SSNI-Report-Final

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University of Oregon Investment Group

Covering Analysts:

Joe Hiefield – [email protected]

Charles Pontrelli – [email protected]

April 22, 2016

Technology

Investment Thesis

As the “pure-play” Internet of Things option in the smart metering space, Silver

Spring Networks is the leader in the market due to its innovation, and will

continue to do so with the expansion of smart grids and networks domestically

and internationally.

With the upcoming launch of their Gen 5 networking platform, Silver Spring

will be able to offer more services and applications to its customers that can

drive recurring revenue. Additionally, they will be able to expand into other

areas, such as street-lights and other smart city devices like intelligent

transportation systems.

Silver Spring’s increased focus on providing Software-as-a-Service and

Networking-as-a-Service to its customers will save their customers money, and

drive margin increases for SSNI, not to mention add to their current recurring

revenue streams.

SSNI’s new deals with Consolidated Edison, Inc. and CESC of India show

Silver Spring’s ability to win large deals and successfully expand into

international markets that have a great need for utility grid development and

improvement.

Silver Spring Networks, Inc.

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Key Statistics

52 Week Price Range 9.32 - 16.18

50-Day Moving Average 13.8

Estimated Beta 1.5

Dividend Yield -

Market Capitalization 834.6

3-Year Revenue CAGR (14.7%)

Trading Statistics

Diluted Shares Outstanding 54.7

Average Volume (3-Month) 270,444.0

Institutional Ownership 72.2%

Insider Ownership 15.4%

EV/EBITDA (LTM) 7.9

Margins and Ratios

Gross Margin (LTM) 49.4%

EBITDA Margin (LTM) 18.5%

Net Margin (LTM) 16.3%

Debt to Enterprise Value -

Ticker: SSNI Rating: Outperform

Price Target: $17.69

Action Recommended: Buy

Current Price: $14.29

UOIG 2

University of Oregon Investment Group April 22, 2016

Business Overview

Silver Spring Networks, Inc. (SSNI) was founded in July, 2002 in Butler,

Wisconsin as Real Time Techomm. In 2003, they relocated to Redwood City,

California, where they are currently headquartered. On March 13, 2013 SSNI

went public on the New York Stock Exchange with the ticker symbol SSNI. They

currently specialize in creating, building, and deploying large scale networks and

solutions that enable “Internet of Things” (“IoT”) for infrastructure. While their

first area of focus was energy by creating a smart grid network platform, they have

broadened their operations to other utility networks, including gas and water, as

well as street lights. Their technologies allow cities to run smarter and more

efficient.

Business Segments

Product Revenue—72%

SSNI’s product revenue makes up the majority of their revenue streams. Product

revenue is derived from the sale of hardware. This hardware includes access

points, communication modules, bridges, relays, and software. Communication

modules primarily go to third-party device manufacturers, while the remaining

hardware and software products are usually sold directly to customers. In regards

to the sale of communication modules, only revenue related to the communication

modules pursuant to a contractual relationship between SSNI and the third-party

device manufacturer is recorded. Sometimes, however, SSNI will sell third-party

devices integrated with their communication modules directly to customers.

Services Revenue—28%

Silver Spring Networks’ services revenue makes up approximately 28% of their

revenue streams, as of December 31, 2015. Service revenue is derived from fees

for managed services, Software-as-a-Service, or “SaaS”, and professional

services. By the end of 2015, managed services and SaaS revenue accounted for

15% of total revenue, and professional services revenue accounted for 13%. SSNI

also provides a variety of customer support solutions to further provide the

optimal and user-friendly experience to its customers.

Products and Services

SilverLink Networking Platform

The SilverLink Networking Platform allows customers to communicate with their

devices that are connected to the power grid. This network was built from the

ground up, and gives customers the ability to deploy large-scale networks for the

power grid. The networking platform is made up of a variety of SSNI’s hardware,

such as access points and relays, their SilverLinkOS operating software, and their

GridScape management and security software. The SilverLink Networking

Platform is known for its high performance. It delivers high-bandwidth, low-

latency performance that allows customers to run multiple solutions while

maintaining robust operating performance. On top of this, the platform is scalable

and extensible, allowing for the rapid deployment to accommodate millions of

devices and ample processing power and memory to support future

functionalities. Furthermore, it is reliable and cost-effective that limits the need

for excessive capital and operational expenditures.

Figure 1: SSNI Historical Revenue

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Source: SSNI 10-K


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Product Cost of Revenue CAGR: 7.44%

Service Cost of Revenue CAGR: 7.70%

Figure 2: SSNI Revenue Cost Estimates

Source: UOIG Spreads

87.0%

9.2%

0.9% 2.9%

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Figure 3: SSNI Geographical Revenue Breakdown

Source: SSNI 10-K

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Recently, SSNI unveiled the fifth generation of their networking platform. This

new generation is a significant improvement from the Gen 4 platform. Gen 5 will

be able to reach speeds of up to 2.4 Mbps and will support 4G LTE. On top of

this, its latency is down to 10 milliseconds from 30 milliseconds, its range has

increased up to 50 miles from a maximum of about 15, it computes ten times faster

and has eight times the memory, and it also has an operational life that is twice as

long but will only use about a fifth of the power. Not to mention, the hardware is

smaller, allowing it to fit well into non-meter form factors for smart city

deployments. This newer generation has a lower cost point, and will drive cost

and capital expenditure savings for utilities and cities, while allowing SSNI to

monetize the accompanying software and increase their margin expansion.

SilverLink Data Platform

The SilverLink Data Platform’s goal is to assist SSNI’s customers in using data

generated by devices on the network in order to provide insightful analytics for

decision-making. Their applications collect, organize, and visualize data from

various internal and external systems that allows for real-time processing. Their

SensorIQ system enables customers to convert physical devices on the grid at

hand into multiple software-defined sensors. These sensors can then relay

information to any application at the frequency and granularity that makes sense

for said application. Additionally, Silver Spring Network’s solutions allow

customers and partners to develop their own apps that can be then showcased in

the Silver Spring application catalogue. SSNI plans to expand available apps and

sensors over time to deliver more value to their customers and grow their recurring

managed services and SaaS business.

Advanced Metering

SSNI’s advanced metering solution allows utility companies to automate a

multitude of manual processes and improve operational efficiencies. This

solution allows utilities to remotely perform functions such as reading meter

usage, connecting and disconnecting service, capturing time-of-use consumption

data, and detecting power outages. Silver Spring Networks does not manufacture

the meters, but instead partners with various meter manufacturers to provide a

range of meter options for customers.

Distribution Automation

The distribution automation solution provides two-way communications from

distribution devices along the power grid to back offices or substations. This

provides utility companies with real-time information for grid monitoring and

control. The distribution automation solution is comprised of their SensorIQ

application, Outage Detection System application, GridScape application, and

Operations Optimizer application. While utility companies have utilized

distribution automation for years, two-way communications are not as common,

and improve the utility company’s visibility and control over the power grid. This

allows for the ability to resolve outages quicker, monitor power-quality metrics

with increased accuracy and detail, and adjust voltage levels dynamically to adjust

for higher and lower times of power usage.

Demand-Side Management

Silver Spring Network’s demand-side management gives utilities the ability to

offer customer programs and incentives to use energy more efficiently and adjust

usage during peak demand. Their Energy Efficiency solution helps reduce overall

energy consumption through providing detailed energy usage analysis. The

Figure 4: US Smart Grid Investment Grant Heat Map

Source: Energy.gov

75.4%

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Electric Meters Water Meters Gas Meters

Figure 5: Smart Metering Applications

Source: IBIS World

Figure 6: Cost of Revenue Breakdown

Source: SSNI 10-K and UOIG Spreads

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Demand Response solution is an initiative that leverages the two-way

communications of SSNI’s products. It enables utilities to incentivize consumers

to reduce their energy consumptions, and send messages to consumers in

anticipation of a peak-load event. This solution allows utilities to support both

price-based and load control-based demand response programs.

Electric Vehicle

With an increase in electric vehicle purchases, utilities are beginning to devote

more power to vehicle charging stations, which, at 240 volts, require a

considerable amount of power. With SSNI’s technology, utilities can incentivize

consumers to charge their vehicles during non-peak times, helping utilities

manage the new demand.

Street Lights

SSNI has recently expanded into providing technologies for the operation and

maintenance of street lights. By networking street lights, utility companies can

lower operating and maintenance costs, enable better control, and provide greater

precision for turn-on and turn-off times. These solutions, combined with the

integration of LED lighting, also allow for variable brightness and enhances

energy efficiency.

Professional Services

Silver Spring Network’s professional services include network design and

optimization, deployment support, software and systems integration, consulting

services, training, and program management. This also includes the occasional

installation of third-party meters and network infrastructure.

Managed Services and SaaS

The managed services include the monitoring of the performance of the network,

tracking trends, providing alerts, planning disaster response, and monitoring

security. Through their managed application services, SSNI manages the

SilverLink Applications and SilverLink Control Platform. Additionally, SSNI

can provide their solutions via a SaaS model, where the company owns the entire

solution, including the servers and software, and runs the solution through their

data center. This is up to the customer’s preference. Furthermore, SSNI can

manage the aforementioned platform and applications on servers and software

owned by the utility, thus providing a managed service. By providing a SaaS

option, utility customers can eliminate or decrease their initial investments in

software and hardware systems, and transform the system usage to an on-demand

basis.

Industry

Overview

Silver Spring Networks, Inc. operates in the technology sector and primarily in

the Smart Meter Manufacturing industry. Businesses in this industry manufacture

smart meters, which are electrical, gas or water meters that record consumption

information in intervals of an hour or less and communicate this information back

to the utility for monitoring and billing purposes. There are approximately 57

businesses in this industry. It is an extremely small industry, with Itron Inc.

holding a large portion of the market share. Previously, General Electric was the

Life Cycle Stage Growth

Revenue Volatility High

Capital Intensity Medium

Industry Assistance Medium

Concentration Level Medium

Regulation Level Medium

Technology Change Low

Barriers to Entry Medium

Industry Globalization High

Competition Level Medium

Figure 7: Life Cycle Stage

Source: IBIS World

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Figure 8: Electric Power Generation Index

Source: FRED

Figure 9: SSNI Historical Service Revenue Growth

Source: SSNI 10-K

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largest player in the space. However, they have since sold their smart metering

division.

As mentioned before, Itron makes up a large portion of the industry. The rest of

the industry is dominated by smaller companies that compete on a local or

regional basis. These companies either specialize in a certain region, or a certain

smart grid and smart meter solution. Many of the smart meters and their solutions

are actually manufactured outside of the US and then imported. Prominent

companies that do this are Landis+Gyr, which was recently bought by Toshiba,

and German firm Elster.

Capital intensity in the Smart Meter Manufacturing industry is moderate, with it

being estimated that for every $1.00 spent on wages $0.30 is spent on capital

investments. The majority of these capital requirements are associated with

startup costs, as companies must invest in equipment and facilities that are used

in the actual manufacturing process. However, this can vary among firms, as

some companies, such as Silver Spring Networks, provide other products such as

software and networking solutions, which require far less capital. Additionally,

the industry is beginning to move towards automation, which is putting more of

the costs on capital instead of wages. This has caused a decreasing need for the

highly trained and knowledgeable staff that goes along with participating in the

industry.

The Smart Metering Manufacturing industry is subject to a low amount of

technological change, because, at the moment, it is still in its nascent stages. The

general utility industry is very slow in adopting smart meter solutions, but this is

expected to pick up in the next couple years. According to a report from Cowen

and Company on the DistribuTECH conference held in Orlando, FL, utility

companies are preparing for more changes over the next 5-10 years than they have

seen in the past 100. Internet of Things (“IoT”) technologies have existed in the

space for a little while now, but have not been implemented effectively. As the

way electricity is produced and delivered is changing dramatically, so is how it is

measured and analyzed. More cities and utilities are making a strong push

towards smart grids and networks, as well as networked devices in homes, in order

to enable real-time views into the supply and demand of energy. Energy

conservation and efficiency is becoming more of a priority with utilities and cities,

and smart metering and its two-way communications allow for this. As smart grid

implementation and spending picks up, more companies such as SSNI will need

to increase their technological innovation. SSNI is at the forefront of this, with

their variety of hardware and software solutions, including their new Gen 5

networking platform and their recently introduced Starfish solution.

Regulation in this space is relatively moderate but is expected to increase in the

coming years. There is not much federal regulation, but there is quite a bit of state

and local regulation that varies. Much of the legislation deals with privacy

concerns and how smart metering infringes on customers’ privacy by the type and

amount of data it provides utilities. Additionally, some states, such as California,

require an “opt-out” policy in case customers do not want smart meters installed.

Still, many states are encouraging the adoption of smart meters and smart grids in

order to increase efficiencies in energy usage, and provide real-time feedback in

order to help conserve more energy.

The industry used to receive a good amount of direct government assistance to

help consumers and utilities install smart grids and meters. The American

Recovery and Reinvestment Act (ARRA) of 2009, also known as the Stimulus,

provided the most amount of funding. The Obama administration signed ARRA

due the onset of the recession. ARRA allocated approximately $3.4 billion

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Source: IBIS World

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Figure 11: US Smart Grid Spending (Historical and

Forecast)

UOIG 6


towards improving the American smart grid, including smart meters,

communications hardware, applications software, energy storage systems, and

meter and grid data management software. While this boosted the industry

tremendously, funding has tapered off since 2009. However, the Obama

administration continues to advocate for the integration of smart grids, which will

hopefully continue into the coming years.

Macro factors

Value of Utilities Construction

The value of utilities construction is made up of the total private and public

spending on utilities infrastructure. When more money is allocated to utility

infrastructure construction and capital expenditures, we see a greater

implementation of smart grids and networks in the US. This allows for revenue

gains for firms like SSNI. As mentioned previously, utility construction was

bolstered greatly in the few years after 2008 because of the implementation of the

American Recovery and Reinvestment Act (ARRA). However, much of this has

been used up. According to Cowen and Company, the overall utilities space

should grow along with GDP +2% in the coming years.

Housing Starts

Housing Starts play a large role in the smart metering industry. As new residential

communities are built, smart meters and sensors are increasingly likely to be

installed along these new houses. Industry revenue typically moves in line with

trends in the housing market. According to the US Department of Housing and

Urban Development’s construction statistics for February 2016 (released March

16th, 2016) single-family housing starts were 30.9% higher than the previous year,

and 7.2% higher than January’s number. It is expected that the number of housing

starts is going to continue increasing significantly through the rest of 2016.

US Electrical Energy Consumption US electrical energy consumption plays an important role in SSNI’s operations.

Electricity demand can drive a lot of the conversion from traditional utilities to

smart grids and smart networks. When the recession occurred, energy

consumption retreated, but has been steadily climbing since 2012. Energy

consumption is expected to steadily climb as the economy expands and

manufacturers and industrial producers increase the productivity of their

operations. Additionally, households are starting to relax their restrictions on

energy usage as consumers become more confident in the overall economic

conditions in the US.

Competition

The competition of the Smart Metering Industry is relatively moderate, but is

dominated by a few huge players. SSNI faces some large competitors, but

because they are highly specialized and one of the only “pure-play” smart grid

and IoT developers, they are able to stay successful in the industry. While most

of their competitors are quite larger than they are, these companies usually focus

more in different areas within the Smart Metering Industry, such as the

manufacturing of the actual meters, instead of the endpoints, nodes, sensors, and

software that SSNI specializes in. In order for SSNI to stay competitive within

the industry, they must be able to offer low prices while maintain the standards of

technology and security they are known for. They value they add to utility

companies and consumers is how they can increase their efficiencies and cut back

on energy costs. Thankfully, SSNI is known for the quality of its hardware and

software, as well as the price points of their products. For example, by integrating

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Figure 14: US Infrastructure Spending

Figure 13: International Electrical Consumption

UOIG 7


Silver Spring Networks’ Silver Spring CustomerIQ web portal, its IP-based

networking and applications platform, the Smart Energy Platform, and its various

in-home devices, Oklahoma Gas and Electric has been able to avoid the building

of two new 165MW peaking generation plants, and are expecting a cost savings

of over $320 million. This is just one example of the savings that SSNI can offer

its customers.

Silver Spring Networks faces a variety of competitors. Their key competitors are

Itron Inc., Elster Group GmbH (recently acquired by Honeywell International

Inc.), Landis+Gyr AG (recently acquired by Toshiba Corporation), Sensus

Metering Systems Inc., and Trilliant Holdings, Inc. They also compete with

providers of distribution automation equipment, such as General Electric

Company and Cisco Systems, Inc. Larger companies such as AT&T Inc., Cisco,

GE, Fujitsu Limited, IBM Corp., Siemens, and Sprint Nextel Corp. have

announced plans to pursue business opportunities related to smart cities, smart

grid, and the larger IoT area. While SSNI expects to face stiff competition as they

continue to expand into new domestic and global markets, they are confident they

will be able to compete fiercely due to their competitive prices, high quality

products, and robust services.

Strategic Positioning

While Silver Spring Networks does face competition in the space, they are the

only “pure-play” company in the advanced metering and smart grid space. They

specialize in developing Internet of Things technology for infrastructure, focusing

specifically on smart grid networks and advanced metering. Other companies,

such as Opower and EnerNOC, create software for demand response and energy

efficiencies like Silver Spring’s software. Companies such as Itron and Badger

Meter create advanced metering solutions and some smart grid solutions.

However, Silver Spring offers the software, the nodes, sensors, and circuit boards

to its customers, while connecting them all through internet of things technology.

They are one of the only companies that offers all of these products and services,

and is the leader in the space due to its platforms’ fast processing speeds,

affordable pricing, large bandwidth, and great security.

Over the last couple years, Silver Spring’s management has been focusing on the

development of their software and providing more SaaS options in order to

increase recurring revenue and margins. This, combined with the expansion of

their professional services, should provide substantial increases in their margins.

Additionally, they have been signing significant deals with various customers in

order to drive revenue. For example, they were selected by Consolidated Edison,

Inc. to deploy their fifth-generation network and advanced metering infrastructure

to over 3.9 million electric and 1.3 million gas customers in Con Edison’s entire

service territory. CESC of India also selected Silver Spring Networks to deploy

an advanced, multi-application smart network in Kolkata. SSNI will allow the

city to automate its electricity distribution grid with its recently developed Starfish

program. Silver Spring’s Starfish program will also allow CESC of India to

leverage its network for broader Internet of Things applications.

Because of its proven track record of providing excellent products and solutions

to its customers, SSNI has developed a strong reputation in the utility and internet

of things spaces. It is also known for its innovative technology, and was named

one of the Top 100 most innovative San Francisco Bay area companies in the

Reuters Top 100 Global Innovators report. Led by an experienced management

team that has been in a variety of leadership positions with top technology

companies, SSNI is positioned to continue being a leader and innovator.

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Source: Yahoo Finance

Figure 15: One-Year Stock Price Comparison

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Figure 17: India Energy Sources

UOIG 8


Business Growth Strategies

Currently, one of SSNI’s major business growth strategies is leveraging its

multiple offerings and delivering additional applications beyond their traditional

advanced metering solutions. For example, an existing utility customer is using

Silver Spring’s services to connect approximately 250,000 street lights by using

its multi-application advanced metering infrastructure. Additionally, they are the

leader in endpoints delivered. With their recent win with Con Edison, it is

estimated that they control 34% of total endpoints awarded to date, which is

estimated to be 12 percentage points ahead of their nearest competitor.

SSNI has also been expanding its geographical operations, shown by their new

deal with CESC of India and Ausnet Services in Australia. They have also

identified various European cities that will be the first cities to receive their new

IPv6 network service for IoT, Starfish. Bristol, Copenhagen, and Glasgow are

some of the cities they will be offering Starfish too. Additionally, they are

planning on expanding into South America and Eastern Asia, such as Brazil,

Thailand, and Malaysia. Currently, Silver Spring’s international business makes

up approximately 13% of their total revenue mix. They plan to expand

internationally aggressively.

Finally, the company believes that the smart grid and smart city markets are still

in their nascent stages, and are investing in long-term growth. Management

expects to maintain their current research and development levels, with the

possibility of them increasing marginally.

Management and Employee Relations

Michael Bell – President and CEO

Michael Bell is the President and CEO for Silver Spring Networks. Previously,

he has held multiple leadership positions at Intel Corp, where he led the

company’s expansion of connected devices. Before that, he was part of the

executive management team at Palm Inc., where he was responsible for all aspects

of the development and deployment, product strategy, and bringing various Palm

products to market. He was also the VP of CPU Software and Macintosh

Hardware Division at Apple Inc. He earned his bachelor’s degree in mechanical

engineering from the University of Pennsylvania in 1988.

Scott A. Lang – Executive Chairman and Chairman of the

Board of Directors

Scott Lang is currently the Executive Chairman and Chairman of the Board of

Directors for Silver Spring Networks. He was the company’s founding chief

executive and served as President for 11 years. Before this, he held a variety of

positions at Electronic Data Systems and Perot Systems (under Ross Perot). In

2011, Mr. Lang was named the Most Admired CEO in Sustainability by the San

Francisco Business times. He holds a BS in Business Administration from the

University of Mississippi and was a graduate of the Advanced Executive Program

from the Kellogg School of Management at Northwestern University.

James P. Burns – Executive VP and CFO James “Jim” Burns is the current Executive Vice President and Chief Financial

Officer of the company. Before joining Silver Spring, he worked at Hewlett-

Packard for over 20 years, where he held various leadership and senior executive

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Source: IBIS World

Figure 18: Smart Metering Industry Customers

Source: IBIS World

Figure 19: Industry Revenue Expectations

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Figure 20: Industry Revenue Expectations

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roles in their hardware, software, and services businesses, including their

Enterprise Services, Enterprise Business, Investor Relations, and their PC

Services and Accessories. He also worked as a CPA at Ernst and Young, and

received a BS degree in Accounting from Santa Clara University.

Management Guidance

It should be noted that, while Silver Spring’s management does provide guidance,

they mostly focus on non-GAAP guidance and not GAAP guidance. However,

they have provided GAAP compliant guidance for 2016. They expect revenue

between $370 million and $450 million, with gross margins around 25%. While

our revenue is in line, our projected margins vary. This is due to management

consistently providing low guidance on their operations. For example, in 2015

they reported guidance of about 20% GAAP gross margin, but earned 47%. They

consistently underestimate their operations, and we continue to think they will do

so. For the 2016 fiscal year, management also expects operating expense to be

about $150 million.

Portfolio Strategy

SSNI is not currently held in any of the University of Oregon Investment Group’s

portfolios. Because the Alumni portfolio is looking for small-cap companies that

are undervalued and fall under Joel Greenblatt’s “Magic Formula” list, Silver

Spring Networks would be a great addition with its large undervaluation, its

leading position in the industry, and its experienced management team.

Recent News

Silver Spring Networks Extends UK Reach for Smart City

Solutions with urbancontrol Ltd. – Business Wire – April 4th,

2016 Silver Spring Networks Inc. recently announced they will be expanding their

global footprint with a new partnership with urbancontrol Ltd. to establish a smart

lighting and smart city program. The two companies will work together to bundle

SSNI’s Gen5 IPv6 networking platform and Streetlight Vision 6 (SLV6) device

control and management software through SSNI’s SaaS and network-as-a-service

models. This will allow cities and lighting operators to avoid upfront capital costs

and reduce management and operational expenditures.

Catalysts

Upside

Increased spending by cities and utility companies in establishing smart

grids and smart networks will give Silver Spring greater opportunities to

secure additional revenue streams and expand their business

If trends towards cleaner and more efficient energy usage continues,

utility companies and consumers will demand more of SSNI’s two-way

sensors and modules, as well as their various software services, to help

with demand response and reduce costs and energy usage

As customers recognize the capabilities of SSNI’s new Gen 5 solutions

such as Starfish and the IoT Edge Router, they will demand these devices

and their applications to use with smart parking stations, intelligent

15.4%

21.5%

15.4%

20.8%

25.3%

1.7%

14.9%

20.7%

18.1%

25.7%

20.5%

0.0%

Healthcare Tech Financial IME Consumer Cash

Tall Firs Benchmark

Source: Tall Firs Presentation

Figure 21: Tall Firs Sector Allocation

12.8%

3.6%

81.0%

2.6%8.7%

18.7%

72.7%

0.0%

Small Mid Large Cash

Tall Firs Benchmark

Figure 22: Tall Firs Portfolio Market Cap Allocation

Source: Tall Firs Presentation

70%

80%

90%

100%

110%

S&P 500 Russell 2000

Figure 23: S&P 500 vs. R2K


UOIG 10


transportation systems, bicycle rental kiosks, and electric vehicle

charging stations

Downside

SSNI depends on their limited number of customers, and losing any in

the future could be detrimental to their performance

Government funding supports a lot of the projects that use SSNI’s

products and services. Any delays associated with government funding

could lower SSNI’s revenue

SSNI’s sensors and modules deal with a significant amount of consumer

data. If there’s any security breaches of SSNI’s software or hardware,

this could prevent them from securing customers in the future and hurt

their image

The timing of acceptance of SSNI’s products and software by their

customers could impact when they recognize their revenue under their

accounting policies

Comparable Analysis—10%

In order to find Silver Spring’s relative value a comparable universe was

constructed in order to capture SSNI’s growth and large gross margins since they

are a quickly growing tech company. Various utility software and meter

manufacturing companies within the technology sector were screened for their

operational segments, growth rates, and margins that were similar to those of

Silver Spring. Ultimately, four companies were chosen and weighted using a

weighted average of metric similarity and importance.

The metrics that were used in order to determine weightings included the

companies’ operating segments, revenue growth, and gross margins. Because of

Silver Spring’s unique positioning with differing revenue growths between years

and wide margins, multiple metrics had to be used to accurately find its valuation

in the space. Additionally, it was difficult to find the right comparable companies

to fully encapsulate SSNI’s operations. Forward comparable analysis was done

for the fiscal years ending December 31, 2016 and December 31, 2017, where

2016 comparables 50% and 2017 comparables were weighted 50%. Using the

EV/Revenue and EV/Gross Profit multiples for each year, a final price target of

$13.64 was achieved, suggesting the market is currently overvaluing the company

by 4.58%.

Itron, Inc. (ITRI)—20.7% and 21.0%

“Itron, Inc. provides metering solutions to electricity, gas, and water utility

markets worldwide. The company operates through three segments: Electricity,

Gas, and Water. It offers standard electromechanical and electronic, gas, and

water and heat meters; and advanced and smart electricity, gas, and water meters

and communication modules. The company also provides prepayment systems,

including smart key, keypad, and smart card communication technologies;

advanced systems, such as handheld, mobile, and fixed network collection

technologies; smart network technologies; meter data management software; and

knowledge application solutions”—Yahoo Finance

Qualitatively, Itron, Inc. manufacturers the actual meters that SSNI provides

sensors, modules, and nodes for, as well as develops software and data

management software similar to SSNI’s.

Multiple Implied Price Weight

EV/Revenue 2016E 11.7 50.0%

EV/Gross Profit 2016E 13.7 50.0%

EV/EBIT 2016E 6.1 -

EV/EBITDA 2016E (3.2) -

EV/(EBITDA-Capex) 2016E 3.7 -

Market Cap/Net Income 2016E 8.9 -

Price Target $12.72

Current Price 14.29

Overvalued (10.98%)


EV/Revenue 2017E 13.8 50.0%


EV/EBIT 2017E 1.4 -

EV/EBITDA 2017E 67.8 -

EV/(EBITDA-Capex) 2017E (3.6) -


Price Target $14.55

Current Price 14.29

Undervalued 1.82%

Implied Price Weight

12.72 50.00%

14.55 50.00%

Price Target $13.64

Current Price 14.29

Undervalued (4.58%)

Comparables Analysis

2016 Comparables

2017 Comparables

Figure 24: 2016 Comps Valuation


Figure 25: 2017 Comps Valuation


Figure 26: Final Relative Valuation


UOIG 11


Quantitatively, ITRI is much larger than SSNI, with ITRI having approximately

twice the market capitalization of SSNI. Additionally, they primarily only

manufacture traditional meters. Only a quarter of their revenue comes from

advanced and smart meters. Additionally, they have lower margins and different

growth rates than SSNI.

OPOWER, Inc. (OPWR)—17.6% and 27.7%

“Opower, Inc. provides cloud-based software to the utility industry in the United

States. Its software analyzes energy data and presents personalized insights to

consumers in order to motivate reductions in energy consumption. The company

offers energy efficiency solutions comprising home energy reports under the

utility brand; smart meter-enabled emails that offer weekly email reports for

utility customers with advanced metering infrastructure; and marketplace suite, a

utility-branded product recommendation engine, which enables the customer to

search and sort products based on personalized estimates, as well as replaces

paper-based rebate redemption with end-to-end digital processing. In addition, it

provides demand response solutions, including peak day alerts through SMS

messages and automated phone messages to notify customers of days when

electricity is scarce and expensive, and motivate them to reduce their

consumption.”—Yahoo Finance

Qualitatively, OPWR provides similar software products as SSNI, as OPWR

develops cloud-based SaaS products for utilities, specifically demand response

and energy efficiency. However, they only provide software, and do not

manufacture any products.

Quantitatively, it’s a much smaller company, but has similar gross margins.

However, its EBIT, EBITDA, and net margins are negative, and it has differing

growth rates for 2016. Its 2017 revenue growth numbers are similar to SSNI’s,

though.

EnerNOC, Inc. (ENOC)—41.3% and 31.3%

“EnerNOC, Inc. provides energy intelligence software (EIS) and demand

response solutions to commercial, institutional, and industrial end-users of

energy. The company offers EIS to enterprise customers with a Software-as-a-

Service solution to manage energy cost visualization, budgets, forecasts, and

accruals; utility bill validation and payment; facility optimization, including

benchmarking facilities and identifying cost savings opportunities; energy project

tracking; reporting for energy and sustainability disclosure and compliance; and

peak energy demand and the related cost impacts. Its enterprise customers

comprise manufacturing/industrial, commercial real estate, healthcare,

government, education, and food sales and storage markets. The company also

provides demand response solutions to utility customers and electric power grid

operators.”—Yahoo Finance

EnerNOC, Inc. (EME) was chosen as a comparable to Silver Spring because of

its gross margin size, a relatively similar beta, and similar revenue growth rates.

Additionally, they provide software that handles demand response and energy

efficiencies, with energy grid operators and public utilities making up

approximately 90% of their revenue. However, they only provide software, like

OPWR. Still, their quantitative metrics are the most similar to those of Silver

Spring. Because of the above reasons, EnerNOC, Inc. was weighted 41.3% and

31.3% for the 2016 and 2017 comparable analyses, respectively.

Badger Meter, Inc. (BMI)—20.4% and 20.0%

Source: Yahoo! Finance

Figure 27: OPOWER One Year Stock Chart

Figure 28: EnerNOC One Year Stock Chart



Figure 29: Badger Meter One Year Stock Chart

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UOIG 12


“Badger Meter, Inc. manufactures and sells flow measurement and control

technologies related products. It offers mechanical and electronic water meters,

and related technologies and services to municipal water utilities; and meters and

valves to measure and control materials flowing through a pipe or pipeline, such

as water, air, steam, oil, and other liquids and gases, as well as for use in

water/wastewater, heating, ventilating and air conditioning, oil and gas, chemical

and petrochemical, test and measurement, automotive aftermarket, and the

concrete construction process. The company provides flow measurement

technologies to original equipment manufacturers as the primary flow

measurement device in a product or system.”—Yahoo Finance

Badger Meter, Inc. (BMI) was added as a comparable company because it

operates in a similar space as SSNI. Additionally, they have similar margins and

a similar market capitalization. However, their growth rates differ somewhat, and

they focus primarily on manufacturing flow instruments for water instead of

energy usage. Also, they cater to other customers besides public utilities and

cities, such as chemical, automotive, and industrial companies. Therefore, it

received weightings of 20.4% and 20.0% for 2016 and 2017 comparables,

respectively, based on their metric similarities to SSNI.

Discounted Cash Flow Analysis—90%

Revenue Model

Silver Spring Networks, Inc. breaks their revenue out into their two segments,

Product Revenue and Service Revenue. Much of their historical revenue is

sporadic due to the contractual nature of their business operations, but they are

starting to focus on acquiring more recurring revenue sources. Additionally, they

changed their revenue recognition accounting principles during 2015. This does

not affect their non-GAAP results, but it can increase their GAAP results because

it is easier to recognize revenue now, since it is no longer necessary to have a

receipt of a customer’s acceptance of a deal. The revenue for 2016 was primarily

based off of management guidance provided at the end of their 2015 fiscal year.

Additionally, it is slightly affected by the upcoming launch of their 5th gen

networking platform in mid-2016. The Con Edison deal that they recently closed

will utilize this technology. For 2017 and beyond, a few catalysts were used to

project their growth. Increasing awareness of the benefits of the implementation

of a smart grid across the US will bolster demand for SSNI’s products. For

example, the New York State Public Service Commission recently approved Con

Edison’s Advanced Metering Infrastructure plan that utilizes Silver Spring’s

multi-application networking, data, and control platform that will support New

York State’s Reforming the Energy Vision Initiative. This initiative’s goal is to

make energy more affordable, create a longer lasting energy system, make energy

information readily available to customers, and cut energy usage. SSNI’s

platforms can do all of this, and smart grid awareness should increase in the

coming years.

SSNI is also expected to focus more on developing their SaaS and networking-

and-a-service options, which will increase their recurring revenue streams. They

will be able to offer these applications alongside their traditional offerings. This

is modeled by revenue growth being smoothed out into the terminal year.

Revenue numbers are also based off the expectation of international expansion.

Many developing countries (like India, where SSNI recently closed a deal) are

facing many utility challenges such as grid reliability, energy theft, and efficiency

problems. Silver Spring could capitalize on the need for smarter and more

efficient grids, increasing their revenues.

49.4%

31.6%

63.9%

40.6% 36.4%

49.8%

31.7%

65.9%

42.8%

36.9%

0%

10%

20%

30%

40%

50%

60%

70%

SSNI ITRI OPWR ENOC BMI

2016E Gross Margin 2017E Gross Margin

Figure 30: Comps Gross Margins


Figure 31: Comparable Metric Weightings


Figure 32: Revenue Forecast Breakdown


20.0%

-

45.0%

35.0%

Operating Segments 2016 Revenue Growth 2016 Gross Margin

0%

20%

40%

60%

80%

100%

2016E 2018E 2020E 2022E 2024E


UOIG 13


Finally, the launch of their 5th Gen networking platform will allow them to expand

into other areas, such as the IoT streetlight market, where they have already made

a name for themselves. They are currently partnered with Florida Power & Light

to establish the world’s largest connected lighting project of 500,000 networked

street lights across Miami and South Florida. SSNI has delivered over 21.5

million IPv6-connected devices for infrastructure networks across five continents,

and their 5th Gen networking platform will allow them to continue being the leader

in the space, thus allowing for continued revenue growth.

Cost of Revenues Model

Cost of revenue represents the costs associated with products and services

delivered and accepted by the customer. The cost of revenue is divided into the

product cost of revenue and the service cost of revenue. Product cost of revenue

historically made up about 70% of the total cost of revenue. The cost of product

revenue includes contract manufacturing costs, raw materials, components,

associated freight, and compensation for manufacturing personnel. Both

segments were projected off a percentage of their respective revenue segments.

Product and service costs of revenue were both trended down into the terminal

year. Product cost of revenue is expected to decrease as a percentage of product

revenue due to the lower input costs for their new Gen 5 platform. The circuit

boards are smaller and require less materials. Also, management has been

focusing on greater efficiencies in their manufacturing plants, thus lowering costs.

Cost of service revenues include personnel-related costs and software hosting

costs. Services costs of revenue are expected to decrease marginally in the first

few years while Silver Spring increases their software development efficiencies.

It is then to flat-line into the terminal year as 40% of service revenue as their

software business becomes more established.

Beta

Silver Spring’s beta calculations were composed of a 90% weighting of the 3-year

daily beta and a 10% weighting of the Hamada Comps beta. The 3-year daily beta

was calculated by regressing SSNI’s 3-year daily returns against the returns of the

S&P 500 index, and then adjusted using the non-operating cash of SSNI (it was

assumed that operation cash is equal to 2% of revenue, while non-operating cash

is equal to 98% of revenue). The 3-year daily beta was used because it is believed

that this beta encapsulates its historical performance and its more recent stock

performance. The Hamada beta was weighted only 10% because, while we

believe that SSNI’s increased development of its software will move it closer to

some of its competitors, it is still the “pure-play” in the space, and will have a

different beta.

NOL Carryforwards

Silver Spring currently has $277 million of NOL carryforwards that expire at the

end of 2016. We expect them to use these to cover their taxes at the end of the

fiscal year. Additionally, they have $175.9 million NOL carryforwards expiring

in 2029. Because of the time value of money, Damodaran says that a firm would

burn their NOLs as quickly as possible. Therefore, we projected a tax rate of 0%

until the NOLs runout in 2022. After that, we projected Silver Spring to have a

35% tax rate, as a majority of their business is done in the United States.

10-Year CAGR: 7.18%

149 170

195 213

233 248

260 275 287

298

2016E 2018E 2020E 2022E 2024E

R&D Sales and Marketing G&A Total

Figure 33: Operating Expenses Historicals

Source: SSNI 10-K

Figure 34: Operating Expenses Forecasts


Figure 35: Beta Weightings


-20%

-10%

0%

10%

20%

30%

40%

-

10

20

30

40

50

60

70

80

90

2010A 2011A 2012A 2013A 2014A 2015A

R&D Sales and Marketing G&A

Restructuring Legal Settlements % Growth

Beta Cash Adjusted Beta SE Weighting

1-Year Daily 1.56 1.68 0.20 0.00%

3-Year Daily 1.36 1.46 0.16 90.00%

1-Year Weekly 1.90 2.04 0.44 0.00%

3-Year Weekly 1.40 1.51 0.38 0.00%

Since IPO Daily 1.35 1.45 0.16 0.00%

Since IPO Weekly 1.39 1.50 0.38 0.00%

Hamada - Comps 1.37 1.37 10.00%

Silver Spring Networks Beta 1.36 1.45 0.15

UOIG 14


Depreciation and Amortization and PP&E

Seen from historical values, PP&E has stayed at relatively constant levels, so

PP&E purchases were projected to trend towards historical averages. D&A was

projected off a percentage of revenue instead of beginning PP&E because of the

large increases in capital expenditures and acquisitions going into the terminal

year would cause a huge increase in D&A if projected off of beginning PP&E.

Net Working Capital

Almost all current assets and liabilities were based off recent historical values.

Deferred cost of revenue and deferred revenue is based off recent values and the

associate changes in how the company recognizes revenue. Deferred revenue is

expected to increase marginally as a percentage of revenue due to a larger focus

on SaaS.

Capital Expenditures and R&D Costs

Capital expenditures were projected as a percentage of revenue a little higher than

historical averages as SSNI is planning on investing heavily in their

manufacturing processes. In 2016, management expects capital expenditures to

be about $20 million, primarily due to building and developing their new San Jose

headquarters. Management also said they will continue their current research and

development costs in order to stay at the forefront of innovation.

Leveraged Buyout Analysis—0%

A Leveraged Buyout Analysis was performed to determine what price a private

equity firm would pay to acquire Silver Spring. Since the final valuation involved

several assumptions that were rough estimates (described below), the LBO wasn’t

weighted at all in the final valuation. It should be noted that SSNI has a handful

of characteristics that represent an ideal LBO target, such as positive cash flows,

low debt levels (they actually have none), and a strong competitive advantage in

the current market in which they operate.

As previously stated, quite a few assumptions went into the LBO analysis. The

entry multiple assumption is that the PE firm would pay for 8 times current

EBITDA, which is roughly equal to SSNI’s LTM EV/EBITDA. The exit multiple

was set at 6x given that the PE firm will be slashing operating expenses (such as

R&D and G&A) to increase cash flows.

Other major assumptions made in the LBO analysis revolve around debt. Since

PE shops usually prefer to use mostly debt to increase returns, we assumed that

two term loans and a senior subordinated note would be used to buyout Silver

Spring. The rates on the debt were determined by adding the treasury bills of each

year to the respective spreads of the term loans and note. We also assumed that

assembling the debt would involve financing fees of 2% for the term loans and

2.5% for the note, resulting in $15.4 million in costs. Other fees and expenses

were calculated by taking 1% of the estimated purchase price.

The implied enterprise value from the LBO was arrived at by taking the terminal

year EBITDA and multiplying it by the exit multiple of 6. From there, net debt

Figure 38: LBO Price Target


Return Analysis

2025 EBITDA 210.2

Exit Multiple 6.0

Enterprise Value at Exit 1,260.9

Less: Net Debt

Long-Term Debt 671.7

Cash and Cash Equivalents 334.3

Net Debt 337.4

Equity Value at Exit $923.5

Price Target $16.9

-

50

100

150

200

250

300

2016E 2018E 2020E 2022E 2024E

R&D Sales and Marketing G&A

Figure 37: LBO Operating Expenses


Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate

2.0% 2.5% 3.0% 3.5% 4.0%

1.25 19.95 20.43 20.97 21.58 22.29

1.35 18.62 19.01 19.45 19.94 20.50

1.45 17.47 17.79 18.14 18.54 18.99

1.55 16.45 16.71 17.01 17.33 17.70

1.65 15.54 15.77 16.01 16.28 16.58

Beta

Figure 36: Beta Sensitivity Table


UOIG 15


was subtracted to arrive at the company’s equity value at exit, and then divided

by shares outstanding to reach a final price.

Recommendation

Based upon increased demand for smart grids and smart networks, the need for

greater energy efficiencies, and the expansion of the IoT space, SSNI will

continue to provide strong revenue growth. With their proven management team,

SSNI will continue to expand into new markets and win new deals as well as

increase their recurring revenue by leveraging their new Gen 5 networking

platform and software. Weighting the discounted cash flow analysis 90%, the

comparable analysis 10%, and the leveraged buyout analysis 0%, a final price

target of $17.69 was reached implying an undervaluation of 23.81%, and a strong

BUY is recommended for the Alumni portfolio.

Figure 39: Final Price Target

Source Implied Price Weighting

Discounted Cash Flow Analysis $18.14 90%

Comparable Analysis 13.64 10%

LBO Model 16.89 0%

Weighted Implied Price $17.69

Current Price $14.29

Undervalued 23.81%


UOIG 16


Appendix 1 – Comparable Analysis

2016 Weightings


EV/Revenue 2016E 11.7 50.0%


EV/EBIT 2016E 6.1 -

EV/EBITDA 2016E (3.2) -

EV/(EBITDA-Capex) 2016E 3.7 -


Price Target $12.72

Current Price 14.29

Overvalued (10.98%)

2017 Weightings


EV/Revenue 2017E 13.8 50.0%


EV/EBIT 2017E 1.4 -

EV/EBITDA 2017E 67.8 -

EV/(EBITDA-Capex) 2017E (3.6) -


Price Target $14.55

Current Price 14.29

Undervalued 1.82%

Implied Price Weight

12.72 50.00%

14.55 50.00%

Price Target $13.64

Current Price 14.29

Undervalued (4.58%)

Comparables Analysis

2016 Comparables

2017 Comparables

Comparables Analysis SSNI ITRI OPWR ENOC BMI

($ in millions)

Silver Spring

Networks Itron Opower EnerNOC Badger Meter

2016 Weighting 20.7% 17.6% 41.3% 20.4%

2017 Weighting 21.0% 27.7% 31.3% 20.0%

Stock Characteristics Max Min Median Weight Avg.

Current Price $65.8 $6.9 $23.6 $25.9 $14.3 $40.1 $6.9 $7.1 $65.8

Beta 1.5 0.7 1.0 1.0 1.5 1.0 0.7 1.2 1.1

Size

Short-Term Debt $71.4 - $5.6 $16.9 - $11.3 - - $71.4

Long-Term Debt 369.5 - - 76.6 - 369.5 - - -

Cash and Cash Equivalent 138.1 8.2 67.7 86.0 65.3 109.5 25.9 138.1 8.2

Non-Controlling Interest 19.4 - - 4.0 - 19.4 - - -

Preferred Stock - - - - - - - - -

Diluted Basic Shares 54.7 14.6 34.3 33.1 54.7 37.9 54.5 30.6 14.6

Market Capitalization 1,518.2 217.6 667.6 666.2 781.5 1,518.2 376.4 217.6 958.8

Enterprise Value 1,808.8 190.7 686.2 723.7 716.2 1,808.8 350.4 190.7 1,022.0

Growth Expectations

% Revenue Growth 2016E 8.3% (9.4%) 5.1% 1.5% (9.4%) 2.5% 8.3% (5.0%) 7.7%

% Revenue Growth 2017E 14.7% 4.7% 9.2% 9.5% 14.7% 4.7% 12.5% 12.5% 5.9%

% EBITDA Growth 2016E 47.7% (107.6%) 6.1% (32.2%) (22.5%) 47.7% 4.0% (107.6%) 8.1%

% EBITDA Growth 2017E 49.6% (25.3%) 12.3% 13.6% 17.7% 10.5% (25.3%) 49.6% 14.1%

% EPS Growth 2016E 108.3% (22.1%) 34.7% 46.7% (22.1%) 108.3% 4.7% 44.6% 24.7%

% EPS Growth 2017E 43.9% 10.0% 20.8% 26.3% 10.0% 13.8% 43.9% 25.9% 15.7%

Profitability Margins

Gross Margin 2016E 63.9% 31.6% 38.5% 42.0% 49.4% 31.6% 63.9% 40.6% 36.4%

Gross Margin 2017E 65.9% 31.7% 39.8% 45.7% 49.8% 31.7% 65.9% 42.8% 36.9%

EBIT Margin 2016E 14.4% (25.9%) (5.1%) (9.7%) 14.4% 5.8% (16.0%) (25.9%) 12.8%

EBIT Margin 2017E 13.9% (19.7%) (1.7%) (4.8%) 13.8% 6.4% (9.8%) (19.7%) 13.9%

EBITDA Margin 2016E 16.2% (11.5%) 2.1% (0.4%) 15.9% 9.9% (5.6%) (11.5%) 16.2%

EBITDA Margin 2017E 17.5% (5.7%) 5.8% 4.3% 16.3% 10.4% 1.3% (5.7%) 17.5%

Net Margin 2016E 14.4% (30.5%) (11.8%) (14.3%) 14.4% 4.2% (30.5%) (27.8%) 8.0%

Net Margin 2017E 13.8% (23.6%) (8.1%) (10.3%) 13.8% 4.5% (23.6%) (20.8%) 8.8%

Credit Metrics

Interest Expense 2016E $11.3 - $4.1 $5.5 - $11.3 - $7.2 $1.0

Interest Expense 2017E 12.6 - 4.1 5.1 - 12.6 - 7.2 1.0

Debt/EV 2016E 0.2 - 0.0 0.1 - 0.2 - - 0.1

Debt/EV 2017E 0.2 - 0.0 0.1 - 0.2 - - 0.1

Leverage Ratio 2016E 2.0 - 0.5 0.6 - 2.0 - - 1.1

Leverage Ratio 2017E 1.8 - 0.5 0.6 - 1.8 - - 0.9

Interest Coverage Ratio 2016E 66.1 (6.1) 8.4 14.4 - 16.8 - (6.1) 66.1

Interest Coverage Ratio 2017E 75.4 (3.1) 8.3 17.6 - 16.7 - (3.1) 75.4

Operating Results

Revenue 2016E $1,924.0 $161.1 $393.1 $667.0 $443.5 $1,924.0 $161.1 $379.4 $406.8

Revenue 2017E 2,015.0 181.2 410.0 681.9 508.8 2,015.0 181.2 389.0 430.9

Gross Profit 2016E 608.0 103.0 151.1 238.0 218.9 608.0 103.0 154.0 148.1

Gross Profit 2017E 639.0 119.5 162.7 251.4 253.3 639.0 119.5 166.6 158.8

EBIT 2016E 111.0 (98.2) 13.1 (11.5) 63.8 111.0 (25.8) (98.2) 51.9

EBIT 2017E 129.0 (76.6) 21.0 10.2 70.0 129.0 (17.8) (76.6) 59.7

EBITDA 2016E 190.0 (43.7) 28.5 33.2 70.3 190.0 (9.1) (43.7) 66.1

EBITDA 2017E 210.0 (22.1) 38.9 53.0 82.8 210.0 2.3 (22.1) 75.4

Net Income 2016E 81.0 (105.5) (8.3) (28.8) 63.7 81.0 (49.2) (105.5) 32.7

Net Income 2017E 91.0 (80.9) (2.5) (10.4) 70.0 91.0 (42.8) (80.9) 37.9

Capital Expenditures 2016E 57.0 12.0 19.0 26.6 20.0 57.0 12.0 23.6 14.3

Capital Expenditures 2017E 61.0 13.8 18.8 26.8 15.3 61.0 13.8 23.0 14.6

Multiples

EV/Revenue 2016E 2.5x 0.5x 1.6x 1.3x 1.6x 0.9x 2.2x 0.5x 2.5x

EV/Revenue 2017E 2.4x 0.5x 1.4x 1.4x 1.4x 0.9x 1.9x 0.5x 2.4x

EV/Gross Profit 2016E 6.9x 1.2x 3.2x 3.1x 3.3x 3.0x 3.4x 1.2x 6.9x

EV/Gross Profit 2017E 6.4x 1.1x 2.9x 3.1x 2.8x 2.8x 2.9x 1.1x 6.4x

EV/EBIT 2016E 19.7x (13.6x) 7.2x 4.2x 11.2x 16.3x (13.6x) (1.9x) 19.7x

EV/EBIT 2017E 17.1x (19.7x) 5.8x 0.1x 10.2x 14.0x (19.7x) (2.5x) 17.1x

EV/EBITDA 2016E 15.5x (38.5x) 2.6x (3.5x) 10.2x 9.5x (38.5x) (4.4x) 15.5x

EV/EBITDA 2017E 152.4x (8.6x) 11.1x 44.0x 8.6x 8.6x 152.4x (8.6x) 13.6x

EV/(EBITDA-Capex) 2016E 19.7x (16.6x) 5.4x 2.7x 14.2x 13.6x (16.6x) (2.8x) 19.7x

EV/(EBITDA-Capex) 2017E 16.8x (30.5x) 4.0x (3.8x) 10.6x 12.1x (30.5x) (4.2x) 16.8x

Market Cap/Net Income 2016E 29.3x (7.6x) 8.3x 7.7x 12.3x 18.7x (7.6x) (2.1x) 29.3x

Market Cap/Net Income 2017E 25.3x (8.8x) 7.0x 5.3x 11.2x 16.7x (8.8x) (2.7x) 25.3x

UOIG 17


Appendix 2 – Comparable Analysis Weighting Calculations

Weightings Calculation 2016E 2017E SSNI ITRI OPWR ENOC BMI

Fiscal Year End Date 12/31/2015 12/31/2015 12/31/2015 12/31/2015 12/31/2015

Operating Segments 20.0% 20.0% 10 5 3 4 5

Similarity to: 0.20 0.14 0.17 0.20

2016 Score 5.6% 4.0% 4.7% 5.6%

2017 Score 5.6% 4.0% 4.7% 5.6%

Smart Metering Exposure - - - 1 1 1 1

Similarity to: 1.00 1.00 1.00 1.00

2016 Score - - - -

2017 Score - - - -

Beta - - 1.45 1 0.731 1.209 1.052

Similarity to: 2.15 1.38 4.09 2.49

2016 Score - - - -

2017 Score - - - -

2016 Revenue Growth 45.0% - (9.4%) 2.5% 8.3% (5.0%) 7.7%

Similarity to: 840.1% 564.9% 2,271.0% 584.7%

2016 Score 8.9% 6.0% 24.0% 6.2%

2017 Score - - - -

2017 Revenue Growth - 45.0% 14.7% 4.7% 12.5% 12.5% 5.9%

Similarity to: 997.4% 4,491.5% 4,491.5% 1,133.0%

2016 Score - - - -

2017 Score 4.0% 18.2% 18.2% 4.6%

2016 Gross Margin 35.0% - 49.4% 31.6% 63.9% 40.6% 36.4%

Similarity to: 563.1% 686.0% 1,140.5% 772.1%

2016 Score 6.2% 7.6% 12.6% 8.5%

2017 Score - - - -

2017 Gross Margin - 35.0% - 31.7% 65.9% 42.8% 36.9%

Similarity to: 315.3% 151.6% 233.5% 271.3%

2016 Score - - - -

2017 Score 11.4% 5.5% 8.4% 9.8%

2016 EBITDA Growth - - (22.5%) 47.7% 4.0% (107.6%) 8.1%

Similarity to: 142.4% 377.1% 117.5% 326.6%

2016 Score - - - -

2017 Score - - - -

2017 EBITDA Growth - - 17.7% 10.5% (25.3%) 49.6% 14.1%

Similarity to: 1,382.5% 232.5% 313.8% 2,752.4%

2016 Score - - - -

2017 Score - - - -

2016 EBITDA Margin - - 15.9% 9.9% (5.6%) (11.5%) 16.2%

Similarity to: 1,671.3% 465.0% 365.3% 25,622.5%

2016 Score - - - -

2017 Score - - - -

2017 EBITDA Margin - - 16.3% 10.4% 1.3% (5.7%) 17.5%

Similarity to: 1,708.7% 666.5% 455.5% 8,169.0%

2016 Score - - - -

2017 Score - - - -

2016 EPS Growth - - (22.1%) 108.3% 4.7% 44.6% 24.7%

Similarity to: 76.7% 373.0% 149.9% 213.6%

2016 Score - - - -

2017 Score - - - -

2017 EPS Growth - - 10.0% 13.8% 43.9% 25.9% 15.7%

Similarity to: 2,618.3% 294.8% 628.2% 1,748.5%

2016 Score - - - -

2017 Score - - - -

2016 Net Margin - - 14.4% 4.2% (30.5%) (27.8%) 8.0%

Similarity to: 985.8% 222.7% 237.2% 1,583.3%

2016 Score - - - -

2017 Score - - - -

2017 Net Margin - - 13.8% 4.5% (23.6%) (20.8%) 8.8%

Similarity to: 10.82 2.68 2.89 20.14

2016 Score - - - -

2017 Score - - - -

Market Cap - - 781 1,518 376 218 959

Similarity to: 0.00 0.00 0.00 0.01

2016 Score - - - -

2017 Score - - - -

UOIG 18


Appendix 3 – Discounted Cash Flows Valuation

Discounted Cash Flow Analysis

($ in millions) 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Total Revenue $70.2 $237.1 $196.7 $326.9 $191.3 $489.6 $443.5 $508.8 $573.6 $635.3 $694.8 $750.4 $800.1 $845.1 $884.2 $916.3

% YoY Growth 2,029.9% 237.6% (17.0%) 66.1% (41.5%) 155.9% (9.4%) 14.7% 12.7% 10.7% 9.4% 8.0% 6.6% 5.6% 4.6% 3.6%

Cost of Goods Sold 115.1 207.1 157.8 204.9 128.5 256.0 224.6 255.6 285.3 312.7 341.3 368.1 392.2 414.0 432.8 447.5

% Revenue 163.9% 87.4% 80.2% 62.7% 67.2% 52.3% 50.6% 50.2% 49.7% 49.2% 49.1% 49.1% 49.0% 49.0% 48.9% 48.8%

Gross Profit ($44.9) $29.9 $39.0 $122.0 $62.8 $233.6 $218.9 $253.3 $288.4 $322.5 $353.5 $382.3 $407.9 $431.1 $451.4 $468.8

Gross Margin (63.9%) 12.6% 19.8% 37.3% 32.8% 47.7% 49.4% 49.8% 50.3% 50.8% 50.9% 50.9% 51.0% 51.0% 51.1% 51.2%

Research and Development $47.0 $57.5 $62.0 $77.0 $64.8 $61.3 $59.9 $68.7 $80.3 $88.9 $97.3 $105.1 $112.0 $118.3 $123.8 $128.3

% Revenue 67.0% 24.3% 31.5% 23.6% 33.9% 12.5% 13.5% 13.5% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%

Depreciation and Amortization 5.2 7.0 7.3 6.6 6.5 7.8 6.6 12.8 13.9 14.1 14.8 16.0 17.3 18.5 19.7 20.8

% of Beginning PP&E 49.0% 41.9% 52.0% 52.3% 52.3% 60.8% 46.5% 46.5% 46.5% 46.5% 46.0% 46.0% 46.0% 46.0% 46.0% 46.0%

Sales and Marketing 21.1 25.2 29.1 34.9 36.4 33.5 35.5 40.7 45.9 50.8 55.6 56.3 60.0 63.4 66.3 68.7

% Revenue 30.0% 10.6% 14.8% 10.7% 19.0% 6.8% 8.0% 8.0% 8.0% 8.0% 8.0% 7.5% 7.5% 7.5% 7.5% 7.5%

General and Administrative 27.5 34.4 29.3 45.2 41.3 46.4 53.2 61.1 68.8 73.1 79.9 86.3 88.0 93.0 97.3 100.8

% Revenue 39.1% 14.5% 14.9% 13.8% 21.6% 9.5% 12.0% 12.0% 12.0% 11.5% 11.5% 11.5% 11.0% 11.0% 11.0% 11.0%

Restructuring - - - - 1.8 1.7 - - - - - - - - - -

% Revenue - - - - 0.9% 0.3% - - - - - - - - - -

Legal Settlements and Amortization of Acquired Intangibles 0.2 1.1 - - - - - - - - - - - - - -

% Revenue 0.2% 0.5% - - - - - - - - - - - - - -

Earnings Before Interest & Taxes ($145.8) ($95.2) ($88.6) ($41.8) ($87.9) $83.0 $63.8 $70.0 $79.4 $95.6 $105.9 $118.7 $130.6 $138.0 $144.3 $150.2

% Revenue (207.6%) (40.2%) (45.1%) (12.8%) (45.9%) 16.9% 14.4% 13.8% 13.8% 15.0% 15.2% 15.8% 16.3% 16.3% 16.3% 16.4%

Interest Income $0.2 $0.0 $2.0 $0.1 $0.3 $0.5 - - - - - - - - - -

% Revenue 0.3% 0.0% 1.0% 0.0% 0.2% 0.1% - - - - - - - - - -

Interest Expense (0.2) (0.3) (4.3) (1.2) (0.1) (0.1) (0.1) - - - - - - - - -

% Revenue (0.2%) (0.1%) (2.2%) (0.4%) (0.1%) (0.0%) (0.0%) - - - - - - - - -

Other expense, net (0.1) 0.0 (0.3) (0.0) (0.1) (0.3) - - - - - - - - - -

% Revenue (0.1%) 0.0% (0.1%) (0.0%) (0.0%) (0.1%) - - - - - - - - - -

Conversion of promissory notes and remeasurement of warrants and derivatives (2.5) 3.5 3.9 (23.7) - - - - - - - - - - - -

% Revenue (3.6%) 1.5% 2.0% (7.2%) - - - - - - - - - - - -

Earnings Before Taxes (148.3) (92.0) (87.3) (66.6) (87.7) 83.1 63.7 70.0 79.4 95.6 105.9 118.7 130.6 138.0 144.3 150.2

% Revenue (211.2%) (38.8%) (44.4%) (20.4%) (45.9%) 17.0% 14.4% 13.8% 13.8% 15.0% 15.2% 15.8% 16.3% 16.3% 16.3% 16.4%

Less Taxes (Benefits) 0.1 0.4 0.4 0.2 1.4 3.1 - - - - - - 41.7 48.3 50.5 52.6

Tax Rate (0.1%) (0.4%) (0.4%) (0.3%) (1.6%) 3.7% - - - - - - 31.9% 35.0% 35.0% 35.0%

Taxes Owed Disregarding NOLs 22.3 24.5 27.8 33.5 37.1 41.5 45.7 48.3 50.5 52.6

NOLs Remaining at End of Year After Deduction 277.0 175.9 151.4 123.6 90.1 53.1 11.5 - - - -

Net Income ($148.4) ($92.4) ($87.7) ($66.8) ($89.2) $80.0 $63.7 $70.0 $79.4 $95.6 $105.9 $118.7 $88.9 $89.7 $93.8 $97.6

Net Margin (211.4%) (39.0%) (44.6%) (20.4%) (46.6%) 16.3% 14.4% 13.8% 13.8% 15.0% 15.2% 15.8% 11.1% 10.6% 10.6% 10.7%

Add Back: Depreciation and Amortization $5.2 $7.0 $7.3 $6.6 $6.5 $7.8 $6.6 $12.8 $13.9 $14.1 $14.8 $16.0 $17.3 $18.5 $19.7 $20.8

Add Back: Interest Expense*(1-Tax Rate) 0.15 0.34 4.32 1.20 0.13 0.05 0.11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Operating Cash Flow ($143.1) ($85.1) ($76.2) ($59.0) ($82.6) $87.9 $70.3 $82.8 $93.3 $109.7 $120.7 $134.6 $106.2 $108.2 $113.5 $118.4

% Revenue (203.8%) (35.9%) (38.7%) (18.0%) (43.2%) 17.9% 15.9% 16.3% 16.3% 17.3% 17.4% 17.9% 13.3% 12.8% 12.8% 12.9%

Current Assets $156.4 $140.0 $113.0 $116.3 $101.5 $260.1 $246.7 $284.2 $321.5 $358.2 $393.3 $426.2 $457.2 $484.8 $508.9 $531.0

% Revenue 222.7% 59.0% 57.4% 35.6% 53.0% 53.1% 55.6% 55.9% 56.0% 56.4% 56.6% 56.8% 57.1% 57.4% 57.6% 58.0%

Current Liabilities 213.6 221.3 142.3 166.7 143.9 378.8 339.6 389.7 438.5 484.9 529.8 571.6 609.1 642.9 672.1 693.5

% Revenue 304.2% 93.4% 72.3% 51.0% 75.2% 77.4% 76.6% 76.6% 76.4% 76.3% 76.2% 76.2% 76.1% 76.1% 76.0% 75.7%

Net Working Capital ($57.2) ($81.4) ($29.3) ($50.4) ($42.4) ($118.8) ($92.9) ($105.5) ($117.0) ($126.7) ($136.5) ($145.4) ($151.9) ($158.1) ($163.2) ($162.5)

% Revenue (81.4%) (34.3%) (14.9%) (15.4%) (22.2%) (24.3%) (20.9%) (20.7%) (20.4%) (19.9%) (19.6%) (19.4%) (19.0%) (18.7%) (18.5%) (17.7%)

Change in Working Capital - ($24.2) - ($21.1) $8.0 ($76.4) $25.9 ($12.6) ($11.6) ($9.6) ($9.8) ($8.9) ($6.5) ($6.2) ($5.1) $0.6

Capital Expenditures 10.9 4.1 4.9 4.0 6.1 5.4 20.0 15.3 14.3 15.9 17.4 18.8 20.0 21.1 22.1 22.9

% Revenue 15.6% 1.7% 2.5% 1.2% 3.2% 1.1% 4.5% 3.0% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

Acquisitions - - - - 8.7 7.1 - - - - - - - - - -

% Revenue - - - - 4.6% 1.4% - - - - - - - - - -

Unlevered Free Cash Flow ($154.1) ($65.0) ($81.0) ($41.8) ($105.3) $151.8 $24.5 $80.1 $90.6 $103.5 $113.2 $124.8 $92.7 $93.3 $96.5 $94.9

Discounted Free Cash Flow 22.0 64.9 66.0 67.8 66.7 66.2 44.3 40.1 37.3 33.0

Unlevered Free Cash Flow Growth - (57.8%) 24.7% (48.4%) 151.9% (244.1%) (83.9%) 227.3% 13.0% 14.3% 9.3% 10.3% (25.7%) 0.6% 3.5% (1.7%)

Discount Period 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

UOIG 19


Appendix 4 – Revenue and Cost of Revenues Model

Revenue Model


Product Revenue $65.9 $212.3 $162.6 $224.3 $129.3 $353.0 $282.4 $322.0 $360.6 $396.7 $432.4 $467.0 $499.6 $529.6 $556.1 $578.4

% Growth 2,713.0% 222.0% (23.4%) 37.9% (42.3%) 173.0% (20.0%) 14.0% 12.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0%

% of Total Revenue 93.9% 89.6% 82.7% 68.6% 67.6% 72.1% 63.7% 63.3% 62.9% 62.4% 62.2% 62.2% 62.4% 62.7% 62.9% 63.1%

Service Revenue 4.3 24.7 34.1 102.5 62.0 136.5 161.1 186.9 213.0 238.6 262.4 283.4 300.5 315.5 328.1 337.9

% Growth 349.9% 476.8% 137.9% 200.6% (39.6%) 120.4% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 5.0% 4.0% 3.0%

% of Total Revenue 6.1% 10.4% 17.3% 31.4% 32.4% 27.9% 36.3% 36.7% 37.1% 37.6% 37.8% 37.8% 37.6% 37.3% 37.1% 36.9%

Total Revenue $70.2 $237.1 $196.7 $326.9 $191.3 $489.6 $443.5 $508.8 $573.6 $635.3 $694.8 $750.4 $800.1 $845.1 $884.2 $916.3

% Growth 2,029.9% 237.6% (17.0%) 66.1% (41.5%) 155.9% (9.4%) 14.7% 12.7% 10.7% 9.4% 8.0% 6.6% 5.6% 4.6% 3.6%

COGS Model


Product Cost of Revenue $73.7 $159.1 $108.1 $143.7 $70.7 $194.6 $155.3 $177.1 $197.9 $217.3 $236.4 $254.8 $272.0 $287.8 $301.5 $312.3

% of Product Revenue 111.7% 74.9% 66.5% 64.0% 54.7% 55.1% 55.0% 55.0% 54.9% 54.8% 54.7% 54.6% 54.4% 54.3% 54.2% 54.0%

% of Total Cost of Revenue 64.0% 76.8% 68.5% 70.1% 55.0% 76.0% 69.2% 69.3% 69.4% 69.5% 69.2% 69.2% 69.4% 69.5% 69.7% 69.8%

Service Cost of Revenue 41.4 48.0 49.7 61.2 57.8 61.4 69.3 78.5 87.3 95.4 105.0 113.4 120.2 126.2 131.2 135.2

% of Service Revenue 966.2% 194.3% 145.7% 59.7% 93.3% 45.0% 43.0% 42.0% 41.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%

% of Total Cost of Revenue 36.0% 23.2% 31.5% 29.9% 45.0% 24.0% 30.8% 30.7% 30.6% 30.5% 30.8% 30.8% 30.6% 30.5% 30.3% 30.2%

Total Cost of Revenue $115.1 $207.1 $157.8 $204.9 $128.5 $256.0 $224.6 $255.6 $285.3 $312.7 $341.3 $368.1 $392.2 $414.0 $432.8 $447.5

% of Revenue 163.9% 87.4% 80.2% 62.7% 67.2% 52.3% 50.6% 50.2% 49.7% 49.2% 49.1% 49.1% 49.0% 49.0% 48.9% 48.8%

UOIG 20


Appendix 5 – DCF Income Statement

Income Statement


Product Revenue $65.9 $212.3 $162.6 $224.3 $129.3 $353.0 $282.4 $322.0 $360.6 $396.7 $432.4 $467.0 $499.6 $529.6 $556.1 $578.4

Service Revenue 4.3 24.7 34.1 102.5 62.0 136.5 161.1 186.9 213.0 238.6 262.4 283.4 300.5 315.5 328.1 337.9

Total Revenue 70.2 237.1 196.7 326.9 191.3 489.6 443.5 508.8 573.6 635.3 694.8 750.4 800.1 845.1 884.2 916.3

Product Cost of Revenue 78.8 166.1 115.3 150.3 77.2 202.4 161.9 189.9 211.9 231.4 251.1 270.7 289.3 306.3 322.4 312.3


Total Cost of Revenue 120.2 214.1 165.0 211.5 135.0 263.8 231.2 268.4 299.2 326.9 356.1 384.1 409.5 432.5 453.6 447.5

Gross Profit ($50.0) $23.0 $31.7 $115.4 $56.3 $225.7 $212.4 $240.5 $274.4 $308.4 $338.7 $366.3 $390.6 $412.6 $430.6 $468.8

Gross Margin -71.23% 9.68% 16.12% 35.29% 29.45% 46.11% 47.88% 47.26% 47.84% 48.55% 48.75% 48.81% 48.82% 48.83% 48.70% 51.16%

Operating Expenses:

Research and Development 47.0 57.5 62.0 77.0 64.8 61.3 59.9 68.7 80.3 88.9 97.3 105.1 112.0 118.3 123.8 128.3



Restructuring - - - - 1.8 1.7 - - - - - - - - - -


Total Operating Expenses $95.7 $118.2 $120.4 $157.1 $144.2 $142.8 $148.6 $170.5 $195.0 $212.8 $232.8 $247.6 $260.0 $274.7 $287.4 $297.8

Operating Income ($145.8) ($95.2) ($88.6) ($41.8) ($87.9) $83.0 $63.8 $70.0 $79.4 $95.6 $105.9 $118.7 $130.6 $138.0 $143.2 $171.0

Operating Margin (207.6%) (40.2%) (45.1%) (12.8%) (45.9%) 16.9% 14.4% 13.8% 13.8% 15.0% 15.2% 15.8% 16.3% 16.3% 16.2% 18.7%

Other Income (Expense), Net

Interest Income 0.2 0.0 2.0 0.1 0.3 0.5 - - - - - - - - - -

Interest Expense (0.2) (0.3) (4.3) (1.2) (0.1) (0.1) (0.1) - - - - - - - - -

Other Expense, Net (0.1) 0.0 (0.3) (0.0) (0.1) (0.3) - - - - - - - - - -

Conversion of promissory notes and remeasurement of warrants and derivatives (2.5) 3.5 3.9 (23.7) - - - - - - - - - - - -

Total Other Income (Expense), Net ($2.6) $3.2 $1.3 ($24.8) $0.1 $0.1 ($0.1) - - - - - - - - -

Earnings Before Taxes ($148.3) ($92.0) ($87.3) ($66.6) ($87.7) $83.1 $63.7 $70.0 $79.4 $95.6 $105.9 $118.7 $130.6 $138.0 $143.2 $171.0

Provision for (Benefit) from Income Taxes 0.1 0.4 0.4 0.2 1.4 3.1 - - - - - - 41.7 48.3 50.5 52.6

Net Income (Loss) ($148.4) ($92.4) ($87.7) ($66.8) ($89.2) $80.0 $63.7 $70.0 $79.4 $95.6 $105.9 $118.7 $88.9 $89.7 $93.8 $97.6

Net Margin (211.4%) (39.0%) (44.6%) (20.4%) (46.6%) 16.3% 14.4% 13.8% 13.8% 15.0% 15.2% 15.8% 11.1% 10.6% 10.6% 10.7%

UOIG 21


Appendix 6 – DCF Balance Sheet

Balance Sheet


Assets

Current Assets

Total Cash and Cash Equivalents $42.7 $71.7 $72.6 $82.6 $60.5 $65.3 $118.4 $237.0 $363.7 $509.8 $658.9 $823.4 $950.6 $1,078.3 $1,211.9 $1,339.1

Short-Term Investments 25.1 - - 63.3 $60.3 59.2 58.4 57.7 56.9 56.1 55.4 54.6 53.9 53.1 52.3 51.6

Accounts Receivable, net 37.0 33.4 56.5 69.7 54.7 47.8 43.1 49.5 55.6 61.8 67.6 72.8 77.8 82.2 85.8 89.1

Inventory 5.4 2.5 7.7 4.4 6.7 4.5 4.0 4.6 5.2 5.6 6.1 6.6 7.1 7.5 7.8 7.7

Deferred Cost of Revenue 96.1 99.5 45.3 37.5 29.6 196.9 181.8 209.8 237.7 264.7 291.1 316.0 338.7 359.6 378.2 394.8

Deferred Tax Assets - - - - 5.3 - - - - - - - - - - -

Restricted Cash 14.0 - - - - - - - - - - - - - - -

Prepaid Expense and Other Current Assets 3.9 4.6 3.5 4.8 5.1 10.8 8.9 10.2 11.5 13.3 14.6 15.8 17.6 18.6 19.5 21.1

Total Current Assets $224.3 $211.7 $185.7 $262.1 $222.3 $384.5 $414.7 $568.7 $730.6 $911.4 $1,093.7 $1,289.2 $1,445.7 $1,599.3 $1,755.5 $1,903.4

Property and Equipment, Beginning $10.5 $16.6 $14.0 $12.7 $12.4 $12.9 $14.1 $27.5 $30.0 $30.4 $32.1 $34.7 $37.5 $40.3 $42.9 $45.3

Property and Equipment, Ending $16.6 $14.0 $12.7 $12.4 $12.9 $14.1 $27.5 $30.0 $30.4 $32.1 $34.7 $37.5 $40.3 $42.9 $45.3 $47.3

Non-Current Assets

Goodwill and Intangible Assets - - - - $8.2 $14.4 $14.4 $14.4 $14.4 $14.4 $14.4 $14.4 $14.4 $14.4 $14.4 $14.4

Deferred Cost of Revenue, non-current 161.4 106.8 199.9 238.7 303.4 38.9 35.0 40.2 45.3 49.6 54.2 57.8 61.6 64.2 67.2 68.7

Deferred Tax Assets, non-current 25.6 21.6 8.3 1.6 0.4 1.1 0.9 - - - - - - - - -

Other Long-Term Assets 4.4 6.9 11.3 1.6 1.0 4.8 4.4 5.1 5.7 6.4 6.9 7.5 8.0 8.5 8.8 9.2

Total Non-Current Assets $191.3 $135.3 $219.4 $241.8 $313.1 $59.1 $54.8 $59.7 $65.4 $70.3 $75.5 $79.7 $84.0 $87.1 $90.4 $92.3

Total Assets $432.2 $360.9 $417.7 $516.4 $548.2 $457.7 $496.938 $658.4 $826.4 $1,013.9 $1,203.9 $1,406.4 $1,569.9 $1,729.3 $1,891.2 $2,043.0

Liabilities

Current Liabilities

Accounts Payable $25.9 $17.5 $28.1 $31.3 $27.5 $30.6 $26.9 $31.2 $34.7 $38.1 $41.5 $44.6 $47.7 $50.4 $52.7 $52.1

Accrued Liabilities 15.3 17.5 14.8 21.3 - - - - - - - - - - - -

Customer Deposits 12.6 7.4 - - - - - - - - - - - - - -

Deferred Revenue 132.2 156.5 89.8 111.3 91.7 305.5 275.0 316.0 356.9 396.0 433.9 469.4 501.4 530.5 556.1 577.3

Current Portion of Capital Lease Obligations 2.0 0.9 1.6 1.6 - - - - - - - - - - - -

Deferred Tax Liability 25.5 21.5 7.9 1.2 0.2 - - - - - - - - - - -

Accrued and Other Liabilities - - - - 24.4 42.8 37.7 42.4 46.8 50.8 54.4 57.5 60.0 62.0 63.4 64.1

Total Current Liabilities $213.6 $221.3 $142.3 $166.7 $143.9 $378.8 $339.6 $389.7 $438.5 $484.9 $529.8 $571.6 $609.1 $642.9 $672.1 $693.5

Long-Term Liabilities

Deferred Revenue, non-current $269.2 $244.0 $418.2 $413.4 $517.9 $96.3 $87.4 $101.8 $114.7 $130.2 $142.4 $157.6 $168.0 $177.5 $190.1 $197.0

Preferred Stock Warrant Liability 17.0 13.5 11.3 - - - - - - - - - - - - -

Convertible Promissory Notes and Embedded Derivatives - 24.1 56.3 - - - - - - - - - - - - -

Deferred Tax Liability, non-current - - - - 5.1 - - - - - - - - - - -

Other Liabilities 12.7 12.7 18.4 14.4 15.1 16.4 15.5 17.8 20.1 25.4 27.8 30.0 32.0 33.8 35.4 36.7

Total Long-Term Liabilities $298.9 $294.2 $504.2 $427.8 $538.1 $112.7 $102.9 $119.6 $134.8 $155.6 $170.2 $187.6 $200.0 $211.3 $225.5 $233.7

Total Liabilities $512.5 $515.6 $646.5 $594.5 $682.0 $491.6 $442.5 $509.3 $573.3 $640.5 $700.0 $759.2 $809.1 $854.1 $897.6 $927.2

Stockholders' Equity

Convertible Preferred Stock $270.7 $270.7 $270.7 - - - - - - - - - - - - -

Common Stock 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Additional Paid in Capital 17.3 35.4 51.1 539.0 573.3 594.3 618.9 643.6 668.2 692.9 717.5 742.1 766.8 791.4 816.1 840.7

Accumulated Other Comprehensive Income (Loss) 0.0 (0.0) (0.1) 0.1 (0.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8)

Accumulated Deficit (368.4) (460.7) (550.5) (617.3) (706.4) (626.4) (562.8) (492.8) (413.4) (317.8) (211.8) (93.2) (4.3) 85.4 179.3 276.9

Total Stockholders' Equity ($80.3) ($154.6) ($228.8) ($78.1) ($133.8) ($33.9) $54.4 $149.1 $253.1 $373.4 $503.9 $647.2 $760.8 $875.1 $993.6 $1,115.9

Total Liabilities and Stockholders' Equity $432.2 $360.9 $417.7 $516.4 $548.2 $457.7 $496.938 $658.4 $826.4 $1,013.9 $1,203.9 $1,406.4 $1,569.9 $1,729.3 $1,891.2 $2,043.0

UOIG 22


Appendix 7 – DCF Cash Flow Statement

Statement of Cash Flows


Cash Flow From Operating Activities

Net Income (Loss) From Continuing Operations ($148.4) ($92.4) ($87.7) ($66.8) ($89.2) $80.0 $63.7 $70.0 $79.4 $95.6 $105.9 $118.7 $88.9 $89.7 $93.8 $97.6

Adjustments to Reconcile:

Deferred Taxes - - - ($0.2) ($0.2) ($1.5) $0.2 $0.9 - - - - - - - -


Stock-based Compensation 6.5 14.8 15.1 52.5 33.9 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5

Fair Value of Common Stock Warrants Issued - 2.5 - - - - - - - - - - - - - -

Remeasurement of Preferred Stock Warrants 2.5 (3.5) - - - - - - - - - - - - - -

Conversion of Promissory Notes and Remeasurement of Warrants and Derivatives - - (3.9) 23.7 - - - - - - - - - - - -

Provision for Inventory Obsolescence 0.4 0.1 1.2 0.4 - - - - - - - - - - - -

Provision for Deferred Taxes (0.0) (0.1) - - - - - - - - - - - - - -

Non-Cash Interest Expense on Convertible Notes - - 1.5 0.9 - - - - - - - - - - - -

Other Non-Cash Adjustments 0.5 0.3 0.4 0.1 - - - - - - - - - - - -

Changes in Assets and Liabilities:

Accounts Receivable (2.1) 3.7 (23.2) (13.2) 15.6 7.4 4.7 (6.4) (6.1) (6.1) (5.8) (5.2) (5.0) (4.4) (3.6) (3.4)

Inventory 0.4 2.8 (6.4) 3.0 (2.3) 2.2 0.6 (0.6) (0.5) (0.5) (0.5) (0.5) (0.5) (0.4) (0.3) 0.1

Prepaid Expenses and Other Current Assets (0.4) (0.6) 1.1 (1.2) 0.2 (5.1) 2.0 (1.3) (1.3) (1.9) (1.3) (1.2) (1.8) (1.0) (0.9) (1.6)

Contingent Payments Related to Detectent Acquisition, Held in Escrow - - - - - (4.0) - - - - - - - - - -

Deferred Cost of Revenue (99.0) 51.2 (38.9) (31.0) (56.9) 97.3 18.9 (33.1) (33.1) (31.2) (31.0) (28.5) (26.5) (23.5) (21.6) (18.0)

Other Long-Term Assets (2.7) (2.9) (3.4) 4.5 - - 0.3 (0.7) (0.6) (0.6) (0.6) (0.6) (0.5) (0.5) (0.4) (0.3)

Accounts Payable (5.7) (8.5) 10.9 2.8 (4.1) 3.1 (3.7) 4.3 3.5 3.3 3.4 3.1 3.1 2.7 2.3 (0.6)

Accrued Liabilities 5.0 2.4 (3.2) 4.7 - - - - - - - - - - - -

Customer Deposits 12.6 (5.2) (7.0) (0.1) 0.3 (0.4) - - - - - - - - - -

Deferred Revenue 191.1 (0.9) 107.6 16.6 84.6 (208.3) (39.5) 55.5 53.8 54.6 50.1 50.7 42.4 38.6 38.2 28.1

Accrued and Other Liabilities 4.6 0.9 6.5 (3.6) 2.5 14.0 (5.9) 7.0 6.7 9.3 6.0 5.3 4.5 3.8 3.0 2.1

Net Cash Provided by Operating Activities ($29.5) ($28.5) ($22.3) ($0.2) ($9.2) $18.9 $74.2 $134.9 $142.1 $163.1 $167.5 $184.3 $148.3 $150.0 $156.7 $151.3

Cash Flows Provided by (used in) Investing Activities

Decrease in Restricted Cash ($2.7) $13.9 $0.1 - - - - - - - - - - - - -

Business Acquisition, Net of Cash Acquired - - - - (8.7) (7.1) - - - - - - - - - -

Proceeds from Sales of Available-for-Sale Investments - - - 9.1 53.5 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7

Proceeds from Maturities of Available-for-Sale Investments 35.4 25.0 - - 6.8 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3

Purchases of Short-Term Investments (61.0) - - (72.3) (57.7) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2)

Purchases of Property and Equipment (10.9) (4.1) (4.9) (4.0) (6.1) (5.4) (20.0) (15.3) (14.3) (15.9) (17.4) (18.8) (20.0) (21.1) (22.1) (22.9)

Net Cash Provided by Investing Activities ($39.3) $34.8 ($4.7) ($67.2) ($12.3) ($11.7) ($19.2) ($14.5) ($13.6) ($15.1) ($16.6) ($18.0) ($19.2) ($20.4) ($21.3) ($22.1)

Cash Flow from Financing Activities

Payment Upon Termination of Preferred Stock Warrants of a Related Party - - - ($12.0) - - - - - - - - - - - -

Proceeds from Initial Public Offering, Net of Offering Costs - - - 84.2 - - - - - - - - - - - -

Proceeds from Private Placement of Common Stock with a Related Party - - - 12.0 - - - - - - - - - - - -

Payments on Capital Lease Obligations (1.5) (2.2) (1.3) (2.0) (1.6) (1.2) - - - - - - - - - -

Proceeds from Sale-Leaseback of Property and Equipment 1.5 - 1.7 - - - - - - - - - - - - -

Proceeds from Issuance of Convertible Preferred Stock, Net of Paid Issuance Costs (1.9) - - - - - - - - - - - - - - -

Proceeds from Issuance of Convertible Promissory Note - 24.0 29.0 - - - - - - - - - - - - -

Proceeds from Issuance of Common Stock, Net of Repurchases 1.2 0.8 0.6 2.9 7.0 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8

Excess Tax Benefit from Share-Based Payment Awards - - - - - 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Taxes Paid Related to Net Share Settlement of Equity Awards - - - (8.0) (6.5) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8)

Net Cash Provided by Financing Activities ($0.7) $22.6 $30.0 $77.1 ($1.0) ($3.0) ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) ($1.8) ($1.8)

Effect of Exchange Rate Changes on Cash and Cash Equivalents - - - - ($0.1) ($0.2) - - - - - - - - - -

Net Increase (Decrease) in Cash and Cash Equivalents (69.4) 28.9 1.0 10.0 (22.1) 4.8 53.2 118.6 126.7 146.1 149.1 164.5 127.2 127.7 133.5 127.3

Cash and Cash Equivalents - Beginning of Period 112.2 42.7 71.7 72.6 82.6 60.5 65.3 118.4 237.0 363.7 509.8 658.9 823.4 950.6 1,078.3 1,211.9

Cash and Cash Equivalents - End of Period 42.7 71.7 72.6 82.6 60.5 65.3 118.4 237.0 363.7 509.8 658.9 823.4 950.6 1,078.3 1,211.9 1,339.1

Supplemental Cash Flow Information - Cash Paid for Income Taxes 0.4 0.4 0.8 0.2 0.7 2.7 - - - - - - - - - -

Supplemental Cash Flow Information - Cash Paid for Interest 0.1 0.2 0.4 0.3 0.1 0.1 - - - - - - - - - -

Non-Cash Investing and Financing Activities

Issuance of Preferred Stock Warrants $0.0 $0.0 - - - - - - - - - - - - - -

Conversion of Convertible Preferred Stock into Common Stock - - - 270.7 - - - - - - - - - - - -

Fair Value of Common Stock Issued on Conversion of Convertible Promissory Notes - - - 79.4 - - - - - - - - - - - -

Deferred Offering Costs not yet Paid - - - 0.0 - - - - - - - - - -

Unpaid Purchases of Property and Equipment - - - 0.8 0.5 2.9 - - - - - - - - - -

Property and Equipment Acquired under Capital Lease 4.7 0.4 2.9 1.8 - - - - - - - - - - - -

Issuance of Common Stock Warrant - - 2.5 - - - - - - - - - - - - -

Leasehold Improvements Funded by Lease Incentives - - - - 0.7 - - - - - - - - - - -

UOIG 23


Appendix 8 – DCF Assumptions, Final Price Target, and Beta

Discounted Free Cash Flow Assumptions Considerations

Tax Rate 35.00% Terminal Growth Rate 3.00%

Risk Free Rate 1.76% Terminal Value 1,099

Beta 1.45 PV of Terminal Value 279

Market Risk Premium 6.45% Sum of PV Free Cash Flows 589

% Equity 100.00% Firm Value 868

% Debt 0.00% Total Debt 0

Cost of Debt 0.00% Non-Operating C&CE 55

CAPM 11.14% Market Capitalization 923

WACC 11.14% Fully Diluted Shares 51

Terminal Risk Free Rate 2.69% Implied Price $18.14

Terminal CAPM 12.07% Current Price $14.29

Terminal WACC 12.07% Undervalued 26.97%

Source Implied Price Weighting

Discounted Cash Flow Analysis $18.14 90%

Comparable Analysis 13.64 10%

LBO Model 16.89 0%

Weighted Implied Price $17.69

Current Price $14.29

Undervalued 23.81%Beta Cash Adjusted Beta SE Weighting

1-Year Daily 1.56 1.68 0.20 0.00%

3-Year Daily 1.36 1.46 0.16 90.00%

1-Year Weekly 1.90 2.04 0.44 0.00%

3-Year Weekly 1.40 1.51 0.38 0.00%

Since IPO Daily 1.35 1.45 0.16 0.00%

Since IPO Weekly 1.39 1.50 0.38 0.00%

Hamada - Comps 1.37 1.37 10.00%

Silver Spring Networks Beta 1.36 1.45 0.15

UOIG 24


Appendix 9 – LBO Income Statement

Income Statement


Product Revenue $65.9 $212.3 $162.6 $224.3 $129.3 $353.0 $282.4 $322.0 $360.6 $396.7 $432.4 $467.0 $499.6 $529.6 $556.1 $578.4

Service Revenue $4.3 $24.7 $34.1 $102.5 $62.0 $136.5 $161.1 $186.9 $213.0 $238.6 $262.4 $283.4 $300.5 $315.5 $328.1 $337.9

Total Revenue $70.2 $237.1 $196.7 $326.9 $191.3 $489.6 $443.5 $508.8 $573.6 $635.3 $694.8 $750.4 $800.1 $845.1 $884.2 $916.3

Product Cost of Revenue 78.8 166.1 115.3 150.3 77.2 202.4 161.9 189.9 211.9 231.4 251.1 270.7 289.3 306.3 322.4 312.3


Total Cost of Revenue 120.2 214.1 165.0 211.5 135.0 263.8 231.2 268.4 299.2 326.9 356.1 384.1 409.5 432.5 453.6 447.5

Gross Profit ($50.0) $23.0 $31.7 $115.4 $56.3 $225.7 $212.4 $240.5 $274.4 $308.4 $338.7 $366.3 $390.6 $412.6 $430.6 $468.8

Gross Margin -71.23% 9.68% 16.12% 35.29% 29.45% 46.11% 47.88% 47.26% 47.84% 48.55% 48.75% 48.81% 48.82% 48.83% 48.70% 51.16%

Operating Expenses:

Research and Development 47.0 57.5 62.0 77.0 64.8 61.3 55.4 63.6 68.8 76.2 83.4 90.0 96.0 101.4 106.1 110.0



Restructuring - - - - 1.8 1.7 - - - - - - - - - -


Total Operating Expenses $95.7 $118.2 $120.4 $157.1 $144.2 $142.8 $144.1 $165.4 $183.6 $200.1 $218.9 $232.6 $244.0 $257.8 $269.7 $279.5

Operating Income ($145.8) ($95.2) ($88.6) ($41.8) ($87.9) $83.0 $68.2 $75.1 $90.9 $108.3 $119.8 $133.7 $146.6 $154.9 $160.9 $189.3

Operating Margin (207.6%) (40.2%) (45.1%) (12.8%) (45.9%) 16.9% 15.4% 14.8% 15.8% 17.0% 17.2% 17.8% 18.3% 18.3% 18.2% 20.7%

Other Income (Expense), Net

Interest Income (0.2) (0.0) (2.0) (0.1) (0.3) (0.5) - - - - - - - - - -

Interest Expense - - - - - - - - -

Revolving Credit Facility - - - - - - - - - - - - - - - -

Term Loan A - - - - - - 16.4 16.7 17.0 17.2 17.5 17.6 17.7 17.8 17.9 17.9

Term Loan B - - - - - - 17.7 18.1 18.3 18.6 18.8 18.9 19.0 19.0 19.1 19.2

Senior Subordinated Notes - - - - - - 21.8 21.8 21.8 21.8 21.8 21.8 21.8 21.8 21.8 21.8

Interest Income - - - - - - - - - - - - - - - -

Net Interest Expense - - - - - - 55.9 56.6 57.1 57.6 58.0 58.2 58.4 58.6 58.8 58.9

Other Expense, Net 0.1 (0.0) 0.3 0.0 0.1 0.3 - - - - - - - - - -

Conversion of promissory notes and remeasurement of warrants and derivatives 2.5 (3.5) (3.9) 23.7 - - - - - - - - - - - -

Total Other Expense (Income), Net $2.4 ($3.6) ($5.6) $23.6 ($0.3) ($0.2) $55.9 $56.6 $57.1 $57.6 $58.0 $58.2 $58.4 $58.6 $58.8 $58.9

Earnings Before Taxes ($148.3) ($92.0) ($87.3) ($66.6) ($87.7) $83.1 $12.3 $18.5 $33.8 $50.7 $61.8 $75.5 $88.2 $96.3 $102.2 $130.4

Provision for (Benefit) from Income Taxes 0.1 0.4 0.4 0.2 1.4 3.1 - - - - - - 41.7 48.3 50.5 52.6

Net Income (Loss) ($148.4) ($92.4) ($87.7) ($66.8) ($89.2) $80.0 $12.3 $18.5 $33.8 $50.7 $61.8 $75.5 $46.5 $48.0 $51.7 $77.9

Net Margin (211.4%) (39.0%) (44.6%) (20.4%) (46.6%) 16.3% 2.8% 3.6% 5.9% 8.0% 8.9% 10.1% 5.8% 5.7% 5.8% 8.5%

UOIG 25


Appendix 10 – LBO Balance Sheet

Balance Sheet Adjustments Pro Forma

($ in millions) 2013A 2014A 2015A + - 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Current Assets

Total Cash and Cash Equivalents $82.6 $60.5 $65.3 $65.3 - $11.2 $21.6 $45.6 $89.3 $136.2 $199.3 $225.7 $253.1 $285.7 $334.3

Short-Term Investments 63.3 $60.3 59.2 59.2 58.4 57.7 56.9 56.1 55.4 54.6 53.9 53.1 52.3 51.6

Accounts Receivable, net 69.7 54.7 47.8 47.8 43.1 49.5 55.6 61.8 67.6 72.8 77.8 82.2 85.8 89.1

Inventory 4.4 6.7 4.5 4.5 4.0 4.6 5.2 5.6 6.1 6.6 7.1 7.5 7.8 7.7

Deferred Cost of Revenue 37.5 29.6 196.9 196.9 181.8 209.8 237.7 264.7 291.1 316.0 338.7 359.6 378.2 394.8

Deferred Tax Assets - 5.3 - - - - - - - - - - - -

Restricted Cash - - - - - - - - - - - - - -

Prepaid Expense and Other Current Assets 4.8 $5.1 $10.8 10.8 8.9 10.2 11.5 13.3 14.6 15.8 17.6 18.6 19.5 21.1

Total Current Assets $262.1 $222.3 $384.5 - - $319.2 $307.5 $353.3 $412.5 $490.9 $571.0 $665.1 $720.7 $774.1 $829.3 $898.6

Property and Equipment, Beginning $12.7 $12.4 $12.9 $12.9 $14.1 $27.5 $30.0 $30.4 $32.1 $34.7 $37.5 $40.3 $42.9 $45.3

Property and Equipment, Ending $12.4 $12.9 $14.1 $14.1 $27.5 $30.0 $30.4 $32.1 $34.7 $37.5 $40.3 $42.9 $45.3 $47.3

Non-Current Assets

Goodwill and Intangible Assets - 8.2 14.4 825.3 839.7 839.7 839.7 839.7 839.7 839.7 839.7 839.7 839.7 839.7 839.7

Deferred Cost of Revenue, non-current 238.7 303.4 38.9 38.9 35.0 40.2 45.3 49.6 54.2 57.8 61.6 64.2 67.2 68.7

Deferred Tax Assets, non-current 1.6 0.4 1.1 1.1 0.9 - - - - - - - - -

Other Long-Term Assets 1.6 1.0 4.8 4.8 4.4 5.1 5.7 6.4 6.9 7.5 8.0 8.5 8.8 9.2

Deferred Financing Fees - - - 15.4 15.4 15.4 15.4 15.4 15.4 15.4 15.4 15.4 15.4 15.4 15.4

Total Non-Current Assets $241.8 $313.1 $59.1 - - $899.9 $895.5 $900.4 $906.2 $911.1 $916.3 $920.4 $924.8 $927.8 $931.2 $933.0

Total Assets $516.4 $548.2 $457.7 - - $1,233.2 $1,230.5 $1,283.8 $1,349.1 $1,434.1 $1,522.0 $1,623.0 $1,685.7 $1,744.8 $1,805.8 $1,879.0

Liabilities

Current Liabilities

Accounts Payable 31.3 27.5 30.6 30.6 26.9 31.2 34.7 38.1 41.5 44.6 47.7 50.4 52.7 52.1

Accrued Liabilities 21.3 - - - - - - - - - - - - -

Customer Deposits - - - - - - - - - - - - - -

Deferred Revenue 111.3 91.7 305.5 305.5 275.0 316.0 356.9 396.0 433.9 469.4 501.4 530.5 556.1 577.3

Current Portion of Capital Lease Obligations 1.6 - - - - - - - - - - - - -

Deferred Tax Liability 1.2 0.2 - - - - - - - - - - - -

Accrued and Other Liabilities - 24.4 42.8 42.8 37.7 42.4 46.8 50.8 54.4 57.5 60.0 62.0 63.4 64.1

Total Current Liabilities $166.7 $143.9 $378.8 $378.8 $339.6 $389.7 $438.5 $484.9 $529.8 $571.6 $609.1 $642.9 $672.1 $693.5

Long-Term Liabilities

Term Loan A - - - 272.3 272.3 269.6 266.9 264.2 261.4 258.7 256.0 253.3 250.5 247.8 245.1

Term Loan B - - - 272.3 272.3 269.6 266.9 264.2 261.4 258.7 256.0 253.3 250.5 247.8 245.1

Senior Subordinated Notes - - - 181.6 181.6 181.6 181.6 181.6 181.6 181.6 181.6 181.6 181.6 181.6 181.6

Deferred Revenue, non-current 413.4 517.9 96.3 96.3 87.4 101.8 114.7 130.2 142.4 157.6 168.0 177.5 190.1 197.0

Preferred Stock Warrant Liability - - - - - - - - - - - - - -

Convertible Promissory Notes and Embedded Derivatives - - - - - - - - - - - - - -

Deferred Tax Liability, non-current - 5.1 - - - - - - - - - - - -

Other Liabilities 14.4 15.1 16.4 16.4 15.5 17.8 20.1 25.4 27.8 30.0 32.0 33.8 35.4 36.7

Total Long-Term Liabilities $427.8 $538.1 $112.7 $838.9 $823.7 $834.9 $844.7 $860.1 $869.2 $881.1 $888.1 $893.9 $902.7 $905.4

Total Liabilities $594.5 $682.0 $491.6 $1,217.8 $1,163.3 $1,224.6 $1,283.2 $1,344.9 $1,399.0 $1,452.7 $1,497.2 $1,536.8 $1,574.8 $1,598.9

Stockholders' Equity

Convertible Preferred Stock - - - - - - - - - - - - -

Common Stock 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Additional Paid in Capital 539.0 573.3 594.3 670.7 643.6 668.2 692.9 717.5 742.1 766.8 791.4 816.1 840.7

Accumulated Other Comprehensive Income (Loss) 0.1 (0.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8)

Accumulated Deficit (617.3) (706.4) (626.4) (562.8) (492.8) (413.4) (317.8) (211.8) (93.2) (4.3) 85.4 179.3 276.9

Stockholders' Equity ($78.1) ($133.8) ($33.9) $15.4 ($33.9) $15.4 $15.4 $33.9 $67.7 $118.4 $180.2 $255.7 $302.2 $350.2 $401.8 $479.7

Total Liabilities and Stockholders' Equity $516.4 $548.2 $457.7 $1,233.2 $1,178.7 $1,258.5 $1,350.9 $1,463.3 $1,579.2 $1,708.3 $1,799.4 $1,887.0 $1,976.6 $2,078.6

UOIG 26


Appendix 11 – LBO Cash Flow Statement

Statement of Cash Flows


Cash Flow From Operating Activities

Net Income (Loss) From Continuing Operations ($148.4) ($92.4) ($87.7) ($66.8) ($89.2) $80.0 $12.3 $18.5 $33.8 $50.7 $61.8 $75.5 $46.5 $48.0 $51.7 $77.9

Adjustments to Reconcile:

Deferred Taxes - - - ($0.2) ($0.2) ($1.5) $0.2 $0.9 - - - - - - - -


Stock-based Compensation 6.5 14.8 15.1 52.5 33.9 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5 26.5

Fair Value of Common Stock Warrants Issued - 2.5 - - - - - - - - - - - - - -

Remeasurement of Preferred Stock Warrants 2.5 (3.5) - - - - - - - - - - - - - -

Conversion of Promissory Notes and Remeasurement of Warrants and Derivatives - - (3.9) 23.7 - - - - - - - - - - - -

Provision for Inventory Obsolescence 0.4 0.1 1.2 0.4 - - - - - - - - - - - -

Provision for Deferred Taxes (0.0) (0.1) - - - - - - - - - - - - - -

Non-Cash Interest Expense on Convertible Notes - - 1.5 0.9 - - - - - - - - - - - -

Other Non-Cash Adjustments 0.5 0.3 0.4 0.1 - - - - - - - - - - - -

Changes in Assets and Liabilities: - - - - - - - - - - - - - - - -

Accounts Receivable (2.1) 3.7 (23.2) (13.2) 15.6 7.4 4.7 (6.4) (6.1) (6.1) (5.8) (5.2) (5.0) (4.4) (3.6) (3.4)

Inventory 0.4 2.8 (6.4) 3.0 (2.3) 2.2 0.6 (0.6) (0.5) (0.5) (0.5) (0.5) (0.5) (0.4) (0.3) 0.1

Prepaid Expenses and Other Current Assets (0.4) (0.6) 1.1 (1.2) 0.2 (5.1) 2.0 (1.3) (1.3) (1.9) (1.3) (1.2) (1.8) (1.0) (0.9) (1.6)

Contingent Payments Related to Detectent Acquisition, Held in Escrow - - - - - (4.0) - - - - - - - - - -

Deferred Cost of Revenue (99.0) 51.2 (38.9) (31.0) (56.9) 97.3 18.9 (33.1) (33.1) (31.2) (31.0) (28.5) (26.5) (23.5) (21.6) (18.0)

Other Long-Term Assets (2.7) (2.9) (3.4) 4.5 - - 0.3 (0.7) (0.6) (0.6) (0.6) (0.6) (0.5) (0.5) (0.4) (0.3)

Accounts Payable (5.7) (8.5) 10.9 2.8 (4.1) 3.1 (3.7) 4.3 3.5 3.3 3.4 3.1 3.1 2.7 2.3 (0.6)

Accrued Liabilities 5.0 2.4 (3.2) 4.7 - - - - - - - - - - - -

Customer Deposits 12.6 (5.2) (7.0) (0.1) 0.3 (0.4) - - - - - - - - - -

Deferred Revenue 191.1 (0.9) 107.6 16.6 84.6 (208.3) (39.5) 55.5 53.8 54.6 50.1 50.7 42.4 38.6 38.2 28.1

Accrued and Other Liabilities 4.6 0.9 6.5 (3.6) 2.5 14.0 (5.9) 7.0 6.7 9.3 6.0 5.3 4.5 3.8 3.0 2.1

Net Cash Provided by Operating Activities ($29.5) ($28.5) ($22.3) ($0.2) ($9.2) $18.9 $22.9 $83.4 $96.5 $118.2 $123.4 $141.1 $105.8 $108.3 $114.5 $131.5

Cash Flows Provided by (used in) Investing Activities

Decrease in Restricted Cash ($2.7) $13.9 $0.1 - - - - - - - - - - - - -

Business Acquisition, Net of Cash Acquired - - - - (8.7) (7.1) - - - - - - - - - -

Proceeds from Sales of Available-for-Sale Investments - - - 9.1 53.5 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7

Proceeds from Maturities of Available-for-Sale Investments 35.4 25.0 - - 6.8 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3

Purchases of Short-Term Investments (61.0) - - (72.3) (57.7) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2) (24.2)

Purchases of Property and Equipment (10.9) (4.1) (4.9) (4.0) (6.1) (5.4) (20.0) (15.3) (14.3) (15.9) (17.4) (18.8) (20.0) (21.1) (22.1) (22.9)

Net Cash Provided by Investing Activities ($39.3) $34.8 ($4.7) ($67.2) ($12.3) ($11.7) ($19.2) ($14.5) ($13.6) ($15.1) ($16.6) ($18.0) ($19.2) ($20.4) ($21.3) ($22.1)

Cash Flow from Financing Activities

Payment Upon Termination of Preferred Stock Warrants of a Related Party - - - ($12.0) - - - - - - - - - - - -

Proceeds from Issuance of Long-Term Debt - - - - - $726.2 - - - - - - - - - -

Proceeds from Initial Public Offering, Net of Offering Costs - - - 84.2 - - - - - - - - - - - -

Proceeds from Private Placement of Common Stock with a Related Party - - - 12.0 - - - - - - - - - - - -

Payments on Capital Lease Obligations (1.5) (2.2) (1.3) (2.0) (1.6) (1.2) - - - - - - - - - -

Proceeds from Sale-Leaseback of Property and Equipment 1.5 - 1.7 - - - - - - - - - - - - -

Proceeds from Issuance of Convertible Preferred Stock, Net of Paid Issuance Costs (1.9) - - - - - - - - - - - - - - -

Proceeds from Issuance of Convertible Promissory Note - 24.0 29.0 - - - - - - - - - - - - -

Proceeds from Issuance of Common Stock, Net of Repurchases 1.2 0.8 0.6 2.9 7.0 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8

Repayments on Long-Term Debt - - - - - - (55.9) (56.6) (57.1) (57.6) (58.0) (58.2) (58.4) (58.6) (58.8) (58.9)

Excess Tax Benefit from Share-Based Payment Awards - - - - - 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Repurchase of Common Stock - - - - - 791.5 - - - - - - - - - -

Taxes Paid Related to Net Share Settlement of Equity Awards - - - (8.0) (6.5) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8) (5.8)

Net Cash Provided by Financing Activities ($0.7) $22.6 $30.0 $77.1 ($1.0) ($3.0) ($57.7) ($58.5) ($58.9) ($59.4) ($59.9) ($60.1) ($60.3) ($60.4) ($60.6) ($60.7)

Effect of Exchange Rate Changes on Cash and Cash Equivalents - - - - ($0.1) ($0.2) - - - - - - - - - -

Net Increase (Decrease) in Cash and Cash Equivalents (69.4) 28.9 1.0 10.0 (22.1) 4.8 (54.1) 10.4 24.0 43.7 47.0 63.1 26.3 27.5 32.6 48.6

Cash and Cash Equivalents - Beginning of Period 112.2 42.7 71.7 72.6 82.6 60.5 65.3 11.2 21.6 45.6 89.3 136.2 199.3 225.7 253.1 285.7

Cash and Cash Equivalents - End of Period 42.7 71.7 72.6 82.6 60.5 65.3 11.2 21.6 45.6 89.3 136.2 199.3 225.7 253.1 285.7 334.3

Supplemental Cash Flow Information - Cash Paid for Income Taxes 0.4 0.4 0.8 0.2 0.7 2.7 - - - - - - - - - -

Supplemental Cash Flow Information - Cash Paid for Interest 0.1 0.2 0.4 0.3 0.1 0.1 - - - - - - - - - -

Non-Cash Investing and Financing Activities

Issuance of Preferred Stock Warrants $0.0 $0.0 - - - - - - - - - - - - - -

Conversion of Convertible Preferred Stock into Common Stock - - - 270.7 - - - - - - - - - - - -

Fair Value of Common Stock Issued on Conversion of Convertible Promissory Notes - - - 79.4 - - - - - - - - - - - -

Deferred Offering Costs not yet Paid - - - 0.0 - - - - - - - - - - - -

Unpaid Purchases of Property and Equipment - - - 0.8 0.5 2.9 - - - - - - - - - -

Property and Equipment Acquired under Capital Lease 4.7 0.4 2.9 1.8 - - - - - - - - - - - -

Issuance of Common Stock Warrant - - 2.5 - - - - - - - - - - - - -

Leasehold Improvements Funded by Lease Incentives - - - - 0.7 - - - - - - - - - - -

UOIG 27


Appendix 12 – LBO Debt Schedule

Debt Schedule

Pro Forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Forward LIBOR Curve 0.5% 0.5% 0.7% 0.9% 1.0% 1.2% 1.3% 1.4% 1.5% 1.6% 1.7%

Cash Flow from Operating Activities

Cash Flow from Investing Activities

Cash Available for Debt Repayment

Total Mandatory Repayments MinCash

Cash from Balance Sheet -

Cash Available for Optional Debt Repayment

Revolving Credit Facility

Revolving Credit Facility -

Spread 3.3%

Term 10

Commitment Fee on Unused Portion 0.5%

Beginning Balance - - - - - - - - - -

Drawdown / (Repayment) - - - - - - - - - -

Ending Balance - - - - - - - - - -

Interest Rate 3.8% 3.8% 4.0% 4.1% 4.3% 4.4% 4.5% 4.7% 4.8% 4.9%

Interest Expense - - - - - - - - - -

Commitment Fee 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Term Loan A Facility

Size 272.3$

Spread 5.5%

Term 10 years

Repayment Schedule 1.00% per Annum, Bullet at Maturity

Beginning Balance $272.3 $269.6 $266.9 $264.2 $261.4 $258.7 $256.0 $253.3 $250.5 $247.8

Mandatory Repayments 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7

Optional Repayments - - - - - - - - - -

Ending Balance $269.6 $266.9 $264.2 $261.4 $258.7 $256.0 $253.3 $250.5 $247.8 $245.1

Interest Rate 6.0% 6.2% 6.4% 6.5% 6.7% 6.8% 6.9% 7.0% 7.1% 7.2%

Interest Expense 16.4 16.7 17.0 17.2 17.5 17.6 17.7 17.8 17.9 17.9

Projection Period

UOIG 28


Appendix 13 – LBO Debt Schedule (Cont’d)

Term Loan B Facility

Size 272.3$

Spread 6.0%

Term 10 years

Repayment Schedule 1.00% per Annum, Bullet at Maturity


Mandatory Repayments 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7

Optional Repayments - - - - - - - - - -

Ending Balance $269.6 $266.9 $264.2 $261.4 $258.7 $256.0 $253.3 $250.5 $247.8 $245.1

Interest Rate 6.5% 6.7% 6.9% 7.0% 7.2% 7.3% 7.4% 7.5% 7.6% 7.7%

Interest Exepense 17.7 18.1 18.3 18.6 18.8 18.9 19.0 19.0 19.1 19.2

Senior Subordinated Notes

Size 181.6$

Coupon 12.0%

Term 10 years


Repayment - - - - - - - - - -

Ending Balance $181.6 $181.6 $181.6 $181.6 $181.6 $181.6 $181.6 $181.6 $181.6 $181.6

Interest Rate 12.5% 12.7% 12.9% 13.0% 13.2% 13.3% 13.4% 13.5% 13.6% 13.7%

Interest Expense 21.8 21.8 21.8 21.8 21.8 21.8 21.8 21.8 21.8 21.8

UOIG 29


Appendix 14 – LBO Summary Financial Data

Summary Financial Data

2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Sales $70.2 $237.1 $196.7 $326.9 $191.3 $489.6 $443.5 $508.8 $573.6 $635.3 $694.8 $750.4 $800.1 $845.1 $884.2 $916.3

EBITDA (140.6) (88.3) (81.4) (35.1) (81.4) 90.8 74.8 87.9 104.8 122.4 134.6 149.6 163.9 173.4 180.7 210.2

EBIT (145.8) (95.2) (88.6) (41.8) (87.9) 83.0 68.2 75.1 90.9 108.3 119.8 133.7 146.6 154.9 160.9 189.3

Capex and Acquisitions (10.9) (4.1) (4.9) (4.0) (6.1) (5.4) (20.0) (15.3) (14.3) (15.9) (17.4) (18.8) (20.0) (21.1) (22.1) (22.9)

Total Interest Expense 2.4 (3.6) (5.6) 23.6 (0.3) (0.2) 55.9 56.6 57.1 57.6 58.0 58.2 58.4 58.6 58.8 58.9

Free Cash Flow

EBITDA $74.8 $87.9 $104.8 $122.4 $134.6 $149.6 $163.9 $173.4 $180.7 $210.2

Less: Cash Interest Expense 55.9 56.6 57.1 57.6 58.0 58.2 58.4 58.6 58.8 58.9

Less: Income Taxes - - - - - - 41.7 48.3 50.5 52.6

Less: Capital Expenditures 20.0 15.3 14.3 15.9 17.4 18.8 20.0 21.1 22.1 22.9

Less: Change in NWC 17.0 (13.9) (12.9) (10.9) (11.0) (10.0) (7.5) (7.1) (5.9) -

Free Cash Flow (18.1) 29.9 46.2 59.9 70.2 82.7 51.3 52.5 55.1 75.8

Cumulative Free Cash Flow ($18.1) $11.8 $58.0 $117.9 $188.1 $270.8 $322.0 $374.5 $429.6 $505.4

Projection PeriodHistorical Period

UOIG 30


Appendix 15 – LBO Assumptions

Financing Fees Financing Structures

Rate Tenor

Structure 1 Size (%) ($) 1 2 3 4 5

Revolving Credit Facility - - - - Sources of Funds Structure 1 Structure 2 Structure 3 Structure 4 Structure 5

Term Loan A 272.3 2.0% 5.4 L + 5.5% 10.0 Revolving Credit Facility Size - - - - -

Term Loan B 272.3 2.0% 5.4 L + 6.0% 10.0 Revolving Credit Facility Draw - - - - -

2nd Lien - - - L + 12.0% - Term Loan A 272.3 272.3 272.3 272.3 272.3

Senior Notes - - - - - Term Loan B 272.3 226.9 226.9 272.3 272.3

Senior Subordinated Note 181.6 2.5% 4.5 - 10.0 Senior Subordinated Notes 181.6 136.2 136.2 181.6 181.6

Senior Bridge Facility - - - - - Equity Contribution 23.35 114.1 114.1 23.3 23.3

Other Financing Fees - - - - - Cash on Hand 65.3 65.3 65.3 65.3 65.3

Total Financing Fees $15.4 Total Sources of Funds $814.8 $814.8 $814.8 $814.8 $814.8

Uses of Funds

Equity Purchasing Price 791.5 791.5 791.5 791.5 791.5

Tender / Call Premiums - - - - -

Financing Fees 15.4 15.4 15.4 15.4 15.4

Other Fees and Expenses 7.9 7.9 7.9 7.9 7.9

Total Uses of Funds $814.8 $814.8 $814.8 $814.8 $814.8

Fees Structure

Purchase Price Return Analysis

Public / Private Target 1 2025 EBITDA 210.2

Exit Multiple 6.0

Entry EBITDA Multiple 8.0x Enterprise Value at Exit 1,260.9

LTM 12/31/2015 EBITDA 90.8 Less: Net Debt

Enterprise Value $726.2 Long-Term Debt 671.7

Cash and Cash Equivalents 334.3

Less: Total Debt - Net Debt 337.4

Less: Preferred Securities - Equity Value at Exit $923.5

Less: Noncontrolling Interest - Price Target $16.9

Plus: Cash and Cash Equivalents 65.3

Equity Purhcase Price $791.5

Enterprise Value / Sales

NTM 443.5 1.6x

LTM 489.6 1.5x

Enterprise Value / EBITDA

NTM 70.3 10.3x

LTM 90.8 8.0x

Transaction Multiples

UOIG 31


Appendix 16 – Sensitivity Analysis



2.0% 2.5% 3.0% 3.5% 4.0% 2.0% 2.5% 3.0% 3.5% 4.0%

1.25 19.95 20.43 20.97 21.58 22.29 1.25 39.58% 42.94% 46.73% 51.04% 55.98%

1.35 18.62 19.01 19.45 19.94 20.50 1.35 30.32% 33.05% 36.11% 39.55% 43.45%

1.45 17.47 17.79 18.14 18.54 18.99 1.45 22.24% 24.48% 26.97% 29.75% 32.87%

1.55 16.45 16.71 17.01 17.33 17.70 1.55 15.11% 16.97% 19.02% 21.29% 23.83%

1.65 15.54 15.77 16.01 16.28 16.58 1.65 8.78% 10.34% 12.04% 13.92% 16.00%



2.0% 2.5% 3.0% 3.5% 4.0% 2.0% 2.5% 3.0% 3.5% 4.0%

10.02% 18.88 19.25 19.65 20.11 20.61 10.02% 32.13% 34.69% 37.53% 40.70% 44.26%

10.27% 18.55 18.90 19.30 19.74 20.23 10.27% 29.81% 32.29% 35.05% 38.12% 41.58%

10.52% 18.23 18.57 18.95 19.38 19.86 10.52% 27.54% 29.95% 32.63% 35.62% 38.97%

10.77% 17.91 18.25 18.62 19.03 19.50 10.77% 25.34% 27.68% 30.28% 33.18% 36.44%

11.02% 17.60 17.93 18.29 18.69 19.14 11.02% 23.18% 25.46% 27.98% 30.80% 33.96%



2.0% 2.5% 3.0% 3.5% 4.0% 2.0% 2.5% 3.0% 3.5% 4.0%

10.95% 18.07 18.46 18.91 19.42 20.00 10.95% 26.42% 29.20% 32.33% 35.88% 39.94%

11.20% 17.92 18.30 18.72 19.20 19.74 11.20% 25.39% 28.03% 31.00% 34.35% 38.16%

11.45% 17.78 18.14 18.54 18.99 19.51 11.45% 24.42% 26.93% 29.75% 32.91% 36.50%

11.70% 17.65 17.99 18.37 18.80 19.28 11.70% 23.49% 25.89% 28.56% 31.56% 34.95%

11.95% 17.52 17.85 18.21 18.62 19.08 11.95% 22.62% 24.91% 27.45% 30.30% 33.50%



2.0% 2.5% 3.0% 3.5% 4.0% 2.0% 2.5% 3.0% 3.5% 4.0%

46.89 18.96 19.30 19.69 20.12 20.61 46.89 32.66% 35.09% 37.79% 40.81% 44.20%

48.89 18.18 18.51 18.89 19.30 19.76 48.89 27.23% 29.56% 32.16% 35.05% 38.30%

50.89 17.47 17.79 18.14 18.54 18.99 50.89 22.23% 24.47% 26.96% 29.74% 32.87%

52.89 16.81 17.11 17.46 17.84 18.27 52.89 17.61% 19.77% 22.16% 24.84% 27.84%

54.89 16.19 16.49 16.82 17.19 17.60 54.89 13.32% 15.40% 17.71% 20.29% 23.18%

Additional Sensitivity Tables Additional Senstivity Tables


2.0% 2.5% 3.0% 3.5% 4.0% 2.0% 2.5% 3.0% 3.5% 4.0%

35 17.07 17.40 17.75 18.15 18.59 35 19.48% 21.73% 24.22% 27.00% 30.12%

45 17.27 17.59 17.95 18.34 18.79 45 20.86% 23.10% 25.59% 28.37% 31.50%

55 17.47 17.79 18.14 18.54 18.99 55 22.24% 24.48% 26.97% 29.75% 32.87%

65 17.66 17.98 18.34 18.74 19.18 65 23.61% 25.85% 28.34% 31.13% 34.25%

75 17.86 18.18 18.54 18.93 19.38 75 24.99% 27.23% 29.72% 32.50% 35.63%

No

n-O

pera

tin

g

C&

CE

No

n-O

pera

tin

g

C&

CE

Dil

ute

d S

hare

s

Dil

ute

d S

hare

s

Beta

Beta

WA

CC

WA

CC

Term

inal

WA

CC

Term

inal

WA

CC

UOIG 32


Appendix 17 - Sources

Congressional Budget Office

Energy Information Administration

Energy.gov

FactSet

Federal Reserve Economic Data

IBISWorld

Morningstar

Seeking Alpha

Silver Spring Networks 10-K

Silver Spring Networks 10-Q

Silver Spring Networks S-1

Silver Spring Networks Earnings Presentations

Silver Spring Networks Investor Relations

Wall Street Journal

Yahoo Finance

Documents

SSNI-Report-Final