2014

Echelon Reports Third Quarter 2013 Results Company Marks First Milestones in the emerging Industrial Internet of Things Market

SAN JOSE, Calif., Nov. 7, 2013 /PRNewswire/ -- Echelon Corporation (NASDAQ: ELON) today announced financial results for the third quarter ended September 30, 2013.

  • Q3 Revenues: $18.0 million
  • Q3 GAAP Net Loss: $3.5 million; GAAP Net Loss per Share: $0.08
  • Q3 Non-GAAP Net Loss: $2.6 million; Non-GAAP Net Loss per Share: $0.06

"We recently achieved the first milestones in our strategic plan to participate in the emerging Industrial Internet of Things market," said Ron Sege, Chairman and CEO of Echelon. "The introduction of our IzoT platform offers a smooth migration path to IP for the millions of users of legacy control protocols, and our partnership with Marvell should enable best-in-class wireless connectivity options along with our award-winning wired offerings. Our participation in the IIoT market and our large pipeline of opportunities in the Grid modernization market should combine to broaden our prospects for future growth."

Total revenues for the third quarter were $18.0 million, down from $29.1 million in the same period last year. Revenues from Echelon's systems sales, reflecting sales to utility customers, were $7.8 million for the third quarter, down from $17.8 million in the same period last year. Included in systems sales were $2.0 million of data concentrator sales to Enel. Revenues from Echelon's sub-systems, largely from commercial customers, were $10.3 million in the third quarter, down from $11.3 million a year ago. Included in sub-systems revenues were $499,000 of sales to Enel in the third quarter compared with $1.8 million in the same period last year.

Gross margin in the third quarter of 2013 was 58.0% compared with 40.9% in the third quarter of 2012. Higher gross margins were driven by the one-time software deal with Ericsson related to the Sweden Grid Modernization Program. Total operating expenses for the quarter declined to $13.2 million from $15.7 million in the same period last year reflecting the Company's strategy to prudently manage costs.

GAAP net loss for the third quarter was $3.5 million, or $0.08 per share, compared with a net loss of $4.3 million, or $0.10 per share, in the same period last year. Non-GAAP net loss for the third quarter was $2.6 million, or $0.06 per share, compared with a non-GAAP net loss of $2.5 million, or $0.06 per share for the third quarter of 2012. 

Business Outlook
Echelon offers the following guidance for the fourth quarter of 2013:

  • Total revenues are expected to be between $16.5 million to $18.5 million, with systems revenues accounting for 30% and sub-systems revenues accounting for 70%.
  • Non-GAAP gross margin is expected to be in a range of 47% to 49%
  • Stock-based compensation expense is expected to be approximately $1.0 million.
  • Non-GAAP loss per share amounts are expected to range from $0.07 to $0.12, based on 43.3 million fully diluted weighted average shares outstanding.
  • GAAP loss per share is expected to be between $0.09 to $0.14.

For those interested in further discussion regarding this release, Echelon's management will participate in a conference call today at 5:00 p.m. Eastern Time. To access the call, dial (888) 771-4371 or (847) 585-4405 outside the U.S and provide the confirmation number 35883487. An archived replay of the webcast will be available approximately two hours following the end of the call.

Use of Non-GAAP Financial Information
Echelon continues to provide all information required in accordance with GAAP, but believes that an investor's evaluation of our ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, we provide non-GAAP net income and non-GAAP net income per share data as additional information relating to Echelon's operating results. Echelon presents these non-GAAP financial measures to provide investors with an additional tool for evaluating Echelon's operating results in a manner that focuses on what Echelon believes to be its ongoing business operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with GAAP. 

Echelon's management uses certain non-GAAP financial information, namely operating results excluding restructuring charges, the impact of stock-based compensation charges made in accordance with ASC 718 (formerly SFAS 123R), as well as certain other non-routine charges, to evaluate its ongoing operations and for internal planning and forecasting purposes. Accordingly, we believe it is useful for Echelon's investors to review, as applicable, information that both includes and excludes these charges (and the related tax impact) in order to assess the performance of Echelon's business and for planning and forecasting in future periods. Whenever Echelon reports such non-GAAP financial measures, a complete reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure is provided.  Investors are encouraged to review these reconciliations to ensure they have a thorough understanding of the reported non-GAAP financial measures and their most directly comparable GAAP financial measures.

About Echelon Corporation
Echelon Corporation (NASDAQ: ELON), a foundational leader in the Industrial Internet of Things, delivers all the elements necessary to design, install, monitor and control industrial-strength 'communities of devices' within the lighting, building automation, grid, Internet of Things, 'maker' and other markets worldwide. Echelon develops and sells complete systems and subsystems for target applications, plus system-on-chips (SoCs), embedded software, and commissioning and management tools for OEMs. With more than 100 million Echelon-powered devices installed worldwide, the company helps its customers easily and safely migrate existing control systems to the most modern platforms, while bringing new devices and applications into an ever-growing global Industrial Internet. Echelon helps its customers reduce operational costs, enhance satisfaction and safety, grow revenues and perform better in both established and emerging markets. More information about Echelon can be found at http://www.echelon.com and at the company's blog at http://blog.echelon.com/.

Echelon, the Echelon logo, and IzoT are trademarks of Echelon Corporation registered in the United States and other countries. Other product or service names mentioned herein are the trademarks of their respective owners.

Risk Factors Regarding Forward-Looking Statements
This press release contains "forward-looking" statements within the meaning of Section 21A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created thereby. Echelon advises caution in reliance on forward-looking statements.  Forward looking statements include, without limitation, those relating to the recovery of the smart grid markets, the potential success of the IZOT platform, the company's opportunities for future growth and the Company's guidance for the fourth quarter of 2013.  Actual results could differ materially from those projected in forward-looking statements as a result of a number of risks and uncertainties. Such risks and uncertainties, include, but are not limited to, risks associated with the continued development and growth of markets for Echelon's products and services; the completion of anticipated legal settlements; failure to achieve revenue growth, maintain expense controls or achieve gross margins targets; circumstances that may delay the time frame for achieving our business outlook; the risk that global economic conditions will affect our customers' ability to receive regulatory or other approval or financing for system or sub-system-based deployments; the timely development of Echelon's products and services and the ability of those products and services to perform as designed and meet customer expectations; the risk that Echelon does not meet expected or required shipment, delivery or acceptance schedules for its products and that Echelon may incur penalties or additional expenses or delay revenue recognition as a result; and other risks identified in Echelon's SEC filings.  The discussion of risk factors are detailed in the Company's filings with the Securities and Exchange Commission, including reports on its most recently filed Form 10-K and Form 10-Q.  The financial information presented in this release reflects estimates based on information that is available to us at this time. Actual results, events and performance may differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

The financial statements that follow should be read in conjunction with the notes set forth in Echelon's Quarterly Report on Form 10-Q when filed with the Securities and Exchange Commission.

Investor Relations Contacts:
Annie Leschin/Vanessa Lehr
StreetSmart Investor Relations
+1 (415) 775-1788
annie@streetsmartir.com

 

ECHELON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



September 30,
2013


December 31,
2012

ASSETS








Current Assets:




   Cash and cash equivalents

$     13,670


$     18,876

   Short-term investments

42,988


42,979

   Accounts receivable, net

15,185


15,725

   Inventories

8,042


11,729

   Deferred cost of goods sold

1,730


846

   Other current assets

2,101


2,662





Total current assets

83,716


92,817





Property and equipment, net

19,415


21,777

Other long-term assets

9,125


8,989






$ 112,256


$ 123,583





LIABILITIES AND STOCKHOLDERS' EQUITY








Current Liabilities:




Accounts payable

$    6,153


$    8,551

Accrued liabilities

6,574


4,637

Current portion of lease financing obligations

2,202


2,056

Deferred revenues

6,286


4,912





Total current liabilities

21,215


20,156





Long-term liabilities

19,399


19,632





Total stockholders' equity

71,642


83,795






$ 112,256


$ 123,583

 

ECHELON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended

 September 30,


Nine Months Ended

September 30,


2013


2012


2013


2012

Revenues:








Product

$ 17,175


$ 28,056


$65,633


$107,387

Service

839


1,008


2,399


2,832









Total revenues

18,014


29,064


68,032


110,219









Cost of revenues:








Cost of product (1)

7,348


16,672


32,984


63,352

Cost of service (1)

211


493


862


1,601









Total cost of revenues

7,559


17,165


33,846


64,953









Gross profit

10,455


11,899


34,186


45,266









Operating expenses:








Product development (1)

5,294


7,256


17,160


23,450

Sales and marketing (1)

3,991


4,807


12,504


16,512

General and administrative (1)

3,925


3,679


11,045


11,624

Litigation charges

--


--


3,452


--

Restructuring charges

--


--


2,522


1,176









Total operating expenses

13,210


15,742


46,683


52,762









Loss from operations

(2,755)


(3,843)


(12,497)


(7,496)

Interest and other income (expense), net

(606)


(184)


(486)


(194)

Interest expense on lease financing obligations

(305)


(336)


(938)


(1,031)









Loss before provision for income taxes

(3,666)


(4,363)


(13,921)


(8,721)

Income tax expense

113


57


256


148









Net loss

(3,779)


(4,420)


(14,177)


(8,869)

Net loss attributable to non-controlling interest

(266)


(156)


(590)


(156)

Net loss attributable to Echelon Corporation stockholders

$  (3,513)


$   (4,264)


$(13,587)


$  (8,713)









Net loss per share attributable to Echelon Corporation stockholders:








Basic

$  (0.08)


$  (0.10)


$  (0.32)


$  (0.20)

Diluted

$  (0.08)


$  (0.10)


$  (0.32)


$  (0.20)









Shares used in computing net loss per share:








Basic

43,184


42,806


43,039


42,564

Diluted

43,184


42,806


43,039


42,564










(1) Amounts include stock-based compensation costs as follows:
















       Cost of product

$     81


$   166


$     138


$   462

       Cost of service

10


31


35


82

       Product development

276


619


533


1,874

       Sales and marketing

194


455


665


1,460

       General and administrative

394


535


806


1,687









          Total stock-based compensation expenses

$   955


$ 1,806


$ 2,177


$5,565

 

ECHELON CORPORATION

RECONCILIATION OF NON-GAAP TO GAAP RESULTS

Excluding adjustments itemized below

(In thousands, except per share amounts)

(Unaudited)


An itemized reconciliation between net earnings on a GAAP basis and non-GAAP basis is as follows:



Three Months Ended
September 30,



Nine Months Ended
September 30,


2013


2012



2013


2012










GAAP net loss

$ (3,513)


$  (4,264)



$ (13,587)


$ (8,713)










   Stock-based compensation

955


1,806



2,177


5,565

   Litigation charges

--


--



3,452


--

   Restructuring charges

--


--



2,522


1,176










   Total non-GAAP adjustments to earnings     from operations

955


1,806



8,151


6,741










   Income tax effect of reconciling items

--


--



--


--










Non-GAAP net loss

$ (2,558)


$   (2,458)



$ (5,436)


$  (1,972)










Non-GAAP net loss per share:









    Diluted

$  (0.06)


$  (0.06)



$  (0.13)


$ (0.05)

Shares used in computing net loss per share:









   Diluted

43,184


42,806



43,039


42,564

 

ECHELON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Nine Months Ended

September 30,


2013


2012

Cash flows provided by (used in) operating activities:




Net loss not including non-controlling interest

$   (14,177)


$   (8,869)

Adjustments to reconcile net income to net cash provided by (used in) operating activities:




Depreciation and amortization

3,083


5,308

Increase in allowance for doubtful accounts

41


17

Loss on disposal of fixed assets

24


--

Increase in accrued investment income

(2)


(3)

Stock-based compensation

2,177


5,565

Change in operating assets and liabilities:




Accounts receivable

490


18,244

Inventories

3,686


587

Deferred cost of goods sold

(885)


5,611

Other current assets

565


981

Accounts payable

(2,332)


(9,279)

Accrued liabilities

3,617


(3,597)

Deferred revenues

1,181


(7,290)

Deferred rent

(28)


(33)





Net cash (used in) provided by operating activities

(2,560)


7,242





Cash flows provided by (used in) investing activities:




Purchase of available-for-sale short-term investments

(38,953)


(66,947)

Proceeds from maturities and sales of available-for-sale short-term investments

38,955


63,970

Change in other long-term assets

(62)


(20)

Capital expenditures

(811)


(814)





Net cash used in investing activities

(871)


(3,811)





Cash flows provided by (used in) financing activities:




Principal payments of lease financing obligations

(1,530)


(1,461)

Proceeds from non controlling interests

--


294

Repurchase of common stock

(423)


(1,249)





Net cash used in financing activities

(1,953)


(2,416)





Effect of exchange rates on cash:

178


13





Net change in cash and cash equivalents

(5,206)


1,028

Cash and cash equivalents:




Beginning of period

18,876


17,658





End of period

$ 13,670


$  18,686

 

SOURCE Echelon Corporation



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