Echelon Reports First Quarter 2013 Results

Category:

Thursday, May 2, 2013 5:08 am PDT

Dateline:

SAN JOSE, Calif.
"During the quarter, we also fleshed out plans to reinvest in our foundational technology to broaden the applicability of our control networking platform into new markets created by the Internet of Things"

Echelon Corporation (NASDAQ: ELON) today announced financial results for the first quarter ended March 31, 2013.

  • Q1 Revenues: $25.2 million
  • Q1 GAAP Net Loss: $9.2 million; GAAP Net Loss per Share: $0.22
  • Q1 Non-GAAP Net Loss: $1.9 million; Non-GAAP Net Loss per Share: $0.04

“Despite limited visibility in the smart grid market, we made solid progress executing on our strategy and creating a more leveraged financial model in the quarter,” said Ron Sege, Chairman and CEO of Echelon. “Strong pilots in various territories make us optimistic about our prospects as the market returns.”

“During the quarter, we also fleshed out plans to reinvest in our foundational technology to broaden the applicability of our control networking platform into new markets created by the Internet of Things,” continued Sege. “From managing outdoor lighting, to creating integrated building automation systems, to further improving the economics of solid state lighting, our unique platform has the potential to change the way communities of devices communicate and interact.”

Total revenues for the first quarter were $25.2 million, down from $40.3 million in the same period last year. Revenues from Echelon’s systems sales, reflecting sales to our utility customers, were $13.3 million for the first quarter, down from $28.7 million in the same period last year. Revenues from Echelon’s sub-systems, largely from commercial customers, were $11.9 million in the first quarter, up from $11.6 million a year ago. Included in sub-systems revenues were $1.9 million of sales to Enel in the first quarter compared to $227,000 in the same period last year.

Gross margin in the first quarter of 2013 was 46.8% compared to 42.9% in the first quarter of 2012. Total operating expenses for the quarter were $21.1 million which included charges of $2.5 million in restructuring charges from last quarter’s cost reduction activities and $3.5 million for a legal settlement. While the restructuring charge was anticipated, the legal settlement was attributed to a decision to settle a long-running case with Finmek, an Italian supplier to Enel. Excluding these charges, operating expenses were $15.1 million compared to $19.3 million in the first quarter of 2012.

GAAP net loss for the first quarter was $9.2 million, or $0.22 cents per share, compared to a net loss of $2.6 million, or $0.06 cents per share, in the same period last year. Non-GAAP net loss for the first quarter was $1.9 million, or $0.04 cents per share, compared to a non-GAAP net income of $249,000, or $0.01 cents per share for the first quarter of 2012.

Business Outlook

Echelon offers the following guidance for the second quarter of 2013:

  • Total revenues are expected to be between $22.5 million and $25.5 million, with systems and sub-systems revenues accounting for about 50% each.
  • Non-GAAP gross margin is expected to be in a range of 46% to 47%.
  • Stock-based compensation expense is expected to be approximately $1.5 million.
  • Non-GAAP loss per share amounts are expected to range from $0.05 to $0.11, based on a fully diluted weighted average shares outstanding of 43 million.
  • GAAP loss per share is expected to be between $0.08 and $0.14.
  • $2.5 million to $3.0 million of cash will be used for the anticipated Finmek legal settlement and severance payments from previously announced restructuring activities

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 Daylight Savings Time. To access the call, dial 888-771-4371 or 847-585-4405 outside the U.S and provide the confirmation number 34696269. 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) is the world's leading open standard energy control networking company. Echelon technologies connect more than 35 million homes, 300,000 buildings and 100 million devices to the smart grid, and help customers save 20% or more on their energy usage. With more than 20 years of experience in energy control, Echelon delivers a wide range of innovative solutions to commercial and electric utility customers. More information about Echelon can be found at http://www.echelon.com.

Echelon and the Echelon logo are registered 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 may contain statements relating to future plans, events or performance, including statements regarding Echelon’s potential business in certain territories; Echelon’s plans to reinvest in our foundational technology; the potential for system and sub-system pilots and deployments to expand; Echelon’s potential to change the way communities of devices communicate and interact; and Echelon’s anticipated performance, including revenue and Non-GAAP gross margin rates, stock-based compensation expenses, Non-GAAP loss per share amounts, GAAP loss per share and anticipated payments for legal settlements and restructuring activities for the second quarter of 2013. Such statements may involve risks and uncertainties, including risks associated with uncertainties pertaining to the continued development and growth of markets for Echelon's products and services; risks associated with the completion of anticipated legal settlements; the risk that failure to achieve revenue growth, maintain expense controls or achieve gross margins targets will delay the timeframe for achieving profitability; 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; risks relating to 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. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Echelon undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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.

ECHELON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

   
March 31,
2013

December 31,
2012

ASSETS

 

 

 
Current Assets:
Cash and cash equivalents $ 16,090 $ 18,876
Short-term investments 42,979 42,979
Accounts receivable, net 15,095 15,725
Inventories 10,549 11,729
Deferred cost of goods sold 962 846
Other current assets 3,160 2,662

 

 

Total current assets 88,835 92,817
 
Property and equipment, net 20,975 21,777
Other long-term assets 8,910 8,989

 

 

$ 118,720 $ 123,583

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current Liabilities:
Accounts payable $ 7,817 $ 8,551
Accrued liabilities 8,244 4,637
Current portion of lease financing obligations 2,094 2,056
Deferred revenues 4,680 4,912

 

 

Total current liabilities 22,835 20,156

 

 

Long-term liabilities 20,559 19,632
 
Total stockholders' equity 75,326 83,795

 

 

$ 118,720 $ 123,583
 

ECHELON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 
 

Three Months Ended
March 31,

2013   2012
Revenues:

 

 

Product $ 24,250 $ 39,486
Service   932     847  

 

 

Total revenues   25,182     40,333  

 

 

Cost of revenues:
Cost of product (1) 13,078 22,450
Cost of service (1)   328     585  

 

 

Total cost of revenues   13,406     23,025  

 

 

Gross profit   11,776     17,298  

 

 

Operating expenses:
Product development (1) 6,744 8,801
Sales and marketing (1) 4,493 6,157
General and administrative (1) 3,886 4,346
Litigation charges 3,452 --
Restructuring charges   2,522     --  

 

 

Total operating expenses   21,097     19,304  

 

 

Loss from operations (9,321 ) (2,006 )
Interest and other income (expense), net 284 (264 )
Interest expense on lease financing obligations   (321 )   (351 )

 

 

Loss before provision for income taxes (9,358 ) (2,621 )
Income tax expense (benefit)   37     (53 )

 

 

Net loss   (9,395 )   (2,568 )

 

 

Net loss attributable to non-controlling interest   (148 )   --  

 

 

Net loss attributable to Echelon Corporation stockholders $ (9,247 ) $ (2,568 )

 

 

Net loss per share attributable to Echelon Corporation stockholders:

 

 

Basic $ (0.22 ) $ (0.06 )
Diluted $ (0.22 ) $ (0.06 )
 
Shares used in computing net loss per share:
Basic 42,929 42,323

Diluted

42,929 42,323
 

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

 

Cost of product

$

143

$

249

Cost of service

15

36

Product development

542

1,045

Sales and marketing

308

661

General and administrative

 

375

   

826

 

Total stock-based compensation expenses

$

1,383

 

$

2,817

 
 

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 March 31,

2013   2012

 

 

GAAP net loss $ (9,247 ) $ (2,568 )
 
Stock-based compensation 1,383 2,817
Litigation charges 3,452 --
Restructuring charges   2,522     --  

 

 

Total non-GAAP adjustments to earnings from operations 7,357 2,817
 
Income tax effect of reconciling items   --     --  

 

 

Non-GAAP net income (loss) $ (1,890 ) $ 249  

 

 

Non-GAAP net income (loss) per share:
Diluted $ (0.04 ) $ 0.01
 
Shares used in computing net income (loss) per share:
Diluted 42,929 42,856
 

ECHELON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
 

Three Months Ended March 31,

2013   2012
Cash flows provided by (used in) operating activities:

 

 

Net loss including non-controlling interest $ (9,395 ) $ (2,568 )
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 1,058 1,352
Increase in (reduction of) allowance for doubtful accounts 11 (60 )

Loss on disposal of fixed assets

3

--

Reduction of (increase in) accrued investment income

(6

)

13

Stock-based compensation 1,383 2,817
Change in operating assets and liabilities:
Accounts receivable 609 9,570
Inventories 1,172 (7,267 )
Deferred cost of goods sold (117 ) 5,433
Other current assets (514 ) 1,486
Accounts payable (809 ) (1,915 )
Accrued liabilities 5,197 (2,567 )

Deferred revenues

 

(297

)

(5,573

)

Deferred rent

 

(9

)

 

(12

)

 

 

Net cash provided by (used in) operating activities   (1,714 )   709  

 

 

Cash flows provided by (used in) investing activities:
Purchase of available-for-sale short-term investments (12,984 ) (24,986 )
Proceeds from maturities and sales of available-for-sale short-term investments 12,990 27,982
Change in other long-term assets 6 (8 )
Capital expenditures   (172 )   (360 )

 

 

Net cash provided by (used in) investing activities   (160 )   2,628  

 

 

Cash flows provided by (used in) financing activities:
Principal payments of lease financing obligations. (503 ) (469 )
Proceeds from exercise of stock options. -- --
Repurchase of common stock.   (17 )   (246 )

 

 

Net cash used in financing activities   (520 )   (715 )

 

 

Effect of exchange rates on cash:   (392 )   166  

 

 

Net increase (decrease) in cash and cash equivalents (2,786 ) 2,788
Cash and cash equivalents:
Beginning of period   18,876     17,658  

 

 

End of period $ 16,090   $ 20,446  

 

 

Contact:

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

Contacts

Press Information

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pr@echelon.com

Investor Relations

Annie Leschin

annie@streetsmartir.com

General Inquiries

info@echelon.com