Silver Spring Networks' (SSNI) CEO Scott Lang on Q1 2014 Results - Earnings Call Transcript

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Silver Spring Networks (NYSE:SSNI)

Q1 2014 Earnings Call

May 06, 2014 4:30 pm ET

Executives

Tricia Gugler - Former Vice President of Investor Relations

Scott A. Lang - Chairman, Chief Executive Officer and President

James P. Burns - Chief Financial Officer and Executive Vice President

Analysts

Patrick Jobin - Crédit Suisse AG, Research Division

Simona Kiritsov Jankowski - Goldman Sachs Group Inc., Research Division

Mark McKechnie - Evercore Partners Inc., Research Division

John Quealy - Canaccord Genuity, Research Division

Operator

Greetings, and welcome to the Silver Spring Networks First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Tricia Gugler, Vice President of Investor Relations for Silver Spring Networks. Thank you. Ms. Gugler, you may begin.

Tricia Gugler

Thank you. Welcome to our first quarter 2014 earnings call. With me on the call today are Scott Lang, our Chief Executive Officer; and Jim Burns, our Chief Financial Officer. After the call, we will post to our website at ir.silverspringnet.com our prepared remarks, our presentation slides and an audio replay of this call.

Our comments today include forward-looking statements regarding future growth, future events and the future financial performance of the company. Actual events and results may differ materially from our expectations. We refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today. We make these statements as of May 6, 2014, and disclaim any duty to update them.

Throughout this call, we will discuss both GAAP and non-GAAP financial measures. Unless otherwise stated, the financial measures discussed will be non-GAAP. Our earnings release, which is posted on our website, provides a reconciliation of our GAAP to non-GAAP financial measures. We encourage investors to consider all measures before making an investment decision. All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated.

Now I would like to turn the call over to Scott.

Scott A. Lang

Thanks, Tricia. Hello, everyone. For the quarter, we did better than we expected on the top and bottom line. More importantly, we executed on our business model with strong growth in our recurring and new solutions revenue, which Jim will cover in detail shortly.

Let me discuss what we are seeing for the full year. As we said on our last call, we expected a softer first half 2014 as some of our newer customer deployments are taking longer to ramp up. In addition, while our new customer pipeline is healthy and deals are progressing, we continue to see some delays in decisions. These timing delays impact when deployments begin and can have a significant impact on any one quarter and, therefore, total revenue for the year. These are not competitive losses. Our market share remains strong. As many of you know, predicting when large technology deals sign and, in some cases, begin deployment in this industry can be challenging. That's true even when our customers give us input. It's a dynamic process. Therefore, we're going to take a more cautious view on our timing assumptions for the remainder of 2014. This means we are assuming some deals will start later than we expected, resulting in less AMI, non-GAAP revenue for the year. However, we still expect strong growth in recurring and new solutions non-GAAP revenue, which will help expand non-GAAP gross margins as we exit the year.

For the full year, we now expect top line to be between $300 million and $330 million. This represents a larger range than what we have historically provided, given the size of these awards and the variability of timing. We expect this to tighten our range as we progress throughout the year.

Timing between various quarters does not affect our long-term opportunity. While our awards are often lumpy, we expect to have another strong year in bookings with a solid growth in backlog. This year, we expect to surpass 20 million networked homes and businesses with millions more in backlog that will be generating a recurring revenue stream and open opportunity to deploy our new solutions, both of which saw very strong growth this quarter. As I said on the last call, 2015 is taking shape and I like what I see. Based on looking at our backlog and our pipeline of opportunity, we expect strong growth in 2015 and gross margins to expand. We expect we will be past many of the delays we have seen with newer awards, and these deployments will be contributing to a full year of revenue.

With respect to our business, nothing has fundamentally changed. The opportunity is significant and the interest is growing, particularly on the international side. I was recently on a 3-week international trip visiting customers and prospects in several countries. In Singapore, we have deployed our fourth generation technology, including networking high-rises with our integrated RF mesh and cellular solution, and the customer is very pleased with the performance of our technology. And in New Zealand, our technology is successfully supporting their disaggregated energy market, enabling retailers to deliver comprehensive energy information to customers. And back here at home, we are very pleased to announce that the exciting awards we shared with you earlier this year have progressed, and it is with AEP Ohio and Public Service Company of Oklahoma, to network an additional 1.5 million homes and businesses in their service territories. AEP Ohio will also be deploying our Distribution Automation solutions simultaneously. These were 2 pilot customers that we successfully converted into full deployments.

Although our core business remains a significant opportunity, we recognize that it is lumpy, and we're taking actions to make us stronger for the longer term and realize our long-term business model. We're expanding our business to adjacent markets. We are growing our recurring revenue streams, and we are making adjustments to our organization to achieve our business model while we improve productivity. Let me cover each of these.

Smart Cities is becoming a global priority for many cities around the world to drive efficiency, sustainability and competitiveness. Just as we saw in smart energy, cities are realizing that the networking technology is the cornerstone to enable this vision. Our street light business is the first solution in Smart Cities, just like in many ways AMI is for the smart grid. We are thrilled to announce our acquisition of Streetlight.Vision today. Streetlight.Vision is a leader in lighting management and control systems. We know this company well. They have been a partner, and we began working with them last year on the successful Paris street light project.

This acquisition does a number of strategic things for us. First, it brings us the software control layer for street lights, expanding our software portfolio. Think of it as the UIQ software for Smart Cities. In addition, this software can be leveraged for additional Smart City applications, accelerating our ability to go after expanding market. In street lighting alone, we estimate there are 300 million public street lights to network globally with a significant opportunity within our current deployed customer base. Second, it expands our customers, resellers and partners and broadens our geographic reach. Streetlight.Vision has a growing pipeline and is currently working with over 15 resellers globally, with customers in China and Europe. In addition, there's an opportunity to get some pull-through sales of our existing solutions. Third, it brings us a strong team in Smart Cities, bringing this talent to Silver Spring will increase the size of our team, with exceptional people that will strengthen our ability to go to market. Fourth, it will be accretive to our business model over time given the higher-margin revenue. Jim will cover more specifics shortly.

I would like to take this opportunity to welcome Streetlight.Vision team to Silver Spring Networks as we continue to expand this business. We are also expanding our recurring high-margin revenue streams with our new SilverLink Sensor Network. We are in many active conversations with customers and are very excited about the potential of this new business.

And finally, we're making a few organizational adjustments to improve our execution and make us stronger. On the sales front, we have moved all of sales under Eric Dresselhuys so that we are better positioned to go after our expanding market opportunities. As many of you know, Eric is a co-founder of the company, an industry expert and most recently was leading Global Development. Raj Vaswani, our CTO, will have more customer-facing time as we have consolidated engineering under Don Reeves, a 9-plus years Silver Spring veteran. I'm also pleased to announce that Tricia will be moving to support the sales organization in operations and finance. I would like to take this opportunity to thank Tricia for the great work she has done in Investor Relations over the last 4 years and welcome Bonnie Hyun, who will be leading our IR efforts going forward. Bonnie has also been with the company for over 4 years, came to us from investment banking and most recently was running our Deal Desk.

In closing, we are pushing through these softer quarters nearer return. We are expanding our business to adjacent markets. We are growing our recurring revenue streams and making adjustments to our organization structure, all to strengthen our position for this significant market opportunity. We are confident in our long-term model. Today, Silver Spring is delivering on the Internet of Things. We are deploying and operating high-performance, large-scale outdoor networks, connecting millions and millions of devices for the energy sector, and have just begun our journey into Smart Cities.

I would like to thank you for your time today, and I will pass the call over to Jim to discuss our results and guidance.

James P. Burns

Thank you, Scott, and good afternoon, everyone. I plan to cover the acquisition, then we'll go into our results and outlook.

Streetlight.Vision is a great acquisition for us. It fits all of our M&A criteria, and we expect the integration of Streetlight.Vision to go very well. The purchase price is approximately $8.8 million in cash. Streetlight.Vision is a leader in the software control layer of street lights. They sell their software integrated with third-party lighting control devices. Their gross margins are approximately 50%. They've built a nice global pipeline, which brings us into new countries, such as China. In addition, as we seamlessly integrate our solutions together, we expect there are meaningful revenue synergies with our networked street light solution.

From a financial standpoint, we expect the impact of this acquisition to be immaterial to our 2014 financial results with accretion to gross margins and earnings in 2015. We expect the deal to close in Q2.

Now on to our Q1 results. Q1 non-GAAP revenue was $72 million, down 3% year-over-year. Non-GAAP product revenue was $52 million, down 7% year-over-year. We delivered 526,000 endpoints in the quarter. This was higher than expected, which drove the better-than-expected performance in the quarter.

Non-GAAP services revenue was $20 million, up 13% year-over-year. Non-GAAP professional services revenue was $10 million, up 7% year-over-year. And non-GAAP managed and SaaS services revenue was also $10 million, up a strong 19% year-over-year, and 9% sequentially, as more customers leverage our network management services. Through Q1, we have delivered 18.7 million cumulative network endpoints, up 13% from last year. Recurring non-GAAP revenue for cumulative network endpoint on a trailing 12-month basis was $2.05. Our managed and SaaS revenue continues to expand as we network more and more endpoints and layer on more new solutions to the platform, including our street light and SilverLink solutions. We expect this revenue stream to continue to grow strongly in 2014.

Network and AMI non-GAAP revenue was $52 million, down 9% year-over-year. Our new solution non-GAAP revenue was $9 million, up 74% year-over-year driven by growth in both Distribution Automation and demand-side management. We expect strong growth from these solutions this year.

Our U.S. non-GAAP revenue grew 6%, while international non-GAAP revenue was $9 million. Our newer international markets are ramping nicely but did not offset the decline in Australia revenue, which was our largest international market in the year ago quarter. Non-GAAP gross margins were 30%, up 1 point from a year ago. Non-GAAP product gross margins was 28.2%, down 2 points year-over-year. Our product gross margins in the quarter were a reflection of the product mix and warranty expense. Non-GAAP services gross margin was 34.7%, up 8 points year-over-year. Professional services gross margin was 28.4%, up 12 points year-over-year primarily due to mix. And managed and SaaS gross margin was 40.7%, up 4 points from a year ago. We expect our 2014 gross margins to expand over last year as we continue to scale this business.

Non-GAAP operating expenses were $30 million, flat to a year ago. We ended the quarter with 617 employees. Our non-GAAP net loss was $9 million, relatively flat to last year. Our non-GAAP loss per share was $0.19.

Now on to the outlook. As Scott indicated, we now expect non-GAAP revenue of $300 million to $330 million. Let me walk you through the change in our top line. During Q1, we continued to see a number of deals get delayed, which has an impact on end-year revenue. Accordingly, we have adjusted our timing assumptions on bookings and when deployment timing will begin, which has an impact on 2014 revenue. We have widened our full year guidance range, which we expect to tighten as we move throughout the year. We expect sequential growth in Q3, year-over-year growth in Q4 and strong growth in 2015.

Moving on to margins. We expect non-GAAP gross margins in the mid-30s. We expect gross margin expansion based on looking at the backlog as we exit 2014 and into 2015, which has a richer mix of higher-margin products and services. On operating expenses, we will continue to drive productivity while investing for growth. We now expect flat to modest OpEx growth in 2014. Non-GAAP loss per share of approximately $0.15 to $0.30, with positive EPS and cash flow in Q4. Full year share count of approximately 48 million.

For Q2 '14, we expect non-GAAP revenue of approximately $60 million to $65 million, non-GAAP gross margins of approximately 31% to 33%, non-GAAP loss per share of approximately $0.22 to $0.26 and a share count of approximately 48 million.

In summary, although we are seeing some delays in our AMI business due to timing, our business model is working, as you see in the results this quarter. We continue to expand our footprint by winning new business and converting pilots to full deployments, as we showed with AEP this quarter. We have deployed 18.7 million endpoints with millions more in backlog, and are working with customers that represent an incremental 24 million homes and businesses that are piloting or deploying our technology in phases. Our managed and SaaS revenue grew 19% and our new solution revenue grew 74% this quarter, which are our higher-margin revenue streams. And for every home and business we network, our opportunity increases.

Thank you for your time today. Now I'll pass it back to Tricia.

Tricia Gugler

Thanks, Jim. Operator, we'll take our first call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Patrick Jobin from Crédit Suisse.

Patrick Jobin - Crédit Suisse AG, Research Division

Just firstly, on the 2014 guidance reduction. I just want a better understanding of maybe how many projects slipped? Were they already contracted or is it just the potential projects you were looking at? And then of the new range of $300 million to $330 million, maybe how much of that is already reflected in backlog today? And I have a follow-up.

James P. Burns

Yes, sure, Patrick, thanks for the question. So first of all, on the 2014, it was a number of deals that got -- that slid. There wasn't 1 or 2. There were a number of deals. And when that happens, it affects the timing, not just of the deal signing but it pushes out the revenue for the year. So that was really the first point relative to that. But we have been awarded, verbally awarded, entered on the contracting phase with a sizable number of deals right now. So that's point number one on the guidance. Point number two would be, because of what we saw in Q1, we're taking a more cautious view around bookings and deployment timing, pushing out the revenues. So I talked about the bookings and that we've got a lot of activity which is being contracted. When we look at what's in backlog and what's being contracted and our timing assumptions around that, we actually get very good coverage relative to getting to the low-end of our guidance. And then we've got quite a number of deals that are in the pipeline that we're working to hopefully do better than that. But that's where we're at right now. But even with the cautious, more cautious view we're taking on bookings, the timing of bookings for the quarter, we're still expecting good growth in backlog this year.

Scott A. Lang

Okay. And just to jump on that, Patrick, if I may. This is Scott. As Jim said, we feel very good that backlog will grow well as we go in, very nicely, as we go into 2015, with the gross margin getting closer to our model. We really like how the model held together in the first quarter regarding that new solution growth and the recurring growth. And at the end of the year, we'll be coming out of the year with more than 20 million homes and businesses connected that continue for that full year next year, along with seeing many of these delays in the decisions and the awards taking -- contracting now, have a full year of 2015. So as we said in the last call, I just want to reinforce again, we see 2015 coming together and we really like what we see. And the pipeline, on top of that, has expanded quite nicely. And it was nice to see some nice conversion of some of the pilots move into full deployment. So we, again, emphasize we think this is timing. We feel great about how we're going to be coming out of 2014, and how we're going into 2015. And we're using this opportunity to get very productive on a number of points in our business, to first [indiscernible] our new business, which you saw with the Streetlight acquisition, continue to reinforce those new solutions and making sure that we're monetizing that through our recurring revenue stream and then overall execution and driving productivity across the company.

Patrick Jobin - Crédit Suisse AG, Research Division

So just if I can follow-up on that. So if I look out for 2014, I think you said strong growth in new solutions. Is there a way to roughly ballpark what you're anticipating for that line? I think historically, you've given some growth projections.

James P. Burns

Yes. I would say we viewed our long-term model as growing kind of 20-plus percent per year. We expect to do much better than that this year in terms of our new solutions growth.

Patrick Jobin - Crédit Suisse AG, Research Division

Okay. And for 2015, for what you see now with the comments that it's shaping up well, is 20% top line growth roughly what you're thinking about for 2015? Or is it too early to tell?

James P. Burns

We're comfortable with that assumption, but we'll obviously give more color on '15 as we get closer to it.

Operator

Our next question comes from the line of Simona Jankowski from Goldman Sachs.

Simona Kiritsov Jankowski - Goldman Sachs Group Inc., Research Division

I just wanted to clarify the prior question, in particular, is the downward revision to the revenue guidance due entirely to deals that you still have but just the timing of them is a little bit later? Or is part of it just the probability waiting, working against you, meaning that some deals that you might've hoped to close went the other way?

James P. Burns

This is entirely due to timing. Let me just be emphatic on that point. This is -- has nothing to do with deal losses. Our market share has never been stronger. We are confident in winning these deals. It hasn't waned 1 iota. This is entirely related to the timing of deals. We don't like that the timing has slipped, but we've seen it. We're taking a more cautious view. But this is 100% related to timing.

Simona Kiritsov Jankowski - Goldman Sachs Group Inc., Research Division

During the quarter, we saw an announcement of a larger deal go to Itron, specifically FirstEnergy, which I think was 2 million endpoints, was that not something that you were considering as being in your pipeline? If you can just expand on that a little bit, why or why not?

Scott A. Lang

Yes, Simona. It's Scott. The FirstEnergy deal was something that was awarded quite a long time ago that had just now finally been announced. So we weren't surprised to see that and it was not in any of the deals that we were pursuing during the last several quarters of talking with you.

Simona Kiritsov Jankowski - Goldman Sachs Group Inc., Research Division

Okay. And then as far as the size of your overall opportunity or pipeline of pilots and partial deployments, I think you said that was about 24 million. That hasn't really moved up much in the last few quarters. I think you obviously converted some of that into actual contracted wins. But can you just describe that a little bit? Is it because you feel like it's a big enough pipeline and now you're just focusing on converting that? And -- or why are we not seeing that expand? And along those lines, if you can just update us on the 2 large opportunities you're pursuing in Brazil?

James P. Burns

Yes. The pilots -- it take a while to get from pilot to full deployment. The customers typically will go into pilot mode, they will deploy our technology and then they'll go out to bid and award the full deployment and get to that piece. We have seen some conversions. You saw the announcement we made with AEP this quarter. But the deals that we're talking about, those were a combination of full deployment deals in addition to pilot deals. So we have actually -- our pipeline is as strong as it's been, but there's still quite a number of pilot opportunities in there that represent additional endpoints to the 24 million that we're talking through. So we do see, particularly in the international markets, but also domestically, a number of utilities that want to continue to pilot.

Scott A. Lang

Yes. And regarding the Brazil, we continue to believe Brazil offers a great long-term growth market for us. The team is doing extremely well there, and the pipeline is active. And I think we're doing well. Even though we won't comment any -- specifically on any of the couple of deals that we're working on. But it's beyond that and we have made some nice progress. I would also say on this pipeline number, there are also -- you shouldn't assume all of the new opportunities that we're looking at that's in our pipeline would necessarily be in our pilot number. I just finished a 3-week road trip, I mentioned that in the prepared remarks, where I hit a number of different countries, and I was -- I will tell you, I was just extremely proud of the team and how our technology was performing. And I used Singapore as an example, it has had just some terrific success with our technology and the kind of performance it's running at with our fourth generation product. And as we've been out on the road, and I've been out on the road talking to our existing customers or to new prospects, the level of performance in our technology is really holding up at the scale we are seeing and the referencability customers like Singapore are giving us in the new deals. If you remember, there was a few awards we won earlier in 2013 but it never did even go to pilot. And I do see some of those showing up in our pipeline and we feel very good about that. But the performance of this technology and the fact that it's in fourth generation technology and backward-compatible across the board is really resonating not only in the energy space where we are, but also something that has really resonated in the Smart Cities and looking at these iconic cities that must have performance out of the blocks and know that the new generations of performance, that they will need to stay competitive and to embrace efficiency. We'll work and be compatible. And I think that's what's really differentiating our technology. And that team has done extremely well. We've got our technology being piloted in 6 additional cities so far this year. We think the Streetlight acquisition that we've made increases that to a number of new countries that we'll go into this year and realize some strong synergies between those 2 with the technology. And we expect a 1 plus 1 equals 3 out of that coming out of the year and having a full year of the impact of that as well in 2015.

Operator

Our next question comes from the line of Mark McKechnie from Evercore.

Mark McKechnie - Evercore Partners Inc., Research Division

My question is, you announced a couple of orders, deals, I'm going to have to look through the transcript for the names but maybe you can refresh me. But were those the verbal commits that you had when you closed last quarter, that you wanted to close to add another 125 million to backlog? Maybe you can go into a little more detail on those awards as well.

James P. Burns

Mark, thanks. Yes, that's exactly right. So we kind of announced in January that we had verbal awards and we got permission from the customer, AEP, to mention them this quarter. Those 2 are synonymous.

Mark McKechnie - Evercore Partners Inc., Research Division

Got you. And I'm guessing, then so the $125 million or so that we were thinking that would add. So is it safe to assume that you take the revenue you did this quarter and your overall backlog increased from quarter end?

James P. Burns

Well, that's -- we're still in a contracting phase for that one. So we haven't officially added to backlog but it's very near the end of the contracting phase, and that will have a significant -- I can't give the exact number but it will have a meaningful impact to grow in the backlog.

Mark McKechnie - Evercore Partners Inc., Research Division

Okay, great. And then the other question is on the -- you shipped -- you gave us a unit number that you shipped so we can could kind of back out an ASP per endpoint. Do you think that, going forward, would you expect that ASP per endpoint shifting to your product business to trend upward, downward or really flat from that? It's about $100 or so per endpoint that I calculated.

James P. Burns

I think $100 an endpoint is a reasonable assumption. Although, I will tell you, it's going to fluctuate quarter-to-quarter. There are some deals where we've got a different composition of software and other components of products. So it will fluctuate quarter-to-quarter. But I think as far as trying to model the business, I think that's, right now, a reasonable assumption for the business. But then, obviously, on top of that product revenue per endpoint, we're focused on growing the recurring revenues per endpoint. And we're making some good traction there. We think the SilverLink platform is going to be great for that. We're seeing a full pipeline on that. So -- and we expect that our cumulative endpoints this year are going to grow double digits from where we were. So every time that we get to grow that number, it adds value to this business. Every time we can layer new solutions on, which we grew 74% this quarter, it adds a lot of goodness and it gets that recurring fees higher for us too.

Mark McKechnie - Evercore Partners Inc., Research Division

Got you. And then the final question, I promise. On the delays, you gave a little bit of a characterization already, but is it just working with utilities and getting the utility mobilized? Or is there any kind of regulatory issues that, for instance, had come up in Illinois a while back? Or what were they really related to? If you can point your finger at 1 or 2 things that drove the delays?

Scott A. Lang

Well, it's really a combination of a couple of things. There's always -- I'd say it goes down, the number one is around the regulatory process. As you pointed out, we have worked and been very successful in working with our partners to get through that process. So it's just a matter of when, and not if, we feel -- we feel very good about the certainty around those over the coming short period of time. And the second category is around some of these contracts, especially the ones internationally are really very, very large. And the complexity of that in putting the right kind of shape around it. So I think we've made good progress on that. But I would say a combination of those 2 things. A little better on the regulatory side, not just in the United States, but other countries as well. And also then, the overall size of these contracts are very large and the complexity of them. And we made some terrific progress this quarter, and I think many of the delays that we saw here in the second quarter, looking ahead, and the next one, we're going to feel good about as we come out of 2014 with a progress on both of those. And it's our belief and we firmly believe that it's just a matter of time before every home and business is connected with this technology. Our technology is standing the test of scale, of security and level of performance that utilities just have not seen. And the number of new calls that we have gotten, where utilities have realized when they deployed other lesser functioning networks, does not necessarily get them on the journey down to the smart grid. They're really coming in and asking us about how do I start with another application like street lights or DA and start to build a canopy with this kind of performance and referencability that we've seen.

Operator

Our next question comes from the line of John Quealy from Canaccord.

John Quealy - Canaccord Genuity, Research Division

I'm sorry, I don't know if this was addressed or not. But in terms of the ComEd, I know they were trying to push some stuff forward on the deployment, as many utilities do, given the potential savings and network enhancement for some of these AMI systems. Can you give us an update, would that materially change your forecast in '14 or '15 or '16? What's your thoughts on that?

James P. Burns

Well, the ComEd deployment is going great. It's an outstanding relationship and we're pleased they're seeing the value of what we're doing and want to go faster and we think that's great. We've contemplated their deployment schedule in our guidance to you guys, so it's baked into the numbers and it's -- but we couldn't be happier, and they couldn't be happier, obviously, with how the deployment is going. I think there's nothing, a better testament and proof to a customer that when they start deploying, they want to go faster to get more value from it.

Scott A. Lang

Yes, and John, it's Scott here. And I would just add to that and say that's always been a consistent theme with our deployments, is when customer starts to see how well this technology works, the value unlocks. They like to speed up the deployment. And while we've been -- while we look at this a little cautiously here over the next couple of quarters, I believe that's going to be the case. And these awards that we are moving into contract, when they get started, they're going to want to move a little fast to unlock the value from this kind of technology of how it really sets the utility up in a totally unique way regarding their customer set and the value proposition that they can then unlock.

John Quealy - Canaccord Genuity, Research Division

Okay. And then just 2 other questions. First on SilverLink, I don't know if you gave an update in terms of status of maybe APIs being built out for other systems or where we are with that process? And then on the Streetlight acquisition, can you talk about how many different technology vendors and relationships you've sort of looked at over the years that would help us frame it?

Scott A. Lang

You bet. Thanks, John. SilverLink, I have been the -- I knew that, that would be extremely well received in the market. It was a matter of time and we'll take that time to build that business. But here we are, and we've already got our projects running with 6 new opportunities, and they really like what they see. They really think this is a complete game changer. They see how we are closer to the data than anyone else can get them close to the data and kind of rethinking their Big Data and how they build these relationships of a continuously connected customer, with their customers. So I am very pleased with the size of the pipeline, the number of customers in active conversations and the fact that we've got 6 actually using it and trialing it and running some projects that I think we're going to feel good about its progress here in 2014. So regarding on the Streetlight, what was the follow-up question on the Streetlight?

Tricia Gugler

Technology of that over time?

Scott A. Lang

That's a great question. I'm glad that someone asked that. We've looked at a lot of different technologies. I'd tell you, we've looked at a lot of different companies over the years, and we've never really seen 1 that was just absolutely in our wheelhouse that added value, that fits with our long-term model, that fits with the 1 plus 1 equals 3 of how we think about connecting devices and unlocking additional value in those devices. We've worked with Streetlight.Vision on a number of projects. We think it's quickly going to become an accretive play for us. It helps with the growth rate, it helps with the gross margin and really differentiates us. They bring to the table a number of distributors around the world. They have an active project in China that we feel very good about based on our conversations with them. And so it unlocks us and brings into some new markets, new partners, new distributors and, truly, is a differentiated offering in the Smart City space. So we feel great about it. We've had to look at a lot of different companies in our path to find them. But we are glad we found them and just couldn't be more excited about what we're going to do together.

James P. Burns

And, John, let me just add a couple of things. Just do you think -- the opportunity for SilverLink, this is a very, very high margin business. Every million dollar that -- we'll have kind of exit the year with about 20 million endpoints. So every million dollars of business that we do in that business adds about $0.05 to that recurring revenue per endpoint metric that we do, which we expect to -- it's going to provide some nice lift to get to that $2, a lot closer to $3, and more so over time. So I think that's an important point. The second point, Scott talked about Streetlight.Vision. One of our value props that has made us so successful in the AMI business is the ability to offer our customers choice of who they want to use for their hardware platform. And that's completely consistent with what we're doing on street lights and what Streetlight.Vision is doing with street lights too. So together, we can provide a great seamless solution, network software solution, and give the customers choice for whatever lighting provider that they want to use. And they don't have to be locked into any proprietary architecture from any particular lighting vendor over a long period of time, which is really, I think, a winning play.

Operator

Our next question comes from the line of Patrick Jobin from Crédit Suisse.

Patrick Jobin - Crédit Suisse AG, Research Division

Just a few simple questions. First, did you mention the Streetlight revenue for the year? I think you mentioned gross margin and the purchase price, but...

James P. Burns

You're talking about for the acquisition?

Patrick Jobin - Crédit Suisse AG, Research Division

Correct.

James P. Burns

Okay. Yes. No, it will be -- I mean, we've got a partial year of revenue that will be in there this year, so it will be pretty small this year. But we're expecting very strong growth next year. They've got a very robust pipeline. They've got 15 resellers signed up to resell their business. They're in 10 different cities now. We're working together on a couple of very large deals. But we're looking at this deal not just for their revenue growth but the synergies that we get from bringing our street revenue business. And the deal actually becomes even more attractive when you start looking at the kind of opportunities we're going to get a chance to look at when we start bringing our network street light business together. So we feel very bullish on the acquisition. This is still a nascent market. It's going to take a while to get the numbers up. But we think, we've mentioned last quarter, we think that the street lights -- our own street light business, separate from them will approach $10 million this year and the backlog -- the pipeline is now up to a few hundred million dollars just on our own business. We think that adding Streetlight.Vision into the mix gets the business even more interesting.

Patrick Jobin - Crédit Suisse AG, Research Division

Okay. And then just simply on AEP Ohio and Public Service Company of Oklahoma, were those projects you anticipated which starts in 2014, and were those part of the delay? And then related to that, it seems somewhat strange to talk about the contracts before they're signed. I guess, I think last call, you were hopeful they would be executed this quarter. I guess, kind of help us understand what's driving some of the delays for those 2 contracts in particular?

James P. Burns

Yes, Patrick. So we're not going to get into specifics really on any one deal. I think as we mentioned earlier that we're seeing some delays in a number of deals in Q1, and just given us the more kind of cautious view. But I'm not going to kind of get into the specifics of any one particular deal.

Patrick Jobin - Crédit Suisse AG, Research Division

Okay. And then last question for me. SilverLink, can you talk about maybe the number of customers that you're working with? I know last call, you were still early stages for sizing up the market or customer adoption potential. Just want to better understand commercialization of SilverLink.

Scott A. Lang

Yes. And I think that's going extremely well. We have -- we're pursuing a number of different RFPs that have come to us, and we're working with 6 customers currently that have actually tested and deploying this technology. The commercialization of it looks very strong and I like what I see. So we'll be working on that through 2014 and expect to come out of 2014 with a lot of strong growth in SilverLink and moving into 2015.

Operator

Our next question comes from the line of Mark McKechnie from Evercore.

Mark McKechnie - Evercore Partners Inc., Research Division

It's a follow-up question, guys. On your OpEx guidance for the full year calendar '14, if I heard right, you're talking about flat to modest growth in terms of your overall spending. Last year was about $116 million, calendar '13. You did $30 million in March, looking at $32 million in June. So it sounds like a downtick, some sort of cuts in the back half of the year. Is there -- can you go into detail as to what's happening? I'm suspecting maybe you're spending a bit to get into these new deals and some one-offs in customizations that you do in the first half? Or how can we look at the OpEx for the back half of the year?

James P. Burns

Well, we -- as you mentioned, Mark, our OpEx has been running in sort of the $30 million run rate per quarter, and it has been for a number of quarters. Some quarters, it'll be a little more. Some quarters, it'll be a little bit less. We've got NRE and tooling and R&D expenses that come in at certain times. And we've got -- it's not completely linear. That being said, we're continuing to drive productivity in the business, which we need to do. We always need to do. I think great companies always focus on growth. They always focus on productivity. And we're going to continue to do that. And we do see these AMI deployment time -- as just purely timing issues, but that doesn't mean we're going to stop working on our productivity. So we do have a number productivity issues. We've been at work with it for a while and we'll continue to work on driving productivity. And -- but I think -- so the back half will -- the OpEx will be a bit lighter than the first half year but it's going to be, for the year, kind of in that flat to up, modestly up range.

Operator

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments.

Tricia Gugler

Great. Thank you. We wanted to let you know we will be presenting at the Baird Growth Conference this Thursday, so we hope to see you there. And I want to thank everyone for their time today.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

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