportunities in the future and our competitors may capitalize on such opportunities before we do. Moreover, identifying such opportunities could demand substantial management time and resources and involves significant costs and uncertainties. If we are unable to successfully source and execute on strategic relationship opportunities in the future, our business and results of operations could be significantly harmed.

As we continue to expand our business and evolve our technology, we may face unexpected challenges in the deployment and operation of our technology.

The smart grid and smart city market is still expanding and involves rapidly changing technology, which requires us to continue to expand our business and evolve our technology. The current generation of our networking platform and solutions has only been developed in the last several years and continues to evolve. Deploying and operating our technology is a complex endeavor. As the size, complexity and scope of our deployments have expanded, we have been able to test product performance at a greater scale and in a variety of new geographic settings and environmental conditions. These larger deployments have presented a number of unforeseen operational and technical challenges, which in some cases have caused delays and required us to commit significant resources to address these challenges. As the number, size and complexity of our deployments grow, we may continue to encounter unforeseen operational, technical and other challenges, some of which could cause significant delays, trigger contractual penalties, result in unanticipated expenses, and/or damage to our reputation, each of which could materially and adversely affect our business, financial condition and results of operations.

If we fail to respond to evolving technological changes, our products and services could become obsolete or less competitive.

Our industry is highly competitive and characterized by new and rapidly evolving technologies, standards, regulations, customer requirements, and frequent product introductions. Accordingly, our operating results depend upon, among other things, our ability to develop and introduce new products and services, as well as our ability to reduce production costs of our existing products. The process of developing new technologies and products is complex, and if we are unable to develop enhancements to, and new features for, our existing products or acceptable new products that keep pace with technological developments or industry standards, our products may become obsolete, less marketable and less competitive and our business could be significantly harmed.

We depend on our ability to develop new products and to enhance and sustain the quality of existing products.

Most of our current non-GAAP revenue and revenue are derived from our networking platform and advanced metering solution, but our growth and future success will depend, in part, on our ability to continue to design and manufacture new competitive products and to enhance and sustain the quality and marketability of our existing products. As such, we have made, and expect to continue to make, substantial investments in technology development. In the future, we may not have the necessary capital, or access to capital on acceptable terms, to fund necessary levels of research and development. Even with adequate capital resources, we may nonetheless experience unforeseen problems in the development or performance of our technologies or products. The market for smart grid and smart city technology products is still in its early stages, and we cannot assure you that we will be successful in developing or selling new products in these markets. In addition, we may not meet our product development

schedules and, even if we do, we may not develop new products fast enough to provide sufficient differentiation from our competitors’ products, which may be more successful.

We and our customers operate in a highly regulated business environment and changes in regulation could impose costs on us or make our products less economical.

Our products and our customers are subject to federal, state, local and foreign laws and regulations. Laws and regulations applicable to us and our products govern, among other things, the manner in which our products communicate, and the environmental impact and electrical reliability of our products. Additionally, our U.S. customers are often regulated by national, state and/or local bodies, including public utility commissions, the Department of Energy, the Federal Energy Regulatory Commission and other bodies. International customers are often subject to similar regulatory regimes. Prospective customers may be required to gain approval from any or all of these organizations prior to implementing our products and services, including specific permissions related to the cost recovery of these systems. Regulatory agencies may impose special requirements for implementation and operation of our products. We may incur material costs or liabilities in complying with government regulations applicable to us or our customers. In addition, potentially significant expenditures could be required in order to comply with evolving regulations and requirements that may be adopted or imposed on us or our customers in the future. Such costs could make our products less economical and could impact our customers’ willingness to adopt our products, which could materially and adversely affect our revenue, results of operations and financial condition.

Furthermore, changes in the underlying regulatory conditions that affect utilities could have a potentially adverse effect on a utility’s interest or ability to implement smart grid technologies. For example, ongoing regulatory uncertainties previously delayed the timing of Commonwealth Edison Company’s deployment. Many regulatory jurisdictions have implemented rules that provide financial incentives for the implementation of energy efficiency and demand response technologies, often by providing rebates or through the restructuring of utility rates. If these programs were to cease, or if they were restructured in a manner inconsistent with the capabilities enabled by our products and services, our business, financial condition and results of operations could be significantly harmed.

The adoption of industry standards applicable to our products or services could limit our ability to compete in the marketplace.

Standards bodies, which are formal and informal associations that seek to establish voluntary, non-governmental product and technology standards, are influential in the United States and abroad. We participate in voluntary standards organizations in order to both help promote non-proprietary, open standards for interoperability with our products and prevent the adoption of exclusionary standards. However, we are not able to control the content of adopted voluntary standards and do not have the resources to participate in all voluntary standards processes that may affect our markets. Some of the standards bodies and alliances in which we participate may require that we license certain of our patent claims that are necessary or essential to practice a particular standard to other participants, including competitors who elect to produce products compliant with that standard. These obligations to license our necessary patent claims may allow our competitors to use our patents to develop and sell products that compete with our products without spending the time and expense that we incurred to develop the technology covered by the patents, thereby potentially reducing any time to market advantage we might have as a result of these patents. These obligations could also substantially restrict and may eliminate our ability to use our patents as a barrier to entry or as a significant source of revenue. Moreover, because the specifications for these industry standards are generally available to members of the applicable standards bodies and alliances for little or no cost, competitors might be able to more easily create products that compete with our products.

The adoption, or expected adoption, of voluntary standards that are incompatible with our products or technology or that favor our competitors’ products or technology could limit the market opportunity for our products and services or render them obsolete, any of which could materially and adversely affect our revenue, results of operations, and financial condition.

Some of our customers and potential customers have applied for government grants and may also seek to participate in other government incentive programs, and if those grants or other incentives are not received or are significantly delayed, our results of operations could suffer.

Many utilities, including some of our customers and potential customers, apply for grants and may seek to participate in other government incentive programs, designed to stimulate the economy and support environmental initiatives, including smart grid technologies. Our customers and potential customers who apply for these government grants or incentives may delay or condition the purchase of our products and services upon receipt of such funds or upon their confidence in the future disbursement of those funds. If our customers and potential customers do not receive these funds or if receipt is significantly delayed, our results of operations could suffer. Similarly, the receipt of government funds or incentives may be conditioned upon utilities meeting milestones and other requirements, some of which may not be known until a future point in time. In addition, if our products and services do not meet the requirements necessary for receipt of government funds or other incentives, or if third parties fail to meet their obligations, our customers and potential customers may delay or condition the purchase of our products and services until they meet these requirements and our results of operations could suffer. Furthermore, there can be no assurance of government funds or incentives in future periods, either in the United States or in other countries where we may pursue business. As a result, our customers and potential customers may not have the resources or incentives to purchase our products and services.

If our products do not interoperate with our customers’ other systems, the purchase or deployment of our products and services may be delayed or cancelled.

Our products are designed to interface with our customers’ back office billing and other systems, each of which may have different specifications and utilize multiple protocol standards and products from other vendors. Our products will be required to interoperate with many or all of these products as well as future products in order to meet our customers’ requirements. If we find errors in the existing software or defects in the hardware used in our customers’ systems, we may need to modify our products or services to fix or overcome these errors so that our products will interoperate with the existing software and hardware, which could be costly and negatively affect our business, financial condition, and results of operations. In addition, if our products and services do not interoperate with our customers’ systems, customers may seek to hold us liable, demand for our products could be adversely affected or orders for our products could be delayed or cancelled. This could hurt our operating results, damage our reputation, and seriously harm our business and prospects.

Interruptions or delays in service from our third-party data center facilities, or problems with the third-party hardware or software that we employ, could impair the delivery of our service and harm our business.

We currently offer managed services and SaaS, including disaster recovery services, utilizing two data center facilities operated by separate third parties in California and Nevada. These facilities may be vulnerable to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, war, acts of terrorism, unauthorized entry, human error, and computer viruses or other defects. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. We rely on software and hardware technology provided by third parties to enable us to provide these services. Any damage to, or failure of, these third-party data centers or the third-party hardware and software we employ, could result in significant and lengthy interruptions in the services we provide to our customers. Such interruptions could reduce our revenue and non-GAAP revenue, cause us to issue credits or pay penalties, cause customers to terminate their service, harm our reputation and adversely affect our ability to attract new customers.

We do not control certain critical aspects of the manufacture of our products and depend on a limited number of contract manufacturers.

Our future success will depend significantly on our ability to manufacture our products timely and cost-effectively, in sufficient volumes, and in accordance with quality standards. Our primary manufacturing relationship is with Plexus Corp., who provides us with a wide range of operational and manufacturing services, including material procurement, final assembly, test quality control, warranty repair, and shipment to our customers and third-party vendors.

Our reliance on our contract manufacturers reduces our control over the manufacturing process, exposing us to risks, including reduced control over quality assurance, product costs and product supply. Any manufacturing disruption by our contract manufacturers could impair our ability to fulfill orders and warranty repair obligations. We may be unable to manage our relationships with our contract manufacturers effectively as they may experience delays, disruptions, capacity constraints or quality control problems in their manufacturing operations or otherwise fail to meet our future requirements for timely delivery. Similarly, to the extent that our contract manufacturers procure materials on our behalf, we may not benefit from any warranties received by the contract manufacturers from the suppliers or otherwise have recourse against the original supplier of the materials or even the contract manufacturer. In such circumstances, if the original supplier were to provide us or our contract manufacturers with faulty materials, we might not be able to recover the costs of such materials or be compensated for any damages that arise as a result of the inclusion of the faulty components in our products. For example, in the past we discovered that a faulty component from a third-party supplier was used in a discrete number of our communications modules.

One or more of our contract manufacturers may suffer an interruption in its business, or experience delays, disruptions or quality control problems in its manufacturing operations, or seek to terminate its relationship with us, or we may choose to change or add additional contract manufacturers for other reasons. Additionally, we do not have long-term supply agreements with our contract manufacturers. As a result, we may be unable to renew or extend our agreement on terms favorable to us, if at all. Although the contract manufacturing services required to manufacture and assemble our products may be readily available from a number of established manufacturers, it is risky, time consuming and costly to qualify and implement contract manufacturer relationships.

Any of these risks could have a material adverse effect on our business, financial condition and results of operations.

We depend on a limited number of key suppliers and if such suppliers fail to provide us with sufficient quantities of components at acceptable levels of quality and at anticipated costs, our revenue and operating results could be materially and adversely affected.

Several of the components used in our products come from sole, limited source or geographically concentrated suppliers, such as Analog Devices and Renesas Electronics America Inc. Additionally, our suppliers are not typically contractually obligated to supply us with components in minimum quantities or at predetermined prices over the long term. Accordingly, we may be vulnerable to price increases, component quality issues, the discontinuance of certain components, and financial, natural disasters, or other difficulties faced by our suppliers, causing shortages or interruptions in supply of components and materials, which could cause us to delay shipments to our customers. For example, some of our key suppliers are located in Japan and their ability to timely provide us with the necessary components used in our products was compromised as a result of the catastrophic earthquake and tsunami in March 2011. To help address these issues, we may purchase excess quantities of these items to hold in inventory to help ensure adequate available supply. As a result, we could be forced to record excess and obsolete inventory charges to provide for these excess quantities and we may also be subject to pricing risk or carrying charges, which could harm our operating results.

If we experience any shortages due to reliance on a limited number of suppliers, commodity supply constraints, capacity constraints, discontinuance, natural disasters or price fluctuations related to the raw materials used, or if we are not able to identify, test, qualify, and procure components from alternate sources at acceptable prices and within a reasonable period of time, our reputation could suffer and our business, financial condition and results of operations could be materially and adversely effected. We may not be able to obtain component replacements on commercially reasonable terms in the event of a natural disaster, act of God or similar catastrophic event. In such circumstances, we could be forced to exhaust our excess on-hand inventory and then face a delay in shipments of our products to our customers. In addition, we may also be subject to contractual penalties if we fail to deliver our products and services on time.

Further, our customers may reschedule or cancel orders on relatively short notice. If our customers cancel orders after we have ordered the corresponding product from our suppliers, we may be forced to incur cancellation fees or to purchase products that we may not be able to resell, which could have a material adverse effect on our business, financial condition and results of operations.

Our business could be severely harmed by natural disasters or other catastrophes.

A significant catastrophic event such as war, acts of terrorism, natural disasters, such as earthquakes, or global threats, including, but not limited to, the outbreak of epidemic disease, could disrupt our operations and impair deployment of our solutions by our customers, interrupt critical functions, cause our suppliers to be unable to meet our demand for parts and equipment, reduce demand for our products, prevent our customers from honoring their contractual obligations to us or otherwise affect our business negatively. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the deployment of our products, or the manufacture or shipment of our products, our business, operating results and financial condition could be materially and adversely affected.

We operate in a highly competitive industry and we compete against many companies with substantially greater financial and other resources, and our market share and results of operations may be reduced if we are unable to respond to our competitors effectively.

Competition in our market is intense and involves rapidly changing technologies, evolving industry standards, frequent new product introductions, and changes in customer requirements. To maintain and improve our competitive position, we must keep pace with the evolving needs of our customers and continue to develop and introduce new solutions, applications and services in a timely and efficient manner. Our competitors range from small companies to very large and established companies. These competitors offer a variety of products and services related to the smart grid and smart city and come from a number of industries, including traditional meter manufacturers, application developers, telecommunications vendors, street light providers, and other service providers. We compete with traditional meter manufacturers that incorporate various communications technologies that provide some level of connectivity to the utility’s back office. Our key competitors in this segment include Elster Group GmbH, Itron Inc., Landis+Gyr AG (which was acquired by Toshiba Corporation), Sensus Metering Systems Inc. and Trilliant Holdings, Inc. Similarly, we compete with traditional providers of distribution automation equipment, such as S&C Electric Company and Schweitzer Engineering Laboratories, Inc. We also face competition from newer entrants that are providing specific narrowly focused products for the smart grid, including C3 Inc., Coulomb Technologies Inc., Grid Net Inc., Opower Inc., and Tendril Networks Inc. In smart lighting and smart cities, we compete against companies such as Echelon Corporation, Harvard Engineering PLC, Telensa Limited, and proprietary offerings from lighting manufacturers, such as General Electric, Royal Philips Electronics, Schreder Group and others. Furthermore, other large companies such as Alcatel-Lucent, AT&T Inc., Cisco Systems, Inc., Enel SpA, Électricité Réseau Distribution France, Fujitsu Limited, General Electric Company, International Business Machines Corporation, Siemens AG, Sprint Nextel Corporation, Vodafone Group Plc, and Verizon Communications Inc. have announced plans to pursue business opportunities related to the smart grid and smart city. As we look to expand into new international markets, we expect to face additional competitors that may be more established in specific geographies. We anticipate that in the future, additional competitors will emerge that offer a broad range of competing products and services related to the smart grid and smart city, some of which may be competitive with our offerings.

Several of our competitors enjoy substantial competitive advantages such as:

greater name recognition and longer operating histories;

larger sales and marketing budgets and resources;

greater ability to integrate their products with existing systems;

broader distribution channels;

established relationships with existing and potential partners and customers;

lower labor and development costs; and

significantly greater financial, technical, customer support and other resources.

Some of these larger competitors have substantially broader product offerings and may be able to leverage the existing relationships they have with customers. In some cases, our larger competitors are also currently vendors of ours, and they could decide in the future to develop their own products instead of working with us. Any inability to effectively manage these relationships could have a material adverse effect on our business, operating results, and

financial condition, and accordingly affect our chances of success. In addition, some of our competitors may have larger patent portfolios than we have, which may provide them with a competitive advantage and may require us to engage in costly litigation to protect and defend our freedom to operate and/or intellectual property rights.

Conditions in our market could change rapidly and significantly as a result of technological advancements or market consolidation. The development and market acceptance of alternative technologies could decrease the demand for our products or render them obsolete. Our competitors may introduce products and services that are less costly, provide superior performance or achieve greater market acceptance than our products and services. In order to remain competitive, we may need to lower prices or attempt to add incremental features and functionality, which could negatively impact our revenue, non-GAAP revenue, gross margin and financial condition. In addition, our larger competitors often have broader product lines and are in a better position to withstand any significant reduction in capital spending by customers in the smart grid and smart city markets, and will therefore not be as susceptible to downturns in a particular market. If we are unable to compete successfully in the future, our business may be harmed.

We have experienced, and may in the future experience, rapid changes in the pace of our growth. If we fail to manage our growth effectively, our financial performance may suffer.

We have substantially expanded our overall business, customer base, employee headcount and operations both domestically and internationally in the past, and may do so in the future in response to market conditions and opportunities. Our expansion has placed, and any future growth could continue to place, a significant strain on our managerial, customer operations, research and development, sales and marketing, manufacturing, administrative, financial and other resources. If we are unable to manage our growth successfully, our operating results will suffer. Moreover, we may from time to time decide to undertake cost savings initiatives, such as additional restructurings, disposing of, and/or otherwise discontinuing certain products, in an effort to focus our resources on key strategic initiatives and streamline our business. Any decision to take these actions may result in charges to earnings associated with, among other things, inventory or other fixed, intangible or goodwill asset reductions (including, without limitation, impairment charges), workforce and facility reductions and penalties and claims from customers or other third parties. These charges would affect our operating results. In addition to the costs associated with these activities, we may not realize any of the anticipated benefits of the underlying cost savings initiatives.

We rely on our management team and need additional personnel to grow our business, and the loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business.

Our success and future growth depend on the skills, working relationships and continued services of our management team and other key personnel. The loss of any member of our senior management team, and in particular our Chief Executive Officer, could adversely affect our business. In addition, our current senior management team has worked together for a relatively short period of time.

Our future success will also depend on our ability to attract, retain and motivate highly skilled management, product development, operations, sales, technical and other personnel in the United States and abroad. Even in today’s economic climate, competition for these types of personnel is intense, particularly in the Silicon Valley, where our headquarters are located. All of our employees in the United States work for us on an at-will basis. Given the lengthy sales cycles with customers and deployment periods of our networking platform and solutions, the loss of key personnel could adversely affect our business.

Volatility or lack of performance in our stock price may also affect our ability to attract and retain our senior management, key personnel and other employees. Many of our longest-tenured employees, including members of our senior management and key personnel with deep institutional knowledge, hold significant vested stock options and shares of our common stock. Employees may be more likely to leave us if the shares they own or the shares underlying their vested stock options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or if the exercise prices of the options that they hold are significantly above the market price of our common stock. As a result of these factors, we may be unable to attract or retain qualified personnel. Our inability to attract and retain the necessary personnel could adversely affect our business.

Our ability to provide bid bonds, performance bonds or letters of credit is limited and could negatively affect our ability to bid on or enter into significant long-term agreements.

We have in the past been, and may in the future be, required to provide bid bonds or performance bonds to secure our performance under customer contracts or, in some cases, as a pre-requisite to submit a bid on a potential project. Our ability to obtain such bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and external factors beyond our control, including the overall capacity of the surety market. Surety companies consider those factors in relation to the amount of our tangible net worth and other underwriting standards that may change from time to time. Surety companies may require that we collateralize a percentage of the bond with our cash or other form of credit enhancement. Events that affect surety markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. In addition, some of our customers also require collateral guarantees in the form of letters of credit to secure performance or to fund possible damages as the result of an event of default under our contracts with them. If we enter into significant long-term agreements that require the issuance of letters of credit, our liquidity could be negatively impacted. Our inability to obtain adequate bonding or letters of credit to meet bid requirements or enter into significant long-term agreements could have a material adverse effect on our future revenues and business prospects.

We are subject to international business uncertainties.

Our ability to grow our business and our future success will depend to a significant extent on our ability to expand our operations and customer base worldwide. Operating in international markets requires significant resources and management attention, and other than our existing international operations, we have limited experience entering new geographic markets. There can be no assurance that our international efforts will be successful. International sales and operations may be subject to risks such as:

technology compatibility;

the imposition of government controls;

government expropriation of facilities;

lack of a well-established system of laws and enforcement of those laws;

lack of a legal system free of undue influence or corruption;

exposure to a business culture in which improper sales practices may be prevalent;

political instability;

terrorist activities;

restrictions on the import or export of critical technology;

currency exchange rate fluctuations;

adverse tax burdens;

lack of availability of qualified third-party financing;

generally longer receivable collection periods than in the United States;

trade restrictions;

changes in tariffs;

labor disruptions;

difficulties in staffing and managing foreign operations;

preference for local vendors;

burdens of complying with different permitting standards; and

a wide variety of foreign laws and obstacles to the repatriation of earnings and cash.

Fluctuations in the value of the U.S. dollar may impact our ability to compete in international markets. International expansion and market acceptance depend on our ability to modify our business approach and technology to take into account such factors as differing customer business models, product requirements and needs, the applicable regulatory and business environment, labor costs and other economic conditions. In addition, the laws of certain countries do not protect our intellectual property to the same extent as do the laws of the United States. There can be no assurance that these factors will not have a material adverse effect on our future international sales and, consequently, on our business, financial condition and results of operations.

Developments in data protection laws and regulations may affect technology relating to smart grid products and solutions, which could adversely affect the demand for our products and solutions.

Our products and services may be subject to data protection laws and regulations that impose a general framework for the collection, processing and use of personal data. Our networking platform and solutions rely on the transfer of data relating to individual energy use and may be affected by these laws and regulations. It is unclear how the regulations governing the transfer of personal data in connection with privacy requirements will further develop in the United States and internationally, and to what extent this may affect technology relating to smart grid products and solutions. This could have a material adverse effect on our business, financial condition and results of operations.

Adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our operating results.

Our business can be affected by a number of factors that are beyond our control, such as general geopolitical, economic, and business conditions. The continued global economic uncertainty and continued global monetary, financial and sovereign debt could have a negative effect on our business. For example, the worldwide financial and credit crisis reduced the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide. Even with economic recovery, it may take time for our customers or potential customers to establish new budgets and return to normal purchasing patterns. We cannot predict the recurrence of any economic slowdown or the strength or sustainability of the economic recovery, worldwide, in the United States or in our industry. These and other economic factors could adversely affect the demand for our products and services and, consequently, our business, financial condition and results of operations.

There can be no assurance that a deterioration in financial markets will not impair our ability or our customers’ ability to obtain financing in the future, including, but not limited to, our or our customers’ ability to incur indebtedness if necessary. In addition, there could be several residual effects from the credit crisis on our business, including insolvency of certain of our key customers or suppliers, which could result in the inability of our customers to obtain credit to finance purchases of our products.

Our inability to acquire and integrate other businesses, products or technologies could seriously harm our competitive position.

In order to remain competitive, obtain key competencies or accelerate our time to market, we may seek to acquire additional businesses, products or technologies. To date, we have completed only two small acquisitions, including the acquisition of Streetlight.Vision in May 2014, and we therefore have limited experience in successfully acquiring and integrating additional businesses, products or technologies. If we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms of the acquisition, financing the acquisition, or effectively integrating the acquired business, product or technology into our existing business and operations. For example, we may not realize the anticipated benefits of the acquisition of Streetlight.Vision. We may have difficulty integrating acquired businesses, technologies or products, such as Streetlight.Vision, with our existing products and services. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues. If we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our stock. In addition, any acquisitions we are able to complete may not result in the synergies or any other benefits we had expected to achieve, which could result

in substantial write-offs. Further, contemplating or completing an acquisition and integrating an acquired business, product or technology will significantly divert management and employee time and resources.

Our business may suffer if it is alleged or found that our products infringe the intellectual property rights of others.

Our industry is characterized by the existence of a large number of patents and by litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, in recent years, individuals and groups have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements from companies like ours. From time to time, third parties have claimed and may continue to claim that we are infringing upon their patents or other intellectual property rights. For example, we are currently engaged in litigation as further described in “Legal Proceedings” above. In addition, we may be contractually obligated to indemnify our customers or other third parties that use or resell our products in the event our products are alleged to infringe a third party’s intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand, and cause us to incur significant expenses. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations. Further, claims of intellectual property infringement might require us to redesign affected products, delay affected product offerings, enter into costly settlement or license agreements or pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing, selling or distributing the affected products. For example, in June 2014, the jury in a patent infringement case returned a verdict against us in the amount of $18.8 million which was subsequently reduced to $13.0 million in October 2014, as further described in “Legal Proceedings” above. If we cannot or do not license alleged infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and earnings could be adversely impacted. Additionally, our customers may not purchase our products if they are concerned that our products infringe third-party intellectual property rights. This could reduce the market opportunity for the sale of our products and services. The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations.

The success of our business depends on our ability to protect and enforce our intellectual property rights.

We rely on a combination of patent, trademark, trade dress, copyright, unfair competition and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third-party copying, infringement or use, which could adversely affect our competitive position.

As of September 30, 2014, we had 67 issued patents and 70 patent applications pending in the United States. In foreign jurisdictions, we have 128 patents granted and 90 patent applications pending, which are collectively based on 62 U.S. patent applications. Our patents expire at various times between 2015 and 2032. We cannot ensure that any of our pending applications will be granted or that any of our issued patents will adequately protect our intellectual property. In addition, third parties have in the past and could in the future bring infringement, invalidity, co-inventorship, re-examination, or similar claims with respect to any of our currently issued patents or any patents that may be issued to us in the future. Any such claims, whether or not successful, could be extremely costly to defend, divert management’s attention and resources, damage our reputation and brand, and substantially harm our business and results of operations.

In order to protect or enforce our patent rights, protect our trade secrets or know-how, or determine the enforceability, scope and validity of the proprietary rights of others, we may initiate patent litigation or other proceedings against third parties, such as infringement suits or interference proceedings. Any lawsuits or proceedings that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Litigation and other proceedings also put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits or other proceedings that we initiate and the damages or other

remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations.

Some of our products rely on technologies developed or licensed by third parties. We may seek to license technology from third parties for future products and services. We may not be able to obtain or continue to obtain licenses and technologies from these third parties on commercially reasonable terms or at all. Our inability to retain our current third-party licenses or obtain third-party licenses required to develop new products or product enhancements could require us to obtain alternate technology that may be of lower quality or performance standards or at greater cost, or could require that we change our product and design plans, any of which could limit or delay our ability to manufacture and sell our products.

If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely on our unpatented technology and trade secrets. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our employees and contractors and with parties with which we do business. These agreements may be breached and we may not have adequate remedies for any such breach. We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology. Moreover, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our employees, contractors, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and have a material adverse effect on our business, financial condition, and results of operations.

We use open source software in our products and services that may subject our products and services to general release or require us to re-engineer our products and services, which may cause harm to our business.

We use open source software in connection with our products and services. From time to time, companies that incorporate open source software into their products have faced claims challenging the ownership of open source software and/or compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor the use of open source software in our products and services and try to ensure that none is used in a manner that would require us to disclose the source code to the related product or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our products, discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, operating results and financial condition.

We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the JOBS Act) enacted in April 2012, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although, if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year before the end of that five-year period, we would cease to be an “emerging growth company” as of December 31 of that year. We cannot predict if investors

will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may decline or be more volatile.

Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Our business is subject to changing regulations regarding corporate governance and public disclosure that will increase both our costs and the risk of noncompliance.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the New York Stock Exchange. Achieving and maintaining compliance with these rules and regulations, particularly after we cease to be an emerging growth company, has increased and may further increase our legal, accounting and financial compliance costs, has made and may further make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and, in the future, internal control over financial reporting. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our prior period financial statements. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting that we have recently been required to include in our periodic reports filed with the SEC, beginning with the year ending December 31, 2014 under Section 404(a) of the Sarbanes-Oxley Act or the annual auditor attestation reports regarding effectiveness of our internal controls over financial reporting that we will be required to include in our annual reports filed with the SEC, beginning for the year ending December 31, 2018, unless, under the JOBS Act, we meet certain criteria that would require such reports to be included prior to then, under Section 404(b) of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.

In order to maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we will need to expend significant resources and provide significant management oversight. We have a substantial effort ahead of us to implement appropriate processes, document our system of internal control over relevant processes, assess their design, remediate any deficiencies identified and test their operation. As a result, management’s attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts will also involve substantial accounting-related costs. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.

Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act in a timely manner, that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline.

The Sarbanes-Oxley Act and the rules and regulations of the New York Stock Exchange will make it more difficult and more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain or increase coverage. If we are unable to

maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified directors, especially those directors who may be considered independent for purposes of the New York Stock Exchange rules, and officers may be curtailed.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

Our investment portfolio may become impaired by deterioration of the capital markets.

Our cash equivalent and short-term investment portfolio as of September 30, 2014 consisted of $110.5 million of money market mutual funds, highly liquid debt instruments of the U.S. government and its agencies, foreign government and agency securities, and U.S. and foreign corporate debt securities.

Should financial market conditions worsen in the future, investments in some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause our other income and expense to vary from expectations. As of September 30, 2014, we had no impairment charges associated with our short-term investment portfolio, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.

We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our operating results.

As of December 31, 2013, we had federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire in 2027 and 2016 for federal and state purposes, respectively. We also have federal research tax credit carryforwards that will begin to expire in 2024, as well as state research tax credit carryforwards that have no expiration date. Realization of these net operating loss and research tax credit carryforwards is dependent upon future income, and there is a risk that our existing federal and state net operating loss carryforwards and federal research tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our results.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our operating results.

Our business and financial performance could be negatively impacted by changes in tax laws or regulations.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Those enactments could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to continue or purchase our products and services in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers’ and our compliance, operating and other costs, as well as the costs of our products. Further, these events could decrease the capital we have available to operate our business. Any or all of these events could adversely impact our business and financial performance.

Our stock price has been and may continue to be volatile and may decline regardless of our operating performance.

Prior to our IPO in March 2013, there had not been a public market for our common stock. If you purchase shares of our common stock, you may not be able to resell those shares at or above your purchase price. An active or liquid market in our common stock may not be sustainable. The trading prices of the securities of technology companies have been highly volatile, and the trading price of our common stock has been and may continue to be volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

actual or anticipated fluctuations in our revenue, non-GAAP revenue and other operating results or our backlog;

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

delays in regulatory approvals for our customers and customer deployments;

failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

ratings changes by any securities analysts who follow our company;

announcements by us or our competitors of significant customer wins, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

changes in operating performance and stock market valuations of our customers, technology companies generally, or those in our industry in particular;

political and consumer sentiment, including concerns over accuracy of advanced metering technology, economic impact on consumers, privacy, security, consumer choice and the safety, health and environmental aspects of smart grid and smart city technology;

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

lawsuits threatened or filed against us; and

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, the stock markets, and in particular the New York Stock Exchange on which our common stock is listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. During the

three months ended September 30, 2014, the closing price of our common stock on the New York Stock Exchange ranged from $9.03 to $13.85 per share. In the past, stockholders have instituted securities class action litigation against other companies following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, operating results and financial condition.

If there are substantial sales of shares of our common stock, the price of our common stock could decline.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. We are unable to predict the effect that sales may have on the prevailing market price of our common stock. In addition, the holders of an aggregate of 16,466,097 shares of our common stock have rights, subject to some conditions, that require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. Registration of the resale of these shares under the Securities Act would generally result in the shares becoming freely tradable without restriction. Any sales of securities by existing stockholders could adversely affect the trading price of our common stock.

We have broad discretion in the use of the net proceeds from our IPO and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we received from our IPO. Our management has broad discretion in the application of the net proceeds, including working capital, possible acquisitions and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our IPO in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. Industry analysts that currently cover us may cease to do so. If industry analysts cease coverage of our company, or if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Our directors, executive officers and their respective affiliates have substantial control over us and could delay or prevent a change in corporate control.

As of September 30, 2014, our directors, executive officers and their respective affiliates beneficially owned in the aggregate 30.2% of our outstanding common stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

delaying, deferring or preventing a change in control of us;

impeding a merger, consolidation, takeover or other business combination involving us; or

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, the terms of our credit facility with Silicon Valley Bank currently restricts our ability to pay dividends. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

Delaware law and provisions in our amended and restated certificate of incorporation and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors, including the following:

our Board of Directors is classified into three classes of directors with staggered three-year terms;

only our chairman of the board, our lead independent director, our chief executive officer, our president or a majority of our Board of Directors is authorized to call a special meeting of stockholders;

our stockholders are only able to take action at a meeting of stockholders and not by written consent;

vacancies on our Board of Directors are able to be filled only by our Board of Directors and not by stockholders;

directors may be removed from office only for cause;

our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without stockholder approval; and

advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

Not applicable.

(b) Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits.

Incorporated by Reference

Filed

Number

Exhibit Title

Form

File No.

Exhibit

Filing Date

Herewith

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

**The certifications attached as Exhibit 32.1 and Exhibit 32.2 hereto are deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood City, State of California, on November 13, 2014.



	SILVER SPRING NETWORKS, INC.

	By:	/s/ Scott A. Lang
		Scott A. Lang Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ James P. Burns
		James P. Burns Executive Vice President and Chief Financial Officer (Principal Financial Officer)

SILVER SPRING NETWORKS INC - FORM 10-Q - November 13, 2014

Attached files

SILVER SPRING NETWORKS INC Reports