UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2015

OR

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

For the transition period from              to             .

Commission file number 001-36377

Opower, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-0542549
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
1515 North Courthouse Road, 8th Floor Arlington, Virginia	22201
(Address of principal executive offices)	(Zip Code)

(703) 778-4544

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

Large accelerated filer  ¨		Accelerated filer	¨
Non-accelerated filer    x	(do not check if a smaller reporting company)	Smaller reporting company	¨

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

On October 31, 2015, 51,818,141 shares of the registrant’s Common Stock, $0.000005 par value, were issued and outstanding.

Opower, Inc.

Quarterly Report on Form 10-Q

Index

Part I — Financial Information		2
Item 1.	Financial Statements:	2
	Condensed Consolidated Balance Sheets (Unaudited)	2
	Condensed Consolidated Statements of Operations (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Loss (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	34
Part II — Other Information		36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 6.	Exhibits	58
Signatures		59

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

• our future financial performance, including our revenue, cost of revenue, gross profit or gross margin and operating expenses;

• the sufficiency of our cash and cash equivalents to meet our liquidity needs;

• our predictions about industry and market trends;

• our ability to increase the number of customers using our software;

• our ability to attract and retain customers to use our products and solutions;

• our ability to successfully expand in our existing markets and into new markets;

• our ability to effectively manage our growth and future expenses;

• our customers’ intention to deploy and further rollout our solutions;

• our ability to maintain, protect and enhance our intellectual property;

• our ability to comply with modified or new laws and regulations applying to our business;

• our expectations regarding our costs and expenses; and

• the attraction and retention of qualified employees and key personnel.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

1

PART I—Financial Information

ITEM 1. Financial Statements

OPOWER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	December 31, 2014			September 30, 2015
Assets
Current assets:
Cash and cash equivalents	$	125,725		$	38,180
Short-term investments		—			31,395
Accounts receivable, net		36,295			26,343
Prepaid expenses and other current assets		4,654			6,018
Total current assets		166,674			101,936
Long-term investments		—			35,475
Property and equipment, net		17,672			18,472
Other assets		151			333
Total assets	$	184,497		$	156,216
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,400		$	1,495
Accrued expenses		6,367			6,442
Deferred revenue		61,989			53,145
Accrued compensation and benefits		8,337			7,074
Other current liabilities		2,091			1,741
Total current liabilities		80,184			69,897
Deferred revenue		2,280			497
Other liabilities		1,232			511
Total liabilities		83,696			70,905
Commitments and contingencies (see Note 7)
Stockholders’ equity:
Preferred stock, par value $0.000005 per share—25,000 shares authorized; none issued and outstanding as of December 31, 2014 and September 30, 2015		—			—
Common stock, par value $0.000005 per share—500,000 shares authorized; 50,372 and 51,789 shares issued and outstanding as of December 31, 2014 and September 30, 2015, respectively		—			—
Additional paid-in capital		226,093			241,910
Accumulated deficit		(124,994	)		(156,286	)
Accumulated other comprehensive loss		(298	)		(313	)
Total stockholders’ equity		100,801			85,311
Total liabilities and stockholders’ equity	$	184,497		$	156,216

The accompanying notes are an integral part of these condensed consolidated financial statements 

2

OPOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2015			2014			2015
Revenue:
Subscription	$	29,953		$	34,786		$	84,602		$	97,336
Services		3,821		$	4,150			8,992			10,808
Total revenue		33,774		$	38,936			93,594			108,144
Cost of revenue:
Subscription		8,506			9,656			23,114			27,939
Services		2,706			4,123			8,806			11,806
Total cost of revenue		11,212			13,779			31,920			39,745
Gross profit		22,562			25,157			61,674			68,399
Operating expenses:
Sales and marketing		14,580			14,538			43,958			44,558
Research and development		11,177			13,857			34,131			39,792
General and administrative		4,241			4,743			13,010			14,032
Total operating expenses		29,998			33,138			91,099			98,382
Operating loss		(7,436	)		(7,981	)		(29,425	)		(29,983	)
Other income (expense):
Loss on foreign currency		(853	)		(432	)		(691	)		(1,318	)
Interest expense		(14	)		(19	)		(99	)		(31	)
Other, net		144			108			287			120
Loss before income taxes		(8,159	)		(8,324	)		(29,928	)		(31,212	)
Provision for (benefit from) income taxes		37			(33	)		53			78
Net loss	$	(8,196	)	$	(8,291	)	$	(29,981	)	$	(31,290	)
Weighted-average common stock outstanding:
Basic and diluted		49,091			51,550			39,253			51,053
Net loss per share:
Basic and diluted	$	(0.17	)	$	(0.16	)	$	(0.76	)	$	(0.61	)

The accompanying notes are an integral part of these condensed consolidated financial statements

3

OPOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2015			2014			2015
Net loss	$	(8,196	)	$	(8,291	)	$	(29,981	)	$	(31,290	)
Other comprehensive income (loss):
Foreign currency translation		(89	)		(34	)		(38	)		(49	)
Unrealized loss on available-for-sale securities, net		—			(22	)		—			(22	)
Unrealized gain on hedge transactions, net		31			38			72			56
Total other comprehensive income (loss)		(58	)		(18	)		34			(15	)
Total comprehensive loss	$	(8,254	)	$	(8,309	)	$	(29,947	)	$	(31,305	)

The accompanying notes are an integral part of these condensed consolidated financial statements

4

OPOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2014			2015
Operating Activities
Net loss	$	(29,981	)	$	(31,290	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,841			7,874
Stock-based compensation expense		15,425			16,339
Other		396			1,422
Changes in operating assets and liabilities:
Accounts receivable		(1,102	)		9,819
Prepaid expenses and other current assets		(1,236	)		(1,437	)
Other assets		62			(81	)
Accounts payable		(215	)		9
Accrued expenses		1,256			(214	)
Accrued compensation and benefits		1,363			(1,241	)
Deferred revenue		2,755			(10,665	)
Other liabilities		(319	)		(351	)
Net cash used in operating activities		(6,755	)		(9,816	)
Investing Activities
Purchases of available-for-sale securities		—			(66,941	)
Additions to property and equipment		(8,081	)		(7,136	)
Net cash used in investing activities		(8,081	)		(74,077	)
Financing Activities
Proceeds from issuance of common stock		1,777			1,863
Proceeds from initial public offering, net of underwriting discounts and commissions		123,955			—
Payment of offering costs		(1,687	)		—
Taxes paid related to net share settlement of equity awards		—			(3,981	)
Payment of debt issuance costs		—			(110	)
Principal payments on capital lease obligations		(358	)		(376	)
Net cash provided by (used in) financing activities		123,687			(2,604	)
Effect of exchange rate changes on cash and cash equivalents		(105	)		(1,048	)
Net increase (decrease) in cash and cash equivalents		108,746			(87,545	)
Cash and cash equivalents, beginning of period		28,819			125,725
Cash and cash equivalents, end of period	$	137,565		$	38,180
Supplemental cash flow information
Cash paid for income taxes, net of tax refunds	$	7		$	302
Cash paid for interest		52			35
Supplemental disclosure of non-cash investing and financing activities
Accrued property and equipment purchases	$	203		$	311
Capitalized stock-based compensation		847			1,238
Vesting of common stock subject to repurchase		682			257
Accrued deferred offering costs		185			—
Conversion of convertible preferred stock into common stock		67,693			—
Conversion of convertible debt into common stock		2,996			—

The accompanying notes are an integral part of these condensed consolidated financial statements

5

OPOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Company Overview

Opower, Inc. (“Opower” or “the Company”) is a cloud-based software provider to the utility industry. Utilities use the Company’s software platform to deliver key customer-facing applications that reduce energy demand and improve customer perception of the utility. The Company’s software analyzes energy data and presents personalized insights to consumers in order to motivate reductions in energy consumption.

In April 2014, the Company closed its initial public offering of its common stock (the “IPO”) whereby 7,015,000 shares of common stock were sold to the public, including 915,000 shares sold pursuant to the underwriters’ option to purchase additional shares, at a price of $19.00 per share. The Company’s shares are traded on the New York Stock Exchange under the symbol “OPWR”. The Company received aggregate proceeds of $121.8 million from the IPO, net of underwriters’ discounts and commissions and offering expenses of $2.1 million.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Opower and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. For the condensed consolidated statements of operations for the three and nine months ended September 30, 2014, to conform to the current year’s presentation, we separated revenue into subscription revenue and services revenue and cost of revenue into cost of revenue—subscription and cost of revenue—services. This change had no impact on total revenue or total cost of revenue.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no changes to the Company’s significant accounting policies described in the Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes, except for the inclusion of a policy related to investments.

In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s results of operations, financial position and cash flows have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The year-end condensed balance sheet data was derived from the audited financial statements, but does not include all disclosures required by GAAP.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to such estimates include revenue recognition, the useful lives and recoverability of property and equipment, stock-based compensation and income taxes. Actual results could differ significantly from those estimates.

6

Investments

Management determines the appropriate classification of investments at the time of purchase based upon management’s intent with regard to such investments. Investments are classified as available-for-sale at the time of purchase if they are available to support either current or future operations, and the classification is re-evaluated at each balance sheet date. Investments not considered cash equivalents with remaining contractual maturities of one year or less from the balance sheet date are classified as short-term investments, and those with remaining contractual maturities greater than one year from the balance sheet date are classified as long-term investments. All investments are recorded at their estimated fair value, and any unrealized gains and losses are recorded in accumulated other comprehensive income (loss). Realized gains and losses on sales and maturities of investments are recognized in the consolidated statements of operations in other income (expense).

The Company performs periodic evaluations to determine whether any declines in the fair value of investments below cost are other-than-temporary. The evaluation consists of qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as the Company’s ability and intent to hold the marketable securities until a forecasted recovery occurs. The impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the underlying securities will be sold prior to a full recovery of their cost basis. Other-than-temporary fair value impairments are determined based on the specific identification method and are reported in other expense, net in the consolidated statements of operations.

Fair Value Measurement

The Company applies fair value accounting for all financial assets and liabilities that are reported at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a defined three-tier hierarchy to classify and disclose the fair value of assets and liabilities on both the date of their initial measurement as well as all subsequent periods. The hierarchy prioritizes the inputs used to measure fair value by the lowest level of input that is available and significant to the fair value measurement. The three levels are described as follows:

• Level 1: Observable inputs. Quoted prices in active markets for identical assets and liabilities;

• Level 2: Observable inputs other than the quoted price. Includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets and amounts derived from valuation models where all significant inputs are observable in active markets; and

• Level 3: Unobservable inputs. Includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification as of each reporting period.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, investments and accounts receivable. The Company maintains the majority of its cash, cash equivalents and investments with two financial institutions, both of which management believes to be financially sound and with minimal credit risk. The Company’s deposits periodically exceed amounts guaranteed by the Federal Deposit Insurance Corporation.

To manage accounts receivable risk, the Company monitors and evaluates the credit worthiness of its customers and maintains an allowance for doubtful accounts as deemed necessary. Collection efforts from long-established utilities have been historically successful, so the Company believes credit risk to be low.

7

The following table summarizes those customers who represented at least 10% of revenue or accounts receivable for the periods presented:

	Revenue						Revenue
	Three Months Ended September 30,						Nine Months Ended September 30,						Accounts Receivable
	2014			2015			2014			2015			December 31, 2014			September 30, 2015
Customer A		15	%		18	%		12	%		16	%		10	%		*
Customer B		10	%		10	%		10	%		*			*			*
Customer C		10	%		*			*			*			17	%		13	%
Customer D		*			*			*			*			*			11	%

* = Represented less than 10%

Revenue Recognition

The Company derives its revenue from contractual agreements with utility providers based on subscriptions and services provided to those utilities, which include analyzing data provided by the utilities and using that data to encourage utility customers to reduce energy consumption or improve satisfaction or both. The Company generates substantially all of its revenue from subscriptions to its cloud-based data analytics platform and services to its customers.

Subscription fees primarily pay for the ongoing integration of utility data into our software platform and the analysis and presentation of this data to energy consumers. Revenue for subscription fees is generally recognized ratably over the contract term beginning on the date the service is available to the customer, which typically coincides with website launch or first reports delivered to households. Subscription contracts typically have a term of one to five years.

Service fees cover specific services performed for our utility customers, which may include program enablement services, research, program customizations and training, custom development on top of the Company’s software platform, as well as services provided by third party providers for which the Company is the principal in the arrangement with the customer. Setup fees, which tend not to provide stand-alone value, are deferred and recognized ratably over the expected customer relationship period, which is generally the greater of four years or the contract period. Services revenues are generally recognized over the term of the contract, or on a completed contract basis for deliverables that are determined to be separate units of accounting.

Cost of Revenue

Cost of revenue for subscriptions generally consists of information services necessary to perform data analysis, the costs of data center capacity, employee-related expenses, including salaries, benefits and stock-based compensation related to operating and servicing our internal applications, channel delivery fees, including printing and mailing for delivery of reports to utility customers, and amortization of internally capitalized software that delivers our services. In addition, we allocate a portion of overhead costs, including rent, information technology and employee benefit costs, to cost of revenue.

Cost of revenue for services primarily consists of personnel costs, including salaries, benefits and stock-based compensation, allocated overhead, and third-party costs.

Comprehensive Loss

Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that are recorded as a separate element of stockholders’ equity and are excluded from net loss. The Company’s other comprehensive loss is comprised of foreign currency translation adjustments, unrealized gains or losses on available-for-sale securities and unrealized gains or losses on hedge transactions.

8

Operating Segment

Operating segments are defined as components of a business that can earn revenue and incur expenses, and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker (“CODM”) to decide how to allocate resources and assess performance. The Company’s CODM, the Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company views its operations and manages its business as one operating segment.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. As issued, the new revenue recognition rules were to become effective January 1, 2017, with no early adoption permitted. In April 2015, the FASB proposed a deferral of the effective date to January 1, 2018, with early adoption permitted as of January 1, 2017. In July 2015, the FASB finalized the one-year deferral of the new revenue standard. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. ASU 2015-05 is effective for the Company on January 1, 2016, with early adoption permitted. The standard allows entities to apply the standard retrospectively or prospectively for all new transactions entered into or materially modified after the date of adoption. The Company is currently evaluating the effect that ASU 2015-05 will have on its consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements to provide additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 allows for the presentation of debt issuance costs as an asset regardless of whether or not there is an outstanding balance on the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective for the Company on January 1, 2016, with early adoption permitted. The Company expects that the adoption of this guidance will not have an impact on its consolidated financial statements.

9

3. Fair Value Measurement

The following table summarizes the Company’s assets measured at fair value on a recurring basis, by level within the fair value hierarchy (in thousands):

	December 31, 2014								September 30, 2015
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2 (2)		Level 3
Assets:
Cash equivalents (1):
Money market funds	$	108,274	$	108,274					$	31,860	$	31,860	$	—	$	—
Corporate notes and bonds		—		—		—		—		750		—		750		—
Total cash equivalents	$	108,274	$	108,274	$	—	$	—	$	32,610	$	31,860	$	750	$	—
Short-term investments:
Commercial paper	$	—	$	—	$	—	$	—	$	5,241	$	—	$	5,241	$	—
Corporate notes and bonds		—		—		—		—		24,713		—		24,713		—
Certificates of deposit		—		—		—		—		1,441		—		1,441		—
Total short-term investments	$	—	$	—	$	—	$	—	$	31,395	$	—	$	31,395	$	—
Long-term investments:
Corporate notes and bonds	$	—	$	—	$	—	$	—	$	29,914	$	—	$	29,914	$	—
Certificates of deposit		—		—		—		—		1,201		—		1,201		—
U.S. government and agency		—		—		—		—		4,360		—		4,360		—
Total long-term investments	$	—	$	—	$	—	$	—	$	35,475	$	—	$	35,475	$	—
Total	$	108,274	$	108,274	$	—	$	—	$	99,480	$	31,860	$	67,620	$	—

⁽¹⁾  Includes money market funds associated with the Company’s overnight investment sweep account and investments in available-for-sale securities with contractual maturities of three months or less

⁽²⁾  All Level 2 instruments are valued using quoted prices for similar instruments

10

4. Cash Equivalents and Investments

The following table summarizes the Company’s unrealized gains and losses and estimated fair value of cash equivalents and investments in available-for-sale securities recorded in the consolidated balance sheets (in thousands):

	September 30, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash equivalents (1):
Money market funds	$	31,860	$	—	$	—		$	31,860
Corporate notes and bonds		750		—		—			750
Total cash equivalents	$	32,610	$	—	$	—		$	32,610
Investments (2):
Commercial paper	$	5,241	$	—	$	—		$	5,241
Corporate notes and bonds		54,658		10		(41	)		54,627
Certificates of deposit		2,640		2		—			2,642
U.S. government and agency		4,353		7		—			4,360
Total investments	$	66,892	$	19	$	(41	)	$	66,870
Total cash equivalents and investments	$	99,502	$	19	$	(41	)	$	99,480

⁽¹⁾  Includes money market funds associated with the Company’s overnight investment sweep account and investments in available-for-sale securities with contractual maturities of three months or less

⁽²⁾  Includes short-term and long-term investments in available-for-sale securities

Unrealized losses related to investments were primarily a result of interest rate fluctuations, and none of the investments held as of September 30, 2015 have been in a continuous unrealized loss position for greater than one year. As of September 30, 2015, the Company did not consider any of its available-for-sale investments to be other-than-temporarily impaired.

The estimated fair value of the Company’s cash equivalents and investments in available-for-sale securities as of September 30, 2015, aggregated by investment category and classified by contractual maturity date, is as follows (in thousands):

	Less Than 1 Year		1 Year or Greater		Total
Money market funds	$	31,860	$	—	$	31,860
Commercial paper		5,241		—		5,241
Corporate notes and bonds		25,463		29,914		55,377
Certificates of deposit		1,441		1,201		2,642
U.S. government and agency		—		4,360		4,360
Total	$	64,005	$	35,475	$	99,480

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5. Property and Equipment

Property and equipment consisted of the following (in thousands):

	December 31,			September 30,
	2014			2015
Equipment	$	7,748		$	8,732
Software		19,574			26,799
Furniture and fixtures		337			381
Leasehold improvements		2,594			2,800
Total property and equipment	$	30,253		$	38,712
Accumulated depreciation and amortization		(12,581	)		(20,240	)
Total property and equipment, net	$	17,672		$	18,472

As of December 31, 2014 and September 30, 2015, the gross carrying amount of property and equipment includes computer equipment under capital leases with a cost basis of $1.7 million and $1.7 million, respectively. Accumulated depreciation related to this computer equipment was $0.7 million and $1.1 million as of December 31, 2014 and September 30, 2015, respectively. Interest expense for the three months and nine months ended September 30, 2014 and 2015 was immaterial. As of December 31, 2014 and September 30, 2015, the total capital lease obligation was $1.0 million and $0.6 million, respectively, and recorded on the consolidated balance sheets as a component of other current liabilities and other liabilities.

Capitalized internal-use software costs are also included in property and equipment. During the three months ended September 30, 2014 and 2015, the Company capitalized $3.2 million and $2.4 million of these software development costs, respectively. During the nine months ended September 30, 2014 and 2015, the Company capitalized $7.1 million and $7.3 million of these software development costs, respectively. The net book value of capitalized internal use software was $11.6 million and $13.3 million as of December 31, 2014 and September 30, 2015, respectively. Amortization expense related to capitalized internal-use software was $1.2 million and $1.9 million for the three months ended September 30, 2014 and 2015, respectively, and $3.0 million and $5.6 million for the nine months ended September 30, 2014 and 2015, respectively.

The following table represents a detailed breakout of depreciation and amortization expense as recorded in the condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2015		2014		2015
Subscription	$	725	$	1,185	$	1,884	$	3,430
Services		57		53		146		169
Sales and marketing		123		109		270		336
Research and development		898		1,310		2,282		3,797
General and administrative		49		51		259		142
Total	$	1,852	$	2,708	$	4,841	$	7,874

6. Debt

In June 2015, the Company renewed its revolving line of credit with Silicon Valley Bank (“SVB”) for three years, maturing June 2018, and increased the availability to $30.0 million. The borrowing capacity under the revolving line of credit may be limited if certain financial ratios are not maintained. In the event these financial ratios fall below specified levels, the borrowing capacity at that time may not exceed 80% of eligible accounts receivable. Amounts drawn under the revolving line will accrue interest at either the prime rate or the LIBOR plus 250 basis points, at the Company’s election for each draw. Any amounts borrowed are collateralized by substantially all of the Company’s assets.

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The agreement contains customary financial covenants and other affirmative and negative covenants. The agreement also includes a financial covenant requiring the Company to maintain a minimum Adjusted EBITDA. As of September 30, 2015, the Company had no balance outstanding under this agreement, was in compliance with all financial and non-financial covenants and had full borrowing capacity available.

7. Commitments and Contingencies

Operating and Capital Leases

The Company leases office space in the United States and other international locations. All leases are non-cancelable operating lease agreements that expire at various dates through 2018 and include renewal options.

In June 2013, the Company entered into a master lease agreement with a financing company. The agreement allows for the Company to lease eligible equipment purchases. Each lease has a 36 month term, payable in equal monthly installments with the exception of the first and final payments which are prorated based on a midmonth convention. The Company has accounted for the leases under the master lease agreement as capital leases. The weighted-average interest rate implicit in the leases was 5.5%.

A summary of lease commitments as of September 30, 2015 is as follows (in thousands):

Year ending December 31,	Operating Leases		Capital Leases
2015 (October – December)	$	1,440	$	186
2016		5,062		408
2017		2,804		65
2018		470		—
		9,776		659
Less:
Amounts representing interest		—		22
Total lease obligations	$	9,776	$	637

Rent expense under operating leases was $1.1 million and $1.4 million for the three months ended September 30, 2014 and 2015, respectively, and $3.3 million and $4.1 million for the nine months ended September 30, 2014 and 2015, respectively.

Letters of Credit

As of December 31, 2014 and September 30, 2015, the Company had outstanding letters of credit totaling $1.3 million in connection with securing its leased office space. The outstanding amounts for the Arlington, Virginia and San Francisco, California offices are $0.6 million and $0.7 million, respectively, and both letters of credit remain outstanding as of September 30, 2015.

Contingencies and Indemnifications

In the ordinary course of business, the Company enters into contracts and agreements that may contain representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made in the future, but have not yet been made. The Company has not paid any claims or been required to defend any actions related to indemnification obligations. However, the Company could incur costs in the future as a result of indemnification obligations.

In accordance with its bylaws, the Company has indemnification obligations to its officers, directors, employees and agents (other than directors and officers) for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims, and the Company has a director and officer insurance policy that enables it to recover a portion of any future claims.

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In the ordinary course of business, the Company is subject to legal proceedings and claims related to intellectual property, employment, vendors or other business partners. The Company has accrued for estimated losses in the accompanying condensed consolidated financial statements for matters with respect to which it believes the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe that the resolution of these matters will have a material adverse effect on the consolidated financial position, future results of operations or cash flows.

8. Stockholders’ Equity

The Company had two classes of stock authorized as of December 31, 2014 and September 30, 2015, preferred stock and common stock.

Undesignated Preferred Stock

The Company is authorized to issue 25.0 million shares of preferred stock. As of December 31, 2014 and September 30, 2015, there were no preferred shares issued and outstanding.

Common Stock

The Company is authorized to issue 500.0 million shares of common stock. As of December 31, 2014 and September 30, 2015, there were 50.4 million and 51.8 million shares of common stock issued and outstanding, respectively. Common stock is issued from the pool of authorized stock upon the exercise of stock options or vesting of restricted stock.

Accumulated Other Comprehensive Income (Loss)

Other comprehensive loss is comprised of certain gains and losses that are excluded from net income under GAAP and instead recorded as a separate element of stockholders’ equity. The Company’s other comprehensive income (loss) consists of foreign currency translation adjustments resulting from the translation of the Company’s foreign subsidiaries whose functional currency is their respective local currency, as well as any unrealized gains or losses on the Company’s foreign currency derivative contracts and investments in available-for-sale securities.

The following table summarizes the activity for each component of accumulated other comprehensive loss (in thousands):

	Foreign Currency Translation			Foreign Currency Derivative Instruments			Unrealized Gain (Loss) on Available-for- Sale Securities			Accumulated Other Comprehensive Loss
Balance as of December 31, 2014	$	(242	)	$	(56	)	$	—		$	(298	)
Other comprehensive income (loss) before reclassifications		(49	)		—			(22	)		(71	)
Reclassifications to net income		—			56			—			56
Other comprehensive income (loss)		(49	)		56			(22	)		(15	)
Balance as of September 30, 2015	$	(291	)	$	—		$	(22	)	$	(313	)

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9. Stock-Based Compensation

Stock Option Activity

A summary of stock option activity for the nine months ended September 30, 2015 is summarized in the following table (in thousands, except time period and per share amounts):

	Options Outstanding			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Balance at December 31, 2014		5,815		$	4.40		7.3	$	57,715
Exercised		(783	)		2.39
Forfeited		(357	)		7.66
Balance at September 30, 2015		4,675		$	4.49		6.4	$	22,648
Vested and expected to vest after September 30, 2015		4,619		$	4.45		6.4	$	22,283
Exercisable at September 30, 2015		3,933		$	4.13		6.3	$	19,750

⁽¹⁾  Aggregate intrinsic value represents the difference between the fair value of the underlying common stock and the exercise price of outstanding, in-the-money stock options.

The 2007 Stock Plan allows for grants of immediately exercisable stock options. The Company has the right to purchase any unvested, but issued common shares at the original exercise price during the repurchase period following an employee’s termination. The consideration received for an exercise of an unvested option is considered to be a deposit of the exercise price. The related dollar amount is recorded as other current liabilities and other liabilities on the Company’s consolidated balance sheets and will be reclassified to equity as the Company’s repurchase right lapses. As of December 31, 2014 and September 30, 2015, unvested stock options subject to repurchase were 0.2 million and 0.1 million, respectively, at an aggregate exercise price of $0.4 million and $0.1 million, respectively.

The following table summarizes additional information on stock option grants, vesting and exercises (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2015		2014		2015
Total fair value of stock options granted	$	—	$	—	$	434	$	—
Total fair value of shares vested		1,869		1,103		4,689		3,571
Total intrinsic value of stock options exercised		2,897		1,257		13,012		7,236
Cash received from stock options exercised		327		461		1,777		1,863

Restricted Stock Unit Activity

A summary of restricted stock unit (“RSU”) activity for the nine months ended September 30, 2015 is summarized in the following table (in thousands, except time period and per share amounts):

	RSUs Outstanding			Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance at December 31, 2014		2,838		$	16.77		6.4	$	40,391
Granted		1,944			12.38
Released		(968	)		15.61
Forfeited		(628	)		15.73
Balance at September 30, 2015		3,186		$	14.64		6.1	$	28,392
Vested and expected to vest after September 30, 2015		2,731		$	14.59		6.1	$	24,337

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Stock-Based Compensation Expense

Stock-based compensation expense is included in the condensed consolidated statements of operations within the following line items (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2015		2014		2015
Subscription	$	75	$	181	$	195	$	563
Services		230		331		723		961
Sales and marketing		2,019		2,211		6,994		6,479
Research and development		1,195		1,872		4,088		5,562
General and administrative		968		741		3,425		2,774
Total	$	4,487	$	5,336	$	15,425	$	16,339

A summary of our remaining unrecognized compensation expense, net of estimated forfeitures, and the weighted-average remaining amortization period at September 30, 2015 related to our non-vested stock options and RSU awards is presented below (in thousands, except time period amounts):

	As of September 30, 2015
	Unrecognized Expense		Weighted-Average Amortization Period (Years)
Restricted stock units	$	32,119		2.4
Stock options		8,699		2.3
	$	40,818

10. Income Taxes

For the three months and nine months ended September 30, 2014 and 2015, the income tax provision for continuing operations is composed of state tax expense and foreign tax expense for the Company’s consolidated international subsidiaries.

The Company has evaluated the positive and negative evidence bearing upon the ability of its deferred tax assets to be realized. Based on the Company’s limited operating history and cumulative operating losses to date, management believes that it is more likely than not that the Company’s domestic deferred tax assets would not be fully realized. Accordingly, the domestic deferred tax assets have been fully reserved at December 31, 2014 and September 30, 2015.

To date, there have been no tax benefits recognized related to uncertain tax positions. The Company does not anticipate a material change in the unrecognized tax benefits in the next twelve months.

11. Net Income (Loss) Per Share

The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. Upon the closing of the IPO in April 2014, all shares of the Company’s outstanding convertible preferred stock automatically converted into shares of common stock. The Company considered all series of convertible preferred stock to be participating securities, as the holders of the preferred stock were entitled to receive a non-cumulative dividend on a pari-passu basis in the event that a dividend was paid on common stock. The Company also considers unvested restricted common stock and the shares issued upon the early exercise of stock options that are subject to repurchase to be participating securities, because holders of such shares have dividend rights in the event a dividend is paid on common stock. The holders of all series of convertible preferred stock, prior to their conversion upon the closing of the IPO, and the holders of common stock subject to repurchase do not have a contractual obligation to share in the losses of the Company. As such, the Company’s net losses for the three months and nine months ended September 30, 2014 and 2015 were not allocated to these participating securities.

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The following table summarizes the calculation of the Company’s basic and diluted net loss per share under the two-class method attributable to common stockholders for the three months and nine months ended September 30, 2014 and 2015 (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2015			2014			2015
Numerator:
Net loss	$	(8,196	)	$	(8,291	)	$	(29,981	)	$	(31,290	)
Non-cumulative dividends to preferred stockholders		—			—			—			—
Net loss attributable to common stockholders	$	(8,196	)	$	(8,291	)	$	(29,981	)	$	(31,290	)
Denominator:
Weighted-average common stock outstanding, basic		49,091			51,550			39,253			51,053
Effect of potentially dilutive stock options and restricted stock units		—			—			—			—
Weighted-average common stock outstanding, diluted		49,091			51,550			39,253			51,053
Net loss per share, basic and diluted	$	(0.17	)	$	(0.16	)	$	(0.76	)	$	(0.61	)

Anti-Dilutive Shares Excluded

The following potential shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):

	September 30,
	2014		2015
Stock options		6,753		4,675
Restricted stock units		2,152		3,186
Common stock subject to repurchase		201		38
		9,106		7,899

12. Geographic Information

Revenue generated for customers located in the United States was approximately 84% and 92% of revenue for the three months ended September 30, 2014 and 2015, respectively, and approximately 85% and 91% of revenue for the nine months ended September 30, 2014 and 2015, respectively.

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

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this document and the Risk Factors included in Item 1A of Part II of this Quarterly Report on Form 10-Q. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

Overview

Opower is a leading provider of cloud-based software to the utility industry. Utilities use our platform to deliver key customer-facing applications that reduce energy demand and improve satisfaction. Our software analyzes energy data and presents personalized insights designed to motivate reductions in energy consumption, lower cost-to-serve and improve customer sentiment. The utility industry is large and cloud-based software has not yet deeply penetrated this industry. We believe that we are uniquely positioned to use state-of-the-art software to transform the way the utility industry engages its customers.

We can embed our solutions within utilities’ websites, mobile applications and customer service interfaces, and deliver individualized communications to customers including emails, text messages, automated phone calls and mail. In the design of these consumer touch points, we apply behavioral science insights to actionable patterns identified by our proprietary data analytics engine, which analyzes hundreds of billions of energy usage data points. We generate revenue from utilities by selling primarily multi-year subscriptions to our software. As of December 31, 2014, we served 98 utility customers in nine countries.

We generate revenue primarily from subscription fees from utilities for use on our platform, generally based upon the number of households and businesses served and the solutions selected. Although the number of households and businesses has some impact on our revenue, the number of households or businesses served is not directly correlated with revenue. The price we receive per household or business varies for each customer. For this reason, we do not treat the number of households or businesses served as one of our key performance indicators for our business. However, we do monitor this metric to understand the general adoption of our solutions by our customers.

We deliver our solutions to utilities through our cloud-based platform. New customers typically contract with us for one to five years and renew for one year or more.

Our growth is driven by acquiring new customers and expanding with existing customers. We continue to acquire new customers in the United States and internationally. Our number of utility customers has increased from 63 customers as of December 31, 2011, 61 of which resided in the United States, to 98 customers in nine countries as of December 31, 2014. We have expanded with existing customers by cross-selling different solutions and adding households and businesses that use our platform. The number of households and businesses on our platform has grown from 1.4 million at December 31, 2010 to 61.9 million at December 31, 2014.

Our investments have yielded significant revenue growth over the past few years. For the years ended December 31, 2012, 2013 and 2014, our revenue was $51.8 million, $88.7 million and $128.4 million, respectively, and for the nine months ended September 30, 2014 and 2015, our revenue was $93.6 million and $108.1 million, respectively. Our net losses for the years ended December 31, 2012, 2013 and 2014 were $12.3 million, $14.2 million and $41.8 million, respectively, and our net losses for the nine months ended September 30, 2014 and 2015 were $30.0 million and $31.3 million, respectively. We have grown from 162 employees as of December 31, 2010 to 606 employees as of September 30, 2015.

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Key Factors Affecting Our Performance

Investing in Growth. We will continue to focus on long-term growth. We believe that our market opportunity is large and underpenetrated and we will continue to invest significantly in sales and marketing to grow our customer base, expand with existing customers, grow internationally and drive additional revenue. We also expect to continue our investment in research and development to enhance our platform and develop complementary solutions. To support our expected growth and the requirements of a public company, we plan to invest in other operational and administrative functions.

We believe that our sales and marketing, research and development and general and administrative costs will decrease as a percentage of revenue in the long term as we are able to reach economies of scale. With this increased operating leverage, we expect our gross and operating margins to increase in the long term. However, in the short term, we intend to focus on the growth of the business and expect our total operating expenses to increase, and have a short-term negative impact on our adjusted EBITDA and operating margin.

Adding New Utility Customers. Our customer base is a key indicator of our market penetration, growth and future revenue. We believe that we are positioned to grow significantly for many years to come. With 98 customers as of December 31, 2014, we believe we have a substantial opportunity to expand our number of utility customers in the coming years. The number of new customers signed may vary period to period for several reasons, including the long length and variability of our sales cycle.

Expanding with and Cross-Selling to Existing Customers. Our existing customers continue to represent a large opportunity for us to expand to more households and businesses and to cross-sell additional solutions.

Key Performance Indicators for Our Business

We regularly review a number of metrics to measure our performance, formulate financial projections, evaluate growth trends and determine business strategy. In addition to the metrics discussed below, we also review gross margin and operating expenses, which we discuss in the “Basis of Presentation” section.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2015			2014			2015
	(Dollars in thousands)						(Dollars in thousands)
Financial Metrics:
Revenues	$	33,774		$	38,936		$	93,594		$	108,144
Period-over-period percentage increase					15	%					16	%
Adjusted EBITDA (1)	$	(1,097	)	$	63		$	(9,159	)	$	(5,770	)

⁽¹⁾  Adjusted EBITDA is not calculated in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP-based measure along with a summary of the definition and its material limitations are included in “—Non-GAAP Financial Measures.”

Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we have disclosed adjusted EBITDA, a non-GAAP financial measure. We define adjusted EBITDA as net loss adjusted to exclude our income tax provision, other income (expense), including interest, depreciation and amortization and stock-based compensation.

We disclose adjusted EBITDA because it is a key measure used by our management to evaluate our operating performance, generate future operating plans and make strategic decisions. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors.

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While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with GAAP. Some of these limitations are:

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

• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• adjusted EBITDA does not include the impact of stock-based compensation;

• adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; and

• other companies, including companies in our industry, may calculate adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.

We believe it is useful to exclude non-cash charges, such as depreciation and amortization and stock-based compensation, from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

Because of the aforementioned limitations, you should consider adjusted EBITDA alongside other financial performance measures, including net loss, cash flow metrics and our financial results presented in accordance with GAAP. The following table presents a reconciliation of net loss, the most directly comparable financial measure as measured in accordance with GAAP, to adjusted EBITDA for each of the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2015			2014			2015
	(In thousands)						(In thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss	$	(8,196	)	$	(8,291	)	$	(29,981	)	$	(31,290	)
Provision for (benefit from) income taxes		37			(33	)		53			78
Other (income) expense, including interest		723			343			503			1,229
Depreciation and amortization		1,852			2,708			4,841			7,874
Stock-based compensation		4,487			5,336			15,425			16,339
Adjusted EBITDA	$	(1,097	)	$	63		$	(9,159	)	$	(5,770	)

Basis of Presentation

Revenue

We offer subscriptions to our cloud-based data analytics platform and deliver services to our customers. We derive our revenue from fees for these subscriptions and services.

Subscription fees primarily pay for the ongoing integration of utility data typically into our software platform and the analysis and presentation of this data to energy consumers. Revenue for subscription fees is generally recognized ratably over the contract term beginning on the date the service is available to the customer, which typically coincides with website launch or first reports delivered to households. Subscription contracts typically have a term of one to five years.

Service fees cover specific services performed for our utility customers, which may include program enablement services, research, program customizations and training, custom development on top of our software platform, as well as services provided by third party providers for which we are the principal in the arrangement

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with the customer. Setup fees, which tend not to provide stand-alone value, are deferred and recognized ratably over the expected customer relationship period, which is generally the greater of four years or the contract period. Revenue from services is generally recognized over the term of the contract, or on a completed contract basis for deliverables that are determined to be separate units of accounting.

Our fees are generally non-refundable once billed and are generally collected in advance of service delivery. We record amounts that have been billed as deferred revenue. Payment terms vary by contract, therefore the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenues for a given period of time.

Cost of Revenue

Cost of revenue for subscription primarily consists of information services necessary to perform data analysis, the costs of data center capacity, employee-related expenses, including salaries, benefits and stock-based compensation related to implementing, operating and servicing our internal applications, channel delivery fees, including printing and mailing for delivery of reports to utility customers, and amortization of internally capitalized software that delivers our services. In addition, we allocate a portion of overhead costs, including rent, information technology and employee compensation costs, to cost of revenue.

Cost of revenue for services primarily consists of employee compensation costs, including salaries, benefits and stock-based compensation expense, allocated overhead, and third-party and consultant costs.

Our cost of revenue for subscription and services is expensed as incurred. However, the related revenue for delivery of our services is deferred until commencement of delivery services and is recognized ratably over the related subscription term. Therefore, costs associated with delivering these services are not always expensed in the same period in which revenue is recognized. In particular, the costs of implementing and configuring our software are typically recognized in advance of the related setup fees, though such fees are typically billed before they are incurred. As a result, customer costs tend to be higher in the initial subscription year of a program based on the effort required to develop system integrations and match customer data and gross margin may vary in periods where large new contracts are being implemented.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, stock-based compensation, travel and commissions. They also include the cost of advertising, online marketing, promotional events, corporate communications, product marketing and other brand-building activities. We expense sales commissions at the time of contract signing.

We intend to continue to invest in sales and marketing activities to expand our business domestically and internationally. We expect to hire additional sales personnel in the United States and internationally. We also intend to expand our sales offices globally, including in the United Kingdom, Singapore and Japan. As we scale our sales and marketing activities in the short-to-medium term, we expect these expenses to increase in absolute dollars as well as a percentage of revenue.

Research and Development. Research and development costs consist primarily of personnel and related expenses, including salaries, benefits and stock-based compensation, research and development consulting fees and allocated overhead. Development costs other than those qualifying for capitalization as internally developed software are expensed as incurred.

Our research efforts focus on improving our understanding of the way in which energy consumers use energy and the ways in which the behaviors of those users can be influenced. Additionally, development efforts

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have focused on creating a scalable data analytics platform with the capability of capturing, analyzing and reporting on large amounts of data captured in small intervals. We also continue to focus development efforts on adding new features and applications, and enhancing the functionality of our platform. In the short term, we expect research and development expenses to increase in absolute dollars, as we add new platform functionality and expand our system infrastructure, but remain relatively constant as a percentage of revenue. In the long term, we expect research and development to decline as a percentage of revenue as we realize benefits of scale.

General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for accounting, executive, finance, human resources, legal, information technology and security and recruiting staff, including salaries, benefits, bonuses, stock-based compensation, professional fees, insurance premiums and other supporting overhead costs not allocated to other departments.

We expect our general and administrative expenses to increase in absolute dollars as we continue to expand our operations, hire additional personnel and transition from a private to a public company. As we continue to operate as a public entity, we expect to incur additional expense related to increased accounting and auditing services, increased outside counsel assistance, increased compliance requirements, including filings with the SEC, and enhancing our internal control environment. Over the long term, we expect general and administrative expenses to decline as a percentage of revenue as we achieve scale.

Other Income and Expenses. Other income and expenses consist primarily of interest income, sublease income, interest expense, gains and losses related to foreign currency transactions and amortization expense. Interest income is primarily from investments in available-for-sale securities and deposits of cash and cash equivalents. Sublease income is related to an office sublease arrangement. Interest expense relates to interest incurred related to capital equipment leasing and on our note payable, which was converted to shares of common stock upon the closing of our IPO. Foreign exchange gains and losses relate to transactions denominated in currencies other than the functional currency of our entities. Amortization expense is related to premiums and discounts on investments in available-for-sale securities.

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Results of Operations

Comparison of the Three Months Ended September 30, 2014 and 2015

The following tables set forth selected consolidated statement of operations data and such data as a percentage of total revenue for each of the periods indicated.

	Three Months Ended September 30,
	2014			2015
	(In thousands)
Revenue:
Subscription	$	29,953		$	34,786
Services		3,821			4,150
Total revenue		33,774			38,936
Cost of revenue (1):
Subscription		8,506			9,656
Services		2,706			4,123
Total cost of revenue		11,212			13,779
Gross profit		22,562			25,157
Operating expenses (1):
Sales and marketing		14,580			14,538
Research and development		11,177			13,857
General and administrative		4,241			4,743
Total operating expenses		29,998			33,138
Operating loss		(7,436	)		(7,981	)
Other income (expense), net		(723	)		(343	)
Loss before income taxes		(8,159	)		(8,324	)
Provision for (benefit from) income taxes		37			(33	)
Net loss	$	(8,196	)	$	(8,291	)

⁽¹⁾  Stock-based compensation was allocated as follows:

	Three Months Ended September 30,
	2014		2015
	(In thousands)
Subscription	$	75	$	181
Services		230		331
Sales and marketing		2,019		2,211
Research and development		1,195		1,872
General and administrative		968		741
Total stock-based compensation	$	4,487	$	5,336

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	Three Months Ended September 30,
	2014			2015
	% of total revenue
Revenue:
Subscription		89	%		89	%
Services		11	%		11	%
Total revenue		100	%		100	%
Cost of revenue:
Subscription		25	%		25	%
Services		8	%		11	%
Total cost of revenue		33	%		36	%
Gross profit		67	%		64	%
Operating expenses:
Sales and marketing		43	%		37	%
Research and development		33	%		36	%
General and administrative		13	%		12	%
Total operating expenses		89	%		85	%
Operating loss		-22	%		-21	%
Other income (expense), net		-2	%		-1	%
Loss before income taxes		-24	%		-22	%
Provision for (benefit from) income taxes		0	%		0	%
Net loss		-24	%		-22	%

Revenue

	Three Months Ended September 30,
	2014					2015
	Amount		% of Revenue			Amount		% of Revenue			$ Change		% Change
	(Dollars in thousands)
Revenue:
Subscription	$	29,953		89	%	$	34,786		89	%	$	4,833		16	%
Services		3,821		11	%		4,150		11	%		329		9	%
Total revenue	$	33,774		100	%	$	38,936		100	%	$	5,162		15	%

Subscription. The increase in subscription revenue for the three months ended September 30, 2015 was a result of the expansion of programs with existing customers as well as additional customer penetration. Revenue earned from existing customers increased by $7.2 million, primarily driven by the expansion of the number of households and businesses on previously deployed solutions and the cross-selling of additional products. Revenue from new customers contributed $6.9 million for the three months ended September 30, 2015 as compared to $9.2 million for the three months ended September 30, 2014. This decrease was due in part to our focus on expanding existing customer programs and supplementing those programs with new products. International revenue was 14% and 7% of revenue for the three months ended September 30, 2014 and September 30, 2015, respectively. While we expect international revenue to grow as a percentage of total revenue in the long term, we expect international revenue as a percentage of total revenue to decrease in 2015.

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Services. The increase in services revenue for the three months ended September 30, 2015 was a result of additional customer penetration, in particular from program customizations, which accounted for $0.5 million of the overall increase. Revenue from enablement services decreased by $0.2 million for the three months ended September 30, 2015.

Cost of Revenue, Gross Profit and Gross Margin

	Three Months Ended September 30,
	2014						2015
	Amount			% of Revenue			Amount			% of Revenue			$ Change		% Change
	(Dollars in thousands)
Cost of revenue:
Subscription	$	8,506			25	%	$	9,656			25	%	$	1,150		14	%
Gross margin		72	%					72	%
Services		2,706			8	%		4,123			11	%		1,417		52	%
Gross margin		29	%					1	%
Total cost of revenue	$	11,212			33	%	$	13,779			36	%	$	2,567		23	%

Subscription. The increase in subscription cost of revenue for the three months ended September 30, 2015 was primarily driven by $0.5 million of additional amortization expense related to capitalized software costs due to our continued investment in internal-use software. In addition, employee compensation costs increased by $0.4 million, primarily driven by an increase in headcount.

Services. The increase in services cost of revenue for the three months ended September 30, 2015 was primarily driven by $0.9 million of additional third-party and consultant costs. In addition, employee compensation costs increased by $0.5 million, primarily driven by an increase in headcount.

We expect both subscription and services costs to increase in absolute dollars in the near and long term, as we continue to increase the size of this market both domestically and internationally. Additionally, we expect non-headcount driven expenses will increase as we increase sales of services both domestically and internationally.

Sales and Marketing

	Three Months Ended September 30,
	2014			2015			$ Change			% Change
	(Dollars in thousands)
Sales and marketing	$	14,580		$	14,538		$	(42	)		0	%
% of total revenue		43	%		37	%

Sales and marketing expense remained consistent for the three months ended September 30, 2015 with a net decrease in expenses related to travel and events of $0.1 million, partially offset by an increase in employee compensation costs of $0.1 million.

We expect sales and marketing expenses to increase in absolute dollars in the near-to-medium term, as we continue to increase the size of the sales and marketing staff both domestically and internationally. Additionally, we expect non-headcount driven marketing expenses will increase as we attempt to increase brand awareness and sponsor additional marketing events with the aim of attracting new customers and expanding our footprint with existing customers. Over the long term, we expect sales and marketing expenses to decline as a percentage of revenue as we achieve scale.

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Research and Development

	Three Months Ended September 30,
	2014			2015			$ Change		% Change
	(Dollars in thousands)
Research and development	$	11,177		$	13,857		$	2,680		24	%
% of total revenue		33	%		36	%

The increase in research and development expense for the three months ended September 30, 2015 was primarily driven by a $1.2 million increase in employee compensation costs, comprised of a $0.5 million increase in salary and benefits expense and a $0.7 million increase in stock-based compensation expense. In addition, there was a $0.8 million decrease in the amount of research and development costs qualifying for capitalization as internal use software and a $0.4 million increase in depreciation expense.

We expect research and development expenses will increase in absolute dollars in the near-to-medium term as we continue to invest in new product capabilities, add new platform functionality and expand our system infrastructure. Over the long term, we expect research and development expenses to decline as a percentage of revenue as we achieve scale.

General and Administrative

	Three Months Ended September 30,
	2014			2015			$ Change		% Change
	(Dollars in thousands)
General and administrative	$	4,241		$	4,743		$	502		12	%
% of total revenue		13	%		12	%

The increase in general and administrative expense for the three months ended September 30, 2015 was primarily driven by a $0.3 million increase in employee compensation costs. Salary and benefits expense increased by $0.5 million, partially offset by a $0.2 million decrease in stock-based compensation expense stemming from the reversal of expense related to awards that were forfeited during the three months ended September 30, 2015.

We expect general and administrative expenses will continue to grow in absolute dollars as we continue to expand our operations and hire additional personnel. Additionally, general and administrative expenses are likely to increase due to the additional compliance costs necessary to operate as a public company, such as those related to filings with the SEC and the enhancement of our internal control environment. Over the long term, we expect general and administrative expenses to decline as a percentage of revenue as we achieve scale.

Other Income (Expense), Net

	Three Months Ended September 30,
	2014			2015			$ Change		% Change
	(Dollars in thousands)
Other income (expense)	$	(723	)	$	(343	)	$	380		-53	%
% of total revenue		-2	%		-1	%

The increase in other income (expense), net for the three months ended September 30, 2015 was primarily driven by a $0.4 million decrease in the amount of foreign currency losses recognized. The losses were primarily a result of fluctuations in the value of the Canadian dollar, euro and British pound sterling in relation to the U.S. dollar.

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Comparison of the Nine Months Ended September 30, 2014 and 2015

The following tables set forth selected consolidated statement of operations data and such data as a percentage of total revenue for each of the periods indicated.

	Nine Months Ended September 30,
	2014			2015
	(In thousands)
Revenue:
Subscription	$	84,602		$	97,336
Services		8,992			10,808
Total revenue		93,594			108,144
Cost of revenue (1):
Subscription		23,114			27,939
Services		8,806			11,806
Total cost of revenue		31,920			39,745
Gross profit		61,674			68,399
Operating expenses (1):
Sales and marketing		43,958			44,558
Research and development		34,131			39,792
General and administrative		13,010			14,032
Total operating expenses		91,099			98,382
Operating loss		(29,425	)		(29,983	)
Other income (expense), net		(503	)		(1,229	)
Loss before income taxes		(29,928	)		(31,212	)
Provision for income taxes		53			78
Net loss	$	(29,981	)	$	(31,290	)

¹⁾ Stock-based compensation was allocated as follows:

	Nine Months Ended September 30,
	2014		2015
	(In thousands)
Subscription	$	195	$	563
Services		723		961
Sales and marketing		6,994		6,479
Research and development		4,088		5,562
General and administrative		3,425		2,774
Total stock-based compensation	$	15,425	$	16,339

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	Nine Months Ended September 30,
	2014			2015
	% of total revenue
Revenue:
Subscription		90	%		90	%
Services		10	%		10	%
Total revenue		100	%		100	%
Cost of revenue:
Subscription		25	%		26	%
Services		9	%		11	%
Total cost of revenue		34	%		37	%
Gross profit		66	%		63	%
Operating expenses:
Sales and marketing		47	%		41	%
Research and development		36	%		37	%
General and administrative		14	%		13	%
Total operating expenses		97	%		91	%
Operating loss		-31	%		-28	%
Other income (expense), net		-1	%		-1	%
Loss before income taxes		-32	%		-29	%
Provision for income taxes		0	%		0	%
Net loss		-32	%		-29	%

Revenue

	Nine Months Ended September 30,
	2014					2015
	Amount		% of Revenue			Amount		% of Revenue			$ Change		% Change
	(Dollars in thousands)
Revenue:
Subscription	$	84,602		90	%	$	97,336		90	%	$	12,734		15	%
Services		8,992		10	%		10,808		10	%		1,816		20	%
Total revenue	$	93,594		100	%	$	108,144		100	%	$	14,550		16	%

Subscription. The increase in subscription revenue for the nine months ended September 30, 2015 was a result of the expansion of programs with existing customers as well as additional customer penetration. Revenue earned from expansions with existing customers increased by $19.3 million, primarily driven by the expansion of the number of households and businesses on previously deployed solutions and the cross-selling of additional products. Revenue from new customers contributed $22.1 million for the nine months ended September 30, 2015 as compared to $28.6 million for the nine months ended September 30, 2014. This decrease was due in part to our focus on expanding existing customer programs and supplementing those programs with new products. International revenue was 14% and 8% of revenue for the nine months ended September 30, 2014 and September 30, 2015, respectively. While we expect international revenue to grow as a percentage of total revenue in the long term, we expect international revenue as a percentage of total revenue to decrease in 2015.

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Services. The increase in services revenue for the nine months ended September 30, 2015 was a result of additional customer penetration, in particular from program customizations, which accounted for $2.3 million of the overall increase. Revenue from enablement services decreased by $0.4 million for the nine months ended September 30, 2015.

Cost of Revenue, Gross Profit and Gross Margin

	Nine Months Ended September 30,
	2014						2015
	Amount			% of Revenue			Amount			% of Revenue			$ Change		% Change
	(Dollars in thousands)
Cost of revenue:
Subscription	$	23,114			25	%	$	27,939			26	%	$	4,825		21	%
Gross margin		73	%					71	%
Services		8,806			9	%		11,806			11	%		3,000		34	%
Gross margin		2	%					-9	%
Total cost of revenue	$	31,920			34	%	$	39,745			37	%	$	7,825		25	%

Subscription. The increase in subscription cost of revenue for the nine months ended September 30, 2015 was primarily driven by $1.4 million of additional report costs due to a higher volume of delivered reports. In addition, there was a $1.4 million increase in amortization expense related to capitalized software costs due to our continued investment in internal-use software, as well as a $1.2 million increase in employee compensation that was primarily driven by an increase in headcount.

Services. The increase in services cost of sales for the nine months ended September 30, 2015 was primarily driven by $2.0 million of additional third-party and consultant costs. In addition, employee compensation costs increased by $1.0 million, primarily driven by an increase in headcount.

We expect both subscription and services expenses to increase in absolute dollars in the near and long term, as we continue to increase the size of this market both domestically and internationally. Additionally, we expect non-headcount driven expenses will increase as we increase sales of services both domestically and internationally.

Sales and Marketing

	Nine Months Ended September 30,
	2014			2015			$ Change		% Change
	(Dollars in thousands)
Sales and marketing	$	43,958		$	44,558		$	600		1	%
% of total revenue		47	%		41	%

The increase in sales and marketing expense for the nine months ended September 30, 2015 was primarily driven by a $0.5 million increase in employee compensation costs. Salary and benefits expense increased by $1.0 million, partially offset by a $0.5 million decrease in stock-based compensation expense.

We expect sales and marketing expenses to increase in absolute dollars in the near-to-medium term, as we continue to increase the size of the sales and marketing staff both domestically and internationally. Additionally, we expect non-headcount driven marketing expenses will increase as we attempt to increase brand awareness and

29

sponsor additional marketing events with the aim of attracting new customers and expanding our footprint with existing customers. Over the long term, we expect sales and marketing expenses to decline as a percentage of revenue as we achieve scale.

Research and Development

	Nine Months Ended September 30,
	2014			2015			$ Change		% Change
	(Dollars in thousands)
Research and development	$	34,131		$	39,792		$	5,661		17	%
% of total revenue		36	%		37	%

The increase in research and development expense for the nine months ended September 30, 2015 was primarily driven by a $3.7 million increase in employee compensation costs, comprised of a $1.5 million increase in salary and benefits expense and a $2.2 million increase in stock-based compensation expense. In addition, depreciation expense for capitalized software increased by $1.5 million.

We expect research and development expenses will increase in absolute dollars in the near-to-medium term as we continue to invest in new product capabilities, add new platform functionality and expand our system infrastructure. Over the long term, we expect research and development expenses to decline as a percentage of revenue as we achieve scale

General and Administrative

	Nine Months Ended September 30,
	2014			2015			$ Change		% Change
	(Dollars in thousands)
General and administrative	$	13,010		$	14,032		$	1,022		8	%
% of total revenue		14	%		13	%

The increase in general and administrative expense for the nine months ended September 30, 2015 was primarily driven by a $0.9 million increase in employee compensation costs. Salary and benefits expense increased by $1.6 million, partially offset by a $0.7 million decrease in stock-based compensation expense related to the reversal of expense related to awards that were forfeited during the nine months ended September 30, 2015.

We expect general and administrative expenses will continue to grow in absolute dollars as we continue to expand our operations and hire additional personnel. Additionally, general and administrative expenses are likely to increase due to the additional compliance costs necessary to operate as a public company, such as those related to filings with the SEC and the enhancement of our internal control environment. Over the long term, we expect general and administrative expenses to decline as a percentage of revenue as we achieve scale.

Other Income (Expense), Net

	Nine Months Ended September 30,
	2014			2015			$ Change			% Change
	(Dollars in thousands)
Other income (expense)	$	(503	)	$	(1,229	)	$	(726	)		144	%
% of total revenue		-1	%		-1	%

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The increase in other income (expense), net for the nine months ended September 30, 2015 was primarily driven by a $0.6 million increase of foreign currency losses recognized. The losses were primarily a result of fluctuations in the value of the Canadian dollar, euro and British pound sterling in relation to the U.S. dollar.

Liquidity and Capital Resources

As of September 30, 2015, our principal sources of liquidity were cash, cash equivalents, and investments in available-for-sale securities totaling $105.1 million. Our cash equivalents and investments are comprised of money market funds, commercial paper, corporate notes and bonds, certificates of deposit and U.S. government and agency securities. Since our inception, we have financed our operations primarily through private placements of preferred stock, customer payments, exercises of options to purchase shares of common stock and, more recently, capital lease obligations, a convertible note and our IPO.

In April 2014, we closed our IPO, in which we sold 7,015,000 shares of common stock at a price to the public of $19.00 per share, including shares sold in connection with the exercise of the underwriters’ over-allotment option. The offer and sale of all of the shares in the IPO were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a registration statement on Form S-1 (File No. 333-194264), which was declared effective by the SEC on April 3, 2014. We raised $121.8 million in net proceeds after deducting underwriting discounts and commissions of $9.3 million and offering expenses of $2.1 million.

In June 2015, we executed an amendment to our revolving credit facility that increased the availability from $15.0 million to $30.0 million. The credit facility contains financial covenants that require a minimum adjusted quick ratio and compliance with quarterly Adjusted EBITDA targets. In addition, the credit facility contains various negative covenants that limit our other indebtedness, investments, liens and transactions. As of September 30, 2015, we were in compliance with each of these financial covenants, had full borrowing capacity available and have not yet drawn on the facility.

We believe our current cash, cash equivalents, investments, cash flows from operations and amounts available under our credit facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

The following table summarizes our cash flows for the periods indicated:

	Nine Months Ended September 30,
	2014			2015
	(In thousands)
Net cash used in operating activities	$	(6,755	)	$	(9,816	)
Net cash used in investing activities		(8,081	)		(74,077	)
Net cash provided by (used in) financing activities		123,687			(2,604	)
Effect of exchange rate changes on cash and equivalents		(105	)		(1,048	)
Net increase (decrease) in cash and cash equivalents	$	108,746		$	(87,545	)

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2015 was $9.8 million, as compared to $6.8 million for the same period in 2014. The $3.0 million variance is primarily related to a $6.7 million increase in cash used by operating assets and liabilities, partially offset by a $3.7 million lower net loss after adjustments for non-cash items. The increase in working capital activity was mainly due to changes in deferred revenue, partially offset by a decrease in accounts receivable.

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As we increase investments in sales and marketing and research and development, we expect that we will experience a net usage of cash flows from operations for 2015.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2015 was $74.1 million, as compared to $8.1 million for the same period in 2014. The $66.0 million variance resulted from the $67.0 million purchase of available-for-sale securities that occurred in the third quarter of 2015, partially offset by a $1.0 million decrease in purchase of equipment and cash compensation for employees and consultants relating to the development of capitalized software for internal use.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2015 was $2.6 million, as compared to net cash provided by financing activities of $123.7 million for the same period in 2014. The $126.3 million variance is primarily due to the $122.6 million in net proceeds we received in connection with the IPO in 2014, as well as an additional $4.0 million in tax payments related to net share settlements of equity awards during the nine months ended September 30, 2015.

Application of Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. Accounting policies, methods and estimates are an integral part of the preparation of consolidated financial statements in accordance with U.S. GAAP and, in part, are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our consolidated financial statements, areas that are particularly significant include:

• Revenue recognition;

• Stock-based compensation; and

• Income taxes.

There were no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2015. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC for a more complete discussion of our critical accounting policies and estimates.

Commitments

As of December 31, 2014 and September 30, 2015, we had outstanding letters of credit totaling $1.3 million in favor of certain landlords for office space and collateralized as part of our secured loan agreement. To date, no amounts have been drawn against the letters, which renew annually and mature at various dates through April 2018.

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Our principal commitments primarily consist of obligations under leases for office space and obligations under capital leases for equipment. As of September 30, 2015, the future non-cancelable minimum payments under these commitments were as follows:

	Total		Three Months Ended December 31, 2015		Years Ended December 31,
					2016		2017		2018
Facilities leases	$	9,776	$	1,440	$	5,062	$	2,804	$	470
Capital lease obligations		659		186		408		65		—
Total	$	10,435	$	1,626	$	5,470	$	2,869	$	470

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such entities often being referred to as structured finance or special purpose entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound sterling, Japanese yen and the Canadian dollar. Although we have experienced and will continue to experience fluctuations in our net income as a result of transaction gains (losses) related to transactions denominated in currencies other than the U.S. dollar, we believe that a 10% fluctuation of foreign currency exchange rates would have an immaterial effect on our financial position. We hedged a portion of our contracts, but have not instituted a full hedging program. We expect our international operations to continue to grow in the near term, and we are continually monitoring our foreign currency exposure to determine when we should expand the hedging program. The substantial majority of our agreements have been and we expect will continue to be denominated in U.S. dollars.

Interest Rate and Market Sensitivity

We had cash, cash equivalents and investments of $105.1 million as of September 30, 2015. Cash equivalents primarily consist of money market funds backed by U.S. Treasury Bills and certificates of deposit. Investments primarily consist of corporate notes and bonds and commercial paper. The carrying amount of our cash equivalents reasonably approximates fair value due to the short-term maturities of these instruments. The primary objective of our investments is the preservation of capital to fulfill liquidity needs. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our portfolio, however, we do not believe an immediate 10% increase or decrease in the interest rates would have a material effect on our results of operations or cash flows.

We do not believe our cash equivalents or investments have significant risk of default or illiquidity. While we believe our cash equivalents and investments do not contain excessive risk, we cannot assure you that they will not be subject to adverse changes in market value in the future. In addition, we maintain significant amounts of cash and cash equivalents and investments at two or more financial institutions that are in excess of federally insured limits and are exposed to counterparty risk.

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Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and in light of the unremediated material weakness in the design and operation of our internal control over financial reporting relating to our financial statement close process and the lack of sufficient financial accounting and reporting expertise commensurate with our financial reporting requirements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission, our principal executive officer and principal financial officer have concluded that, as of September 30, 2015, our disclosure controls and procedures were not effective. To address this material weakness, the company has taken steps to address the underlying causes of the material weakness as described further in “—Remediation Efforts to Address Material Weakness in Internal Control over Financial Reporting.” Accordingly, we believe that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q do fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, other than those disclosed under “—Remediation Efforts to Address Material Weakness in Internal Control over Financial Reporting,” during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Efforts to Address Material Weakness in Internal Control over Financial Reporting

We are currently in the process of remediating the material weakness in our internal control over financial reporting as described above and are taking numerous steps that we believe will address the underlying causes of the material weakness. We have completed the development and formal documentation of our policies and procedures relating to our internal control over financial reporting, but we have not completed the testing of these formalized controls. The identified material weakness in internal control will not be considered fully remediated until sufficient time has elapsed to provide evidence that the new controls have been implemented and are operating effectively. We continue to work on implementing and testing the new controls in order to make this final determination. Other than the remediation steps described above, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Offer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the

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Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows.

ITEM 1A. Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report, and in our other public filings. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

Risks Related to Our Business

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

We have incurred significant losses to date, with an accumulated deficit of $156.3 million as of September 30, 2015. For the years ended December 31, 2012, 2013 and 2014, we incurred net losses of $12.3 million, $14.2 million, and $41.8 million, respectively, and for the nine months ended September 30, 2014 and 2015, we incurred net losses of $30.0 million and $31.3 million, respectively. We expect these losses to continue. We also anticipate negative operating cash flow for the foreseeable future, as we expect to incur significant operating expenses in connection with the continued development and expansion of our business. Many of these expenses relate to prospective customers that may never contract with us, as well as products that may not be introduced, that we may choose to discontinue, that may fail to achieve desired results or that may not generate revenue until later periods, if at all. We may not achieve or sustain profitability on a quarterly or annual basis.

Sales cycles and implementation times can be lengthy and unpredictable and require significant employee time and financial resources.

Sales cycles for our products tend to be long and unpredictable. Even after we have convinced prospective customers of the need for, and value of, our products and solutions, our customers are large organizations that frequently have extensive budgeting, procurement, competitive bidding, technical and performance reviews and regulatory approval processes that can slow down the sales process by months or even years. Utilities may choose, and many historically have chosen, to follow industry trends rather than be early adopters of new products or solutions, which can extend the lead time for or prevent acceptance of more recently introduced products or solutions such as ours. In many instances, a utility may require one or more pilot programs to test our products and solutions before committing to a larger deployment. These pilot programs may be quite lengthy and provide no assurance that they will lead to a larger deployment or future sales. The implementation and deployment of our solutions can be unpredictable due to contract negotiations and challenges with implementation, or critical dependencies, such as the installation of other products, including smart meters. Furthermore, the implementation and deployment of new products and solutions may require troubleshooting, which requires additional time and resources from us and our customers. These delays may lengthen our sales cycles.

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Our typical sales cycle across contracts is 4 to 20 months and can extend even longer in some cases. This extended sales, implementation and deployment process requires our senior management and our sales and marketing and customer services personnel to dedicate significant time to sales, and to use significant financial resources without any assurance of success or recovery of our related expenses.

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

We provide services to utilities that operate in a highly regulated business environment, and regulatory requirements or need for regulatory approval could delay or reduce demand for our products, impose costs on us or make our products less attractive to our customers.

Our customers, products and solutions are subject to many federal, state, local and foreign laws and regulations. In many cases, our customers are subject to direct oversight from Public Utility Commissions, Public Service Commissions, Independent System Operators, the Federal Energy Regulatory Commission or other regulatory entities primarily focused on the energy utility sector. Applicable laws and regulations govern, among other things, utility demand for energy efficiency and demand response solutions, the data that we are able to handle and collect, utility structuring and incentives, the utility’s ability to spend money on our products and solutions and the methods and manners that we can use to contact utility customers. Depending on the solutions sought, prospective customers may be required to gain approval from any of these organizations prior to implementing our solutions, which could delay our ability to collect cash and recognize revenue.

We are dependent in part on regulations on the utility industry, and the changing regulatory landscape could alter our customers’ buying patterns.

The utility industry has been subject to increasing and changing regulations in recent years. We derive substantially all of our revenue from sales of products and solutions directly and indirectly to utilities, and this complex and difficult landscape poses a risk to us. We have experienced, and may in the future experience, variability in our results of operations on an annual and a quarterly basis as a result of these factors. Going forward, these factors could harm our financial condition and cash flows.

Changes in the regulatory conditions could reduce a customer’s interest in or ability to implement our products and solutions. Examples of market dynamics driven by regulation include:

• energy efficiency goals;

• interpretations of the energy savings credit attributed to our products;

• regulated compensation associated with energy efficiency;

• demand response goals;

• rules concerning the peak reductions attributed to our products;

• regulated compensation associated with demand response;

• smart metering or advanced meter infrastructure deployments; and

• data protection and information security.

Many regulatory jurisdictions have implemented rules that provide financial incentives for the implementation of energy efficiency and demand response technologies, either by providing rebates or through the restructuring of utility rates. In the past, we have seen demand for our solutions altered by changes in

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regulation. We have also had to limit or alter our offerings to comply with regulatory requirements, and these changes have affected our revenue. In addition, deregulation may change the incentives for our customers or prospective customers to use our solutions. If changes in regulation reduce or negatively alter the demand for our solutions, our business and results of operations could be harmed. In order to counteract this risk, we have invested significant time and effort in understanding and attempting to impact government decisions that we believe will affect our market. These efforts, however, have not always been successful and may not succeed in the future.

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

Our industry is highly competitive and characterized by new and rapidly evolving technologies, techniques, standards, regulations, customer requirements and frequent product introductions. Accordingly, our results of operations depend upon, among other things, our ability to develop and introduce new products and solutions, as well as our ability to improve existing products. The process of developing new technologies and products is complex. If we are unable to develop enhancements to, and new features for, our existing products or if we are unable to develop new products that keep pace with technological developments or industry standards, our business could be harmed.

We continue to invest in new product offerings and the success of those offerings is uncertain. A few examples of such product development challenges are:

• We have invested significant resources in developing applications that work with thermostats sold by third parties. Sales of this offering did not grow as quickly as we had anticipated. We have yet to see a significant return from that investment, as our development and sales growth has been slowed by market challenges. As a result, we have suspended further development of our thermostat offering. These challenges may continue, and our investment in this area may not yield returns.

• We have invested significant resources in an offering tailored specially for small and medium-sized businesses. The market for this offering is unproven, and our ability to successfully deliver the results our customers seek is uncertain.

• We have invested considerable resources in developing a demand response offering. While the early results have been promising, it is possible that the market could be smaller than we have expected or that our product will not function as intended.

• We have invested in adapting our products for international markets, where energy is often sold competitively. Customer and utility expectations vary widely in these markets and it is possible that our products may be less successful in international and competitive markets. For example, in 2014 we experienced two non-renewals with international customers, saw slower sales growth in Europe and found that use of our energy efficiency product to drive utility customer retention was less effective in international markets than we hoped. We may experience additional difficulty adapting our products and solutions for international markets.

• We are investing in developing applications that integrate with utilities’ mission-critical operations, such as our Billing Advisor. These mission-critical applications will need to be sold to new buyers within utilities to whom we have not previously sold, and it is uncertain whether these applications or our efforts to sell to these new buyers will prove to be successful.

• We also have other products in development; it is possible that none of those products will prove to be successful.

All of our research and development efforts are dependent upon our ability to deliver products and functionality in a timely and efficient manner. In the past, we have experienced delays delivering products, and while we have taken steps to improve the predictability of our research and development efforts, those efforts may not be successful. If we continue to experience delays in our ability to deliver new products and functionality, our business and growth rates would suffer.

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Our success depends in part on our ability to deliver measurable outcomes, and our business may be harmed if our products became less effective or our results are questioned.

Our products deliver valuable measurable outcomes for our customers and receive favorable treatment from their regulators, both of which are important to our customers. Our ability to deliver expected results is dependent on numerous factors, including but not limited to the effectiveness of our approach and products, the cost of alternate sources of energy savings, the availability of data and our ability to effectively reach energy consumers. We may not be able to continue to deliver valuable measurable outcomes or we may find that our programs yield diminishing returns over time. In addition, it is possible that regulators will change their view of our results in a way that might harm our business overall. For example, if regulators were to treat our energy savings as less significant or less reliable than other efficiency programs, or if regulators were to alter how utilities are compensated for working with us, our business and results of operations may be harmed. If our ability to deliver results were to change, or if regulators were to view our results less favorably, our brand, business and results of operations may be harmed.

Because we recognize subscription revenue over the term of the contract, downturns or upturns in new sales will not be immediately reflected in our results of operations and may be difficult to discern.

We generally recognize subscription revenue from customers ratably over the terms of their contracts, which typically range from one to five years. As a result, most of the subscription revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on our revenue results for that quarter, but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solutions, and potential changes in our pricing policies or rates of renewals, may not be fully reflected in our results of operations until future periods. We may be unable to adjust our cost structure to reflect the changes in revenue. In addition, a significant majority of our costs are expensed as incurred. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

A limited number of our utility customers are responsible for a significant portion of our revenue and cash flow. A decrease in sales to these utility customers or delays in customer implementation and deployments could harm our results of operations and financial condition.

We operate in a large and concentrated market. A substantial portion of our revenue, profitability and cash flow depends on a limited number of utility customers, and we cannot easily replace a lost customer. As a result, there may be significant variability in our quarterly results if we were to lose one or more of our large customers. In addition, particularly in the United States, there has been an increase in mergers and acquisitions among energy utilities in recent years. This trend may decrease the size of our potential customer base, or may require us to make pricing concessions to large clients.

For the year ended December 31, 2013 our ten largest customers by revenue represented 62% of our total revenue, with three clients, National Grid, PG&E and Exelon each representing more than 10% of our total revenue at 14%, 13% and 11%, respectively. For the year ended December 31, 2014, our ten largest customers by revenue represented 63% of our total revenue, with two clients, Exelon and National Grid, each representing at least 10% of our total revenue at 12% and 10%, respectively. For the nine months ended September 30, 2015, our ten largest customers by revenue represented 63% of our total revenue, with one client, Exelon, representing 16% of our total revenue. Many of our fees are not due until we have actually begun to deliver our solutions and, as a result, are subject to delay. Our customers may generally terminate their respective agreements in each case for cause upon written notice of certain uncured material breaches of contract by us, upon the bankruptcy or

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insolvency of the other party or under certain other circumstances. We expect that a limited number of utility customers will continue to account for a substantial portion of our revenue in future periods. Changes in the business requirements, vendor selection or purchasing behavior of our utility customers could significantly decrease our sales.

Many of our customer agreements provide our customers with the ability to terminate the agreement for convenience, which may limit our ability to forecast our revenue accurately or could harm our results of operations and financial condition.

Many of our customer agreements, including certain of our historically larger customers are subject to customer termination for any reason, including for the customer’s convenience following a specified notice period. In limited circumstances, we may be required to provide refunds or sales credits in addition to the loss of future revenue from these customers. If customers terminate their agreements with us for convenience, our results of operations may be harmed and our revenue forecasts may be incorrect.

If we fail to manage our growth effectively or if we fail to retain qualified personnel, our financial performance may suffer.

We have substantially expanded our overall business, customer base, employee headcount and operations in recent periods both domestically and internationally. We increased our total number of full-time employees from 162 employees as of December 31, 2010 to 606 employees as of September 30, 2015. This expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, customer operations, research and development, sales and marketing, manufacturing, administrative, financial and other resources. Additionally, our executive officers and other key employees could terminate their relationship with us at any time.

Our future success depends upon our ability to continue to attract, train, integrate and retain highly skilled employees, particularly our senior management team, sales and marketing personnel and research and development personnel. The loss of any member of our senior management team or other key employees, an inability to attract and retain qualified personnel, or delays in hiring required personnel, could harm our business, results of operations and financial condition.

In addition, to manage the expected growth of our operations, we will need to continue to improve our operational, financial, management and information technology infrastructure. Our anticipated additional headcount and capital investments will increase our costs, which will make it more difficult for us to address any future revenue shortfalls by reducing expenses in the short term. If we are unable to manage our growth successfully, our business and results of operations will be harmed.

The market for our products and solutions is still developing. If the market does not develop as quickly or as much as we expect, our business and growth rates could be harmed.

The market for our products and solutions is still developing, and it is uncertain whether our products and solutions will achieve and sustain high levels of demand and market acceptance, both domestically and internationally. Our near-term and long-term success will depend to a substantial extent on the willingness and ability of utilities, both domestically and internationally, to pursue energy efficiency, demand response and customer engagement programs. Utilities’ activities are governed by regulatory agencies, including public utility commissions, which may not create a regulatory environment that is conducive to the implementation of energy efficiency or demand response in a particular jurisdiction. Indeed, currently many utilities lack the economic motivation, regulatory requirements or financial incentives to deploy our technology. If utilities do not pursue energy efficiency, demand response or customer engagement or do so in fewer numbers or more slowly than we expect, our business and results of operations would be harmed. In addition, customer and utility expectations vary widely in international markets and it is possible that the market for our products and solutions may not prove as strong in international and competitive markets. We may find less market acceptance of our products and solutions internationally than we expected.

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Utilities in critical markets may fail to collect data or may be unable to collect current data that we require to provide our products and solutions.

Our cloud-based platform is dependent upon receiving specific data inputs from our customers such as current energy usage data. Without those inputs, our platform may be less reliable or effective or may not work and we may not be able to provide effective solutions. In markets where energy usage data is infrequently collected or where access to that data is restricted, including in international markets, we may prove unable to provide our products and solutions, or we may be forced to alter our products and solutions in a manner that reduces our ability to derive revenue from them. For example, the processes for data collection in Europe are still developing, and as a result, data may be more difficult to obtain or more expensive to access. If we are unable to access current data from our customers, our business and results of operations may be harmed.

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

Our results of operations, including our revenue, profitability and cash flows, may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control. While our revenue has increased in recent periods, our revenue may not continue to increase or may decrease on a quarterly or annual basis.

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

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

• changes in the mix of products and solutions sold;

• our dependence on a limited number of customers;

• current customers not renewing or cancelling their existing agreements with us;

• the timing of deployment of our products and solutions by our customers, which can have a material effect on when we recognize related revenue under our revenue recognition policies;

• changing market and competitive conditions;

• failures of our solutions that may harm our reputation or result in contractual penalties or terminations;

• product or project failures by our customers that result in the cancellation, slowing down or deferring of projects;

• changes to our cost structure, including changes to our cost of postage, data acquisition, data storage and management, data security and labor;

• delays in adopting our solutions associated with data privacy concerns;

• changes in laws or regulations, directly affecting either our operations, those of our customers or utility consumers;

• delays in regulatory approvals for our utility customers and utility customer implementations and deployments;

• political and consumer sentiment and the related impact on the scope and timing of deployment of our products and solutions;

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

• the addition of new employees; and

• extraordinary expenses such as litigation or other dispute-related settlement payments.

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

We operate in a competitive industry and our market share and results of operations may be harmed if we are unable to respond to our competitors effectively.

Competition in our market involves rapidly changing technologies, evolving regulatory requirements and industry expectations, frequent new product introductions and changes in customer requirements. To maintain and improve our competitive position, we must keep pace with the evolving needs of our utility customers and continue to develop and introduce new products, features and solutions in a timely and efficient manner. We compete with software suppliers to utilities. Our key competitors currently include Aclara, C3 Energy, EnerNOC, Schneider Electric, Silver Spring Networks, Simple Energy and Tendril, as well as many other smaller providers. Certain of these companies have, and future competitors may have, substantially greater financial, marketing, technological and other resources than we do.

Additionally, we compete with energy efficiency providers that provide utilities with other efficiency programs and demand response companies that offer programs specifically focused on reduction in peak capacity. If these programs become more cost effective, it would harm our business. For example, if the cost of alternative efficiency approaches, such as light bulb replacement subsidies or home retrofits, decreased or if utilities could more easily deploy those measures on a large scale, our business could be harmed.

We have also seen many companies imitate our products, solutions and tactics, and we expect that trend to continue. As we look to expand into new markets, we expect to face additional competitors that may be more established in specific geographies. We anticipate that in the future, additional competitors will emerge that offer a broad range of competing products and solutions.

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

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

In addition, we may be subject to sales, use and income tax audits by many tax jurisdictions throughout the world, many of which have not established clear guidance on the tax treatment of software-as-a-service (“SaaS”) based companies. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Our results of operations may be harmed if we are required to collect sales taxes for our products and solutions in jurisdictions where we have not historically done so.

Historically, we have not collected sales tax from our customers nor have we remitted such taxes in many states where we sell our products and solutions. Although we believe we are not obligated to collect sales taxes

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from our customers in those jurisdictions, states or one or more countries may seek to impose sales or other tax collection obligations on us, including for past sales by us or our utilities. A successful assertion that we should be collecting additional sales or other taxes on our products or solutions could discourage customers from purchasing our solutions or otherwise harm our business and results of operations.

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

Our success and future growth depend on the skills, working relationships and continued services of our management team and other key personnel. The loss of any member of our senior management team, and in particular our Chief Executive Officer, President or other key executives, could harm our business. All of our officers are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace.

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

In addition, our future success will depend on our ability to attract, retain and motivate highly skilled management, product development, operations, sales, engineering and other personnel in the United States and abroad. Competition for these types of personnel is intense and we have experienced periods where we had difficulty hiring for critical roles. In particular, we have struggled at times to attract and hire sales executives and software developers who meet our standards. Even if we are able to hire qualified individuals, we may be unable to retain such individuals. Furthermore, if we hire from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources.

Postal charges are one of our most significant costs. If postal rates or mailing costs increase, our cost of delivering our solutions could increase.

In each country where we deliver mailed paper reports, we are dependent upon the government mail carrier to deliver our products. We have very little ability to control postal expenses and a change in postal expenses could have a significant impact on our business. For example, the United States Postal Service (“USPS”) delivers all of our U.S. mail correspondence, and we are bound to accept any postage rate increases enacted by the USPS. In the past, we have seen the specific postage rate applied to our products change due to a change in how the USPS interpreted its classification rules. In January 2013, the USPS determined that these reports should be charged first class postage rates rather than standard mail rates, thereby increasing our postage cost significantly. These increased charges continued through June 2013 when we were able to modify our product to comply with classification rules for postage at the standard rate. If the USPS or other mail carriers change their position as to our mailed reports or we change our product offerings again, our future results of operations could be harmed.

If we cannot maintain our environmental focus as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contributes to our success.

We believe that a critical contributor to our success has been our focus on the environmental impact of our products and solutions. We believe that focus has driven innovation, increased attention to results and has

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allowed us to attract and retain highly talented individuals who are motivated by our mission driven culture. As we grow and change, we may find it difficult to maintain this critical aspect of our corporate culture. Any failure to preserve our culture could harm our ability to retain and recruit quality personnel, thereby harming our future success.

We have a limited operating history in an evolving industry, which makes it difficult to predict our future prospects and may increase the risk that we will not be successful.

We have a limited operating history in an evolving market that may not develop as expected. This limited operating history makes it difficult to effectively assess or forecast our future prospects. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in the technology industry, such as the risks and uncertainties described in this Quarterly Report on Form 10-Q. If our assumptions regarding these risks and uncertainties are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our financial results and results of operations may differ materially from our expectations and our business may suffer.

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

We operate in an industry with a limited number of buyers and reputation is particularly important as a result. Our customers often serve as references for each other, and they have been known to discuss the performance of our products and solutions with each other. Consequently, our marketing efforts depend significantly on our ability to call on our current utility customers to provide positive references. Given our limited number of utility customers, the loss or dissatisfaction of any customer could substantially harm our brand and reputation, inhibit the market acceptance of our products and solutions and impair our ability to attract new utility customers and maintain existing utility customers. Any of these consequences could harm our business, financial condition and results of operations.

Our business depends substantially on customers renewing, upgrading and expanding their solutions with us. Any decline in our customer renewals, upgrades and expansions may harm our future results of operations.

Our ability to grow depends substantially on our ability to expand our business with existing customers. To date, a significant portion of our growth has resulted from our ability to sell new products and solutions and expand existing products and solutions sold to current customers. We have limited historical data with respect to rates of customer renewals, upgrades and expansions so we may not accurately predict future trends in these areas. Our customers’ renewal rates may decline or fluctuate because of several factors, including their satisfaction or dissatisfaction with our solutions, the prices of our solutions, the prices of solutions offered by our competitors or reductions in our customers’ spending levels due to the macroeconomic environment or other factors. If our customers believe that our service offerings are not sufficiently scalable, effective or do not provide adequate information security, they will not expand their solutions with us, and our profitability and gross margin may be harmed. In addition, our products and solutions may prove less effective meeting the needs of utilities in competitive and international markets and we may experience greater customer attrition in these markets. If our customers do not renew their subscriptions for our solutions, renew on less favorable terms or do not purchase additional functionality or subscriptions, our revenue may grow more slowly than expected or decline.

If the market for our cloud-based delivery model develops more slowly than we expect, our growth may slow or stall, and our results of operations would be harmed.

Use of cloud-based or SaaS applications to manage and automate enterprise IT is at an early stage within our industry. We do not know whether the trend of adoption of enterprise SaaS solutions we have experienced in the past will continue in the future. In particular, many utilities have invested substantial personnel and financial

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resources to integrate legacy software into their businesses over time, and some have been reluctant or unwilling to migrate to SaaS. Furthermore, some utilities have been reluctant or unwilling to use SaaS because they have concerns regarding the risks associated with the security of their data and the reliability of the technology delivery model associated with these solutions. In addition, if other SaaS providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for SaaS solutions as a whole, including our service, may be negatively impacted. If the adoption of cloud-based or SaaS solutions does not continue, the market for our solutions may stop developing or may develop more slowly than we expect, either of which would harm our results of operations.

From time to time, we have worked and expect to continue to work with third parties to pursue sales opportunities. If we were unable to establish and maintain these relationships, or if our initiatives with these third parties are unsuccessful, our business and future growth may be harmed.

For some of our existing and anticipated future products and solutions, we expect to maintain and may seek to establish relationships with third parties in order to take advantage of market opportunities. For example, certain third parties act as energy efficiency program administrators to utilities, system integrators and local partners in international markets, and we will need to work with such third parties to maintain or grow our business in certain territories. Our success in such circumstances may depend both on our ability to maintain a relationship with the third party and the third party’s ability to maintain a relationship with the utility. In addition, these third-party vendors may offer competing products, partner with other providers or otherwise choose not to partner with us. In the event that we are unable to establish or maintain new relationships on favorable terms, or at all, our ability to successfully sell our existing and anticipated future products and solutions could be harmed.

Security breaches involving our products or solutions, publicized breaches in similar products and solutions offered by others, or the public perception of security risks or vulnerability created by the deployment of new technologies in general, whether or not valid, could harm our business.

The security measures we have adopted may not function as expected or may prove insufficient to detect unauthorized activity and prevent or minimize (i) security breaches, (ii) the unauthorized collection, use and disclosure of personal data or other information, or (iii) loss, theft or corruption of information or personal data by parties entrusted with it. As a result, our products and solutions and the third-party products and solutions we utilize may be subject to significant real or perceived security breaches and other unauthorized collection, use, or disclosure of personal data or other information.

Our platform collects, stores, compiles and analyzes potentially sensitive information related to consumers’ energy usage. We store and/or come into contact with sensitive consumer information and data. If, in handling this information, we, our partners or our utility customers fail to comply with privacy or security laws, we could face significant legal, financial, and reputational exposure to claims of government agencies, regulatory bodies, utility customers and consumers whose privacy is compromised. Even the perception that we, our partners or our utility customers have improperly handled sensitive, confidential information could have a negative effect on our business. In addition, third parties may attempt to breach our security measures or inappropriately use or access our software or the network hardware through computer viruses, physical or electronic break-ins, and other means. If a breach is successful, sensitive information may be improperly obtained, manipulated or corrupted, and we may face legal and financial exposure. In addition, a breach could lead to a loss of confidence in our products and solutions and our business could be harmed.

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

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Concerns about security or customer privacy may result in the adoption of legislation that restricts the implementation of technologies like ours or requires us to make modifications to our products such as limiting how we collect, use and store data, which could significantly limit the deployment of our technologies or result in significant expense to modify our products.

Any real or perceived security breach, or data leak affecting us, our customers or regarding information similar to the type we collect, or the unauthorized collection, use or disclosure of information or personal data could harm our reputation and result in significant legal and financial exposure, including increased remediation costs and security protection costs, inhibit market acceptance of our products and solutions, halt or delay the deployment by utilities of our products and solutions, cause us to lose customers, harm our reputation, trigger unfavorable legislation and regulatory action, or inhibit the growth of the overall market for new products and solutions being sold to the utility industry. Any of these risks could harm our business, financial condition and results of operations.

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

We currently utilize data center facilities in the United States and Canada that are operated by third parties. These facilities may be vulnerable to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, war, acts of terrorism, unauthorized entry, human error and computer viruses or other defects. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. We rely on software and hardware technology provided by third parties to enable us to provide these solutions. Any damage to, or failure of, these third-party data centers or the third-party hardware and software we employ, could result in significant and lengthy interruptions in our ability to provide our solutions to our utility customers and their subscribers. We do not carry business interruption insurance sufficient to compensate us for potentially significant losses that result from service interruptions and system failures. Such interruptions and system failures could reduce our revenue and bookings, cause us to issue credits or pay penalties, cause customers to terminate their agreements with us and harm our reputation and our ability to attract new utility customers.

If our products contain defects or otherwise fail to perform as expected our reputation could be damaged, we could lose market share and, as a result, our financial condition or results of operations could be harmed.

Our software platform is complex and may contain defects or experience failures due to any number of issues. The satisfactory performance, reliability and availability of our platform is critical to our success. From time to time, we have found defects in our software, and new errors in our existing software may be detected in the future. If any of our products contain a material defect, do not function as anticipated, or do not safeguard customer data consistent with industry standards we may have to devote significant time and resources to find and correct the issue. Any system delays, interruptions or disruptions to our servers caused by telecommunications failures, computer viruses, physical break-ins, domain attacks, hacking or other attempts to harm our systems or servers that results in the unavailability or slowdown of our products or loss of data would reduce the attractiveness of our products. We may also experience interruptions caused by reasons beyond our control. Efforts to correct problems could divert the attention of our management team and other relevant personnel from other important tasks. Such failings might damage our reputation and relationships with utilities; result in the loss of business to competitors; result in fines or regulatory penalties against us; and result in litigation against us.

Our technology, products and solutions have only been developed in the last several years and we have had only limited opportunities to deploy and assess their performance in the field at full scale.

The current generation of our platform and solutions has been developed in the last several years and is continuing to evolve. Deploying and operating our technology is a complex endeavor and, until recently, had

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been done primarily in pilot programs. As the size, complexity and scope of our deployments have expanded, we have been able to test product performance at a greater scale and in a variety of new geographic settings and environmental conditions. These larger deployments have presented a number of unforeseen operational and technical challenges, which in some cases have caused delays and required us to commit significant resources to address these challenges. As the number, size and complexity of our deployments grow, we may continue to encounter unforeseen operational, technical and other challenges, some of which could cause significant delays and high deployment costs, which in turn may delay our ability to collect revenue, trigger contractual penalties, result in unanticipated expenses or damage to our reputation, each of which could harm our business, financial condition and results of operations.

To date, we have derived our revenue from a limited number of products and solutions. Our efforts to expand our product portfolio may not succeed, and may reduce our revenue growth rate.

To date, we have derived our revenue from a limited number of products and solutions. Any factor adversely affecting sales of one or more of these products and solutions, including market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and results of operations. Our plan to expand our product and solution portfolio may not be successful, which may harm the growth of our business and our results of operations.

Material defects or errors in our data collection and analysis systems could damage our reputation, result in significant costs to us and impair our ability to sell our products.

Our data collection and analysis systems are complex and may contain material defects or errors. In addition, the large amount of data that we collect may cause errors in our data collection and analysis systems. Any defect in our data collection software, network systems, statistical projections or other methodologies could result in:

• loss of customers;

• damage to our brand;

• lost or delayed market acceptance and sales of our products and solutions;

• interruptions in the availability of our products and solutions;

• the incurrence of substantial costs to correct any material defect or error;

• sales credits, refunds or liability to our customers;

• diversion of development resources; and

• increased warranty and insurance costs.

Any material defect or error in our data collection systems could adversely affect our reputation and results of operations.

Our customers frequently insist on customized products, which are often difficult for us to deliver in a timely and cost-effective manner. If we are not able to find a long-term solution for customer customization requests, our business and results of operations may suffer.

Our customers often request customized service that is costly and time consuming for us to deliver. While we try to limit customization of our product for individual customers, customizations continue to take up valuable research and development resources. We are taking steps to make customization requests easier to fulfill, but those efforts may prove to be unsuccessful. If we are unable to make customization requests easier to fulfill, customer satisfaction would be negatively affected and our business and results of operations may suffer.

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

Our industry is characterized by the existence of a large number of patents and by litigation based on allegations of infringement or other violations of intellectual property rights. From time to time, third parties have claimed and may continue to claim that we are infringing upon their patents or other intellectual property rights. In addition, we may be contractually obligated to indemnify our utility customers or other third parties that use or resell our products in the event our products are alleged to infringe a third party’s intellectual property rights. In many cases, these indemnification obligations are uncapped. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations. Further, claims of intellectual property infringement might require us to redesign affected products, delay affected product offerings, enter into costly settlement or license agreements or pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing, selling or distributing the affected products. If we cannot or do not license the alleged infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and earnings could be harmed. Additionally, our utility customers may not purchase our products if they are concerned that our products infringe third-party intellectual property rights. This could reduce the market opportunity for the sale of our products and solutions. The occurrence of any of these events may harm our business, financial condition and results of operations.

In addition to this general risk, we are aware of specific patents that we could be accused of, or allegedly are, infringing. We believe we would have valid defenses available to us if adjudicated, but our defense may not be successful. Even if our defenses are valid, however, responding to an accusation of patent infringement could be time consuming and costly to defend.

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

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

In recent years, in the United States and elsewhere, considerable doubt has been cast upon the validity of software patents as a whole. If the underlying laws were to change, such that we were no longer able to patent our software platform, our intellectual property rights might be more difficult to protect.

We cannot ensure that any of our pending applications will be granted or that any patents that may be issued will adequately protect our intellectual property. In addition, third parties have in the past and could in the future bring infringement, invalidity, co-inventorship, re-examination or similar claims with respect to any patents that may be issued to us in the future. Any such claims, whether or not successful, could be extremely costly to defend, divert management’s attention and resources, damage our reputation and brand, and harm our business and results of operations.

We may be required to spend significant resources to monitor and protect our intellectual property rights. In order to protect or enforce our patent rights, protect our trade secrets or know-how, or determine the enforceability, scope and validity of the proprietary rights of others, we may initiate patent litigation or other proceedings against third parties, such as infringement suits or interference proceedings. Any lawsuits or proceedings that we initiate could be expensive, take significant time and divert management’s attention from

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other business concerns. Litigation and other proceedings also put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits or other proceedings that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may harm our business, financial condition and results of operations.

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

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

We use open source software in connection with our products and solutions. From time to time, companies that incorporate open source software into their products have faced claims challenging the ownership of open source software and compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and make available any derivative works of the open source code on unfavorable terms or at no cost. Although we attempt to make sure open source software is only used in a manner that would not require us to disclose the source code to the related product or that would not otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release proprietary source code, pay damages for breach of contract, re-engineer our products, discontinue the sale of products in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could harm our business, financial condition and results of operations.

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

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

Developments in data protection laws and regulations may affect our solutions, which could harm our business.

Our solutions may be subject to data protection laws and regulations that impose a general framework for the collection, processing and use of personal data. Our platform and solutions rely on the transfer of data relating to individual energy usage and may be affected by these laws and regulations. It is unclear how the

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regulations governing the collection, use and disclosure of personal data in connection with privacy requirements will further develop in the United States and internationally, and to what extent this may affect our solutions. In particular, Public Utility Commissions in some states are developing breach notification and other privacy regulations that may be more stringent than privacy laws generally applicable in those states and may impose increased costs on utilities and their service providers. In addition, the European Court of Justice recently declared invalid the 20-year-old safe harbor framework on which we and thousands of other U.S. and European companies relied to comply with cross-border data transfer restrictions under European Union law. As a result, European businesses face uncertainty about their ability to lawfully transfer customer data to U.S. vendors, such as Opower, and there is an increased risk of regulatory enforcement actions and fines against European and U.S. businesses that exchange European residents’ personal data. These developments could harm our business, financial condition and results of operations.

We are subject to international business uncertainties that could harm our business and results of operations or slow our growth.

Our ability to grow our business and our future success will depend to a significant extent on our ability to expand our operations and customer base worldwide. Operating in international markets requires significant resources and management attention and, other than our experience operating in the United Kingdom, Canada, France, Sweden, Australia, Hong Kong, Japan and New Zealand, we have limited experience entering new geographic markets. We operate a subsidiary in Odessa, Ukraine, which we formed to expand our research and development workforce. Ukraine is experiencing significant unrest, which has escalated into an armed conflict with Russia. In addition, the United States and other countries have placed economic sanctions on the Crimea region of Ukraine and numerous individuals and businesses in Ukraine. Additional sanctions are possible as the situation continues. The conflict and associated sanctions may impact our operations, which would in turn compromise our ability to develop our products at the pace and cost that we desire. In addition, the World Bank ranks Ukraine among the bottom half of countries with regulatory environments favorable to starting and operating a local business. This difficult regulatory environment may result in operational delays and regulatory compliance burdens that we may not be able to meet. Therefore, this and other international efforts may not be successful. International sales and operations are subject to risks such as:

• inability to localize our product;

• lack of effectiveness of our solutions in new markets;

• technology compatibility;

• the imposition of government controls;

• government expropriation of facilities;

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

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

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

• restrictions on the import or export of critical technology;

• currency exchange rate fluctuations;

• multiple and possibly overlapping tax regimes and adverse tax burdens;

• compliance with anti-corruption and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act or the U.K. Anti-Bribery Act of 2010;

• lack of availability of qualified third-party financing;

• generally longer receivable collection periods than in the United States;

• difficulties in staffing and managing foreign operations;

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• preference for local vendors;

• burdens of complying with different permitting standards;

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

• difficulties in handling legal disputes in foreign jurisdictions; and

• different or lesser protection of our intellectual property.

Fluctuations in the value of the U.S. dollar may impact our ability to compete in international markets. International expansion and market acceptance depend on our ability to modify our business approach and technology to take into account such factors as differing customer business models, product requirements and needs, the applicable regulatory and business environment, labor costs and other economic conditions. These factors may harm our future international sales and, consequently, our business, financial condition and results of operations and slow our future growth.

Federal, state and international laws regulating telephone and email marketing practices impose certain obligations on marketers, which could reduce our ability to expand our business.

We make telephone calls and send emails and text messages as part of our solutions. The United States regulates marketing by telephone, text message and email. The Telephone Consumer Protection Act (“TCPA”) prohibits companies from making telemarketing calls to numbers listed in the Federal Do-Not-Call Registry and imposes other obligations and limitation on making phone calls and sending text messages to consumers. The Federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (the “CAN-SPAM Act”) regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. We and our customers may need to comply with such laws and any associated rules and regulations. States and other countries have similar laws related to telemarketing and commercial emails. Additional or modified laws and regulations, or interpretations of existing, modified or new laws, regulations and rules, could prohibit or increase the cost of engaging with energy consumers and impair our ability to expand the use of our solutions, including our demand response solution, to more customers. Failure to comply with obligations and restrictions related to telephone, text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business. Moreover, there has been a recent increase in litigation alleging violations of laws relating to telemarketing and a recent declaratory ruling by the Federal Communications Commission interpreting the TCPA is expected to increase the exposure of companies that operate telephone and text messaging campaigns to class action litigation alleging violations of the TCPA. If we or our customers become subject to such litigation, it could result in substantial costs to our business and impair our ability to expand the use of our solutions.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as rules implemented by the Securities and Exchange Commission (“SEC”), the New York Stock Exchange (“NYSE”) and other applicable securities or exchange-related rules and regulations. In addition, our management team will also have to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and make some activities more difficult, time consuming or costly, particularly when we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

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

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual non-binding advisory vote on executive compensation and nonbinding stockholder approval of any golden parachute payments not previously approved. If we choose not to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, our auditors will not be required to attest to the effectiveness of our internal control over financial reporting. As a result, investors may become less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase. If we choose to provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, investors would have access to less information and analysis about our executive compensation, which may make it difficult for investors to evaluate our executive compensation practices. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions and provide reduced disclosure. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be harmed. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We have identified a material weakness in our internal control over financial reporting. Although we expect to make every effort to address this material weakness, we may find that we are unable to remediate this deficiency in our control environment, which could reduce the reliability of our financial reporting, harm investor confidence in our company and affect the value of our common stock.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2014, we and our independent registered public accounting firm identified a material weakness in the design and operation of our internal control over financial reporting. The material weakness relates to our financial statement close process and the lack of sufficient financial accounting and reporting expertise commensurate with our financial reporting requirements during this period. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We are currently in the process of remediating the material weakness and are taking numerous steps that we believe will address the underlying causes of the material weakness, primarily through the hiring of additional accounting and finance personnel with technical accounting and financial reporting experience, enhancing and segregating duties within our accounting and finance department, and enhancing our internal review procedures

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during the financial statement close process. If we fail to effectively remediate deficiencies in our control environment we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. Even if we are able to report our financial statements accurately and in a timely manner, if we do not make all necessary improvements to address the material weakness, continued disclosure of a material weakness will be required in future filings with the SEC, which could cause our reputation to be harmed and our stock price to decline.

We will be obligated to develop and maintain a system of effective internal controls over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may harm investor confidence in our company and, as a result, the value of our common stock.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has not issued an opinion on our internal control over financial reporting. Our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act if we take advantage of the exemptions available to us through the JOBS Act.

We may not be able to remediate our current material weakness or any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

Acquisitions of other businesses, products or technologies could disrupt our business and harm our financial condition and results of operations.

In order to remain competitive, obtain key competencies or accelerate our time to market, we may seek to acquire additional businesses, products or technologies. We have not completed any acquisitions to date and we therefore have no experience in successfully acquiring and integrating additional businesses, products or technologies. If we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms of the acquisition, financing the acquisition or effectively integrating the acquired business, product or technology into our existing business and operations. We may have difficulty integrating acquired technologies or products with our existing products and solutions. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues. If we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. In addition, any acquisitions we are able to complete may not result in the synergies or other benefits we had expected to achieve, which could result in substantial write-offs. Further, contemplating or completing an acquisition and integrating an acquired business, product or technology will significantly divert management and employee time and resources.

We may not be able to utilize a significant portion of our net operating loss carryforwards, which could harm our results of operations.

As of December 31, 2014, we had U.S. federal net operating loss carryforwards due to prior period losses of $58.3 million for U.S. federal purposes, which if not utilized will begin to expire in 2027. Realization of these net

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operating loss carryforwards is dependent upon future income, and there is a risk that our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could harm our results of operations.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize net operating loss carryforwards or other tax attributes, in any taxable year may be limited if we have experienced or experience in connection with our initial public offering or in the future an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.

Our initial public offering or future issuances of our stock could cause an “ownership change.” It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could harm our results of operations.

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

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

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

A significant catastrophic event such as war, acts of terrorism, natural disasters, such as earthquakes, fire or floods, loss of power, computer viruses, or global threats, including, but not limited to, the outbreak of epidemic disease, could disrupt our operations and impair deployment of our solutions by our utility customers, interrupt critical functions, cause our suppliers to be unable to meet our demand for parts and equipment, reduce demand for our products, prevent our utility customers from honoring their contractual obligations to us or otherwise harm our business. To the extent that such disruptions or uncertainties result in delays or cancellations of the deployment of our products and solutions, our reputation, business, results of operations and financial condition could be harmed.

Risks Related to Ownership of Our Common Stock

Concentration of ownership among our existing executive officers and directors and their affiliates may prevent new investors from influencing significant corporate decisions.

As of October 31, 2015, our executive officers and directors and entities that are affiliated with them beneficially owned, in the aggregate, 50% of our outstanding shares of common stock. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests. These stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of

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directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders, which in turn could reduce the price of our common stock.

The price of our common stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock may fluctuate substantially. The price of our common stock has been, and is likely to continue to be, volatile, which means that it could decline substantially within a short period of time. For example, since shares of our common stock were sold in our IPO in April 2014 at a price of $19.00 per share, our closing stock price has ranged from $8.08 to $25.23 through November 6, 2015. The trading price of our common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. Factors that could cause fluctuations in the trading price of our common stock include the following:

• price and volume fluctuations in the overall stock market from time to time;

• volatility in the market prices and trading volumes of technology stocks;

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

• sales of shares of our common stock by us or our stockholders;

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

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

• announcements by us or our competitors of new products;

• the public’s reaction to our press releases, other public announcements and filings with the SEC;

• rumors and market speculation involving us or other companies in our industry;

• actual or anticipated changes in our results of operations or fluctuations in our results of operations;

• actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

• litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

• developments or disputes concerning our intellectual property or other proprietary rights;

• announced or completed acquisitions of businesses or technologies by us or our competitors;

• new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

• changes in accounting standards, policies, guidelines, interpretations or principles;

• any significant change in our management; and

• general economic conditions and slow or negative growth of our markets.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market

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price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Future sales of shares by existing stockholders could cause our stock price to decline and the large number of shares eligible for public sale could depress the market price of our common stock.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, and the perception that these sales could occur may also depress the market price of our common stock. As of October 31, 2015, we had 51,818,141 shares of common stock outstanding.

In addition, we have filed registration statements to register the 8,525,935 shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable vesting periods, such shares of common stock issued upon exercise of outstanding options or settlement of restricted stock units will be available for immediate resale in the United States in the open market.

Sales of our common stock may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock.

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware Law, could impair a takeover attempt.

Our certificate of incorporation, bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

• creating a classified board of directors whose members serve staggered three-year terms;

• authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

• limiting the liability of, and providing indemnification to, our directors and officers;

• limiting the ability of our stockholders to call and bring business before special meetings;

• requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

• controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;

• providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings;

• establishing that the number of directors is set by the board of directors;

• providing that board vacancies be filled by the board of directors; and

• limiting the ability to remove directors other than for cause.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

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As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

In addition, from time to time, we may release earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future performance that represent our management’s estimates as of the date of release. Some or all of the assumptions of any future guidance that we furnish may not materialize or may vary significantly from actual future results. Any failure to meet guidance or analysts’ expectations could have a material adverse effect on the trading price or trading volume of our stock.

We do not expect to declare any dividends in the foreseeable future.

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

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ITEM 6. Exhibits

The exhibits listed below are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description of Exhibits	Incorporated by Reference from Form	Incorporated by Reference from Exhibit Number		Date Filed
3.1	Fifth Amended and Restated Certificate of Incorporation	10-Q		3.1		May 15, 2014
3.2	Amended and Restated Bylaws	S-1		3.4		March 3, 2014
4.1	Form of Common Stock certificate of the Registrant	S-1/A		4.1		March 24, 2014
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith
32.1*	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.	Furnished herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: November 12, 2015	OPOWER, INC.
	By:	/s/ Thomas G. Kramer
		Thomas G. Kramer
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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