Echelon Reports First Quarter 2014 Results


Thursday, May 8, 2014 1:05 pm PDT


SAN JOSE, Calif.

Public Company Information:

"Execution of our strategic initiatives remains our most significant priority as we position Echelon to meet the emerging demand for Industrial Internet of Things solutions"

SAN JOSE, Calif.--(BUSINESS WIRE)--SAN JOSE, Calif.--(EON: Enhanced Online News)--Echelon Corporation (NASDAQ: ELON) today announced financial results for the first quarter ended March 31, 2014.

  • Q1 Revenues: $17.8 million
  • Q1 GAAP Net Loss: $4.0 million; GAAP Net Loss per Share: $0.09
  • Q1 Non-GAAP Net Loss: $3.1 million; Non-GAAP Net Loss per Share: $0.07

“Execution of our strategic initiatives remains our most significant priority as we position Echelon to meet the emerging demand for Industrial Internet of Things solutions,” said Ron Sege, Chairman and CEO of Echelon. “This quarter we announced new products, began expanding our distribution channels under new sales leadership, and achieved significant milestones towards grid awards in Eastern Europe. As we move forward, we believe we can help our customers take advantage of emerging IIoT applications, add value as the lighting market transitions to LEDs and position ourselves well for grid modernization awards in our target geographies. By aligning our investments with these opportunities, we are focused on returning value to our shareholders long term.”

Total revenues for the first quarter were $17.8 million, down from $25.2 million in the same period last year. Revenues from Echelon’s Grid business were $6.9 million for the first quarter, down from $13.4 million in the same period last year. Revenues from Echelon’s IIoT (Industrial Internet of Things) business were $10.9 million in the first quarter, down from $11.8 million a year ago, including $1.5 million of sales to Enel in the quarter compared with $1.9 million in the same period last year.

Total GAAP gross margins in the first quarter were 48.6% compared with 46.8% in the first quarter of 2013. Higher gross margins were largely driven by higher support revenue. Total operating expenses for the quarter declined to $12.5 million from $21.1 million in the same period last year as a result of the restructuring activities and Finmek related litigation charges last year.

GAAP net loss for the first quarter was $4.0 million, or $0.09 per share, compared with a net loss of $9.2 million, or $0.22 per share, in the same period last year. Non-GAAP net loss for the first quarter was $3.1 million, or $0.07 per share, compared with a non-GAAP net loss of $1.9 million, or $0.04 per share for the first quarter of 2013.

Business Outlook

Echelon offers the following guidance for the second quarter of 2014:

  • Total revenues are expected to be $15.0 million to $16.5 million, with Grid revenues accounting for approximately 35% and IIoT revenues accounting for 65%.
  • Non-GAAP gross margin is expected to be in a range of 45% to 47%.
  • Stock-based compensation expense is expected to be approximately $1 million.
  • Non-GAAP loss per share amounts are expected to range from $0.09 to $0.13, based on 43.3 million fully diluted weighted average shares outstanding.
  • GAAP loss per share is expected to be between $0.11 to $0.15.

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 37122208. 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, litigation 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 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 and at the company's blog at

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 second quarter of 2014. 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; failure to achieve revenue estimates, 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 condensed consolidated financial statements that follow should be read in conjunction with the notes set forth in Echelon's Annual Report on Form 10-Q when filed with the Securities and Exchange Commission.




(In thousands)



   March 31,   

 December 31,
Current Assets:     
Cash and cash equivalents $17,311  $14,648
Short-term investments 37,991  42,987
Accounts receivable, net 9,880  10,522
Inventories 5,618  6,445
Deferred cost of goods sold 1,600  1,649
Other current assets 2,199  2,040
Total current assets 74,599  78,291
Property and equipment, net 18,119  18,670
Other long-term assets 9,164  9,167
  $101,882  $106,128
Current Liabilities:     
Accounts payable $6,290  $5,424
Accrued liabilities 5,552  7,395
Current portion of lease financing obligations 2,314  2,257
Deferred revenues 6,762  6,125
Total current liabilities 20,918  21,201
Long-term liabilities 16,257  16,950
Total stockholders’ equity 64,707  67,977
  $101,882  $106,128



(In thousands, except per share amounts)


  Three Months Ended
  March 31,
  2014 2013
Product $16,128  $24,250 
Service 1,663  932 
Total revenues 17,791  25,182 
Cost of revenues:      
Cost of product (1) 8,739  13,078 
Cost of service (1) 405  328 
Total cost of revenues 9,144  13,406 
Gross profit 8,647  11,776 
Operating expenses:      
Product development (1) 5,073  6,744 
Sales and marketing (1) 3,642  4,493 
General and administrative (1) 3,770  3,886 
Litigation charges   3,452 
Restructuring charges   2,522 
Total operating expenses 12,485  21,097 
Loss from operations (3,838) (9,321)
Interest and other income, net 11  284 
Interest expense on lease financing obligations (288) (321)
Loss before provision for income taxes (4,115) (9,358)
Income tax (benefit)/ expense (25) 37 
Net loss $(4,090) $(9,395)
Net loss attributable to noncontrolling interest 117  148 
Net loss attributable to Echelon Corporation stockholders (3,973) (9,247)
Net loss per share:      
Basic $(0.09) $(0.22)
Diluted $(0.09) $(0.22)
Shares used in computing net loss per share:      
Basic 43,264  42,929 
Diluted 43,264  42,929 
(1) Amounts include stock-based compensation costs as follows:      
Cost of product 108  143 
Cost of service 27  15 
Product development 343  542 
Sales and marketing 89  308 
General and administrative 316  375 
Total stock-based compensation expenses 883  1,383 



Excluding adjustments itemized below

(In thousands, except per share amounts)



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

  Three Months Ended
  March 31,
  2014 2013
GAAP net loss 




Stock-based compensation 883  1,383 
Litigation charges   3,452 
Restructuring charges   2,522 
Total non-GAAP adjustments to earnings from operations (3,090) (1,890)
Income tax effect of reconciling items    
Non-GAAP net loss 




Non-GAAP net loss per share:      




Shares used in computing net loss per share:      
Diluted 43,264  42,929 
(In thousands, except per share amounts)
The following table summarizes financial information for each segment used by the CODM for the quarter ended March 31, 2014:
 Grid IIoT 





Adjustments to
reconcile to


wide total

Revenues$6,867  $10,924  $  $  $  $17,791 
Segment gross profit 11,909  6,873    (135)    8,647 
Segment contribution(2,104) 2,720  (3,454) (883)   (3,721)
Corporate unallocated expenses                 
Interest and other income (expense), net            11  11 
Interest expense on lease financing obligations            (288) (288)
Income tax benefit            $25  $25 
Net loss attributable to Echelon Corporation Stockholders               $(3,973)

1 Represents unallocated share based compensation expenses considered in GAAP results as part of cost of revenues, but excluded from segment gross profit calculation as presented to the CODM. This amount has been presented to reconcile the segment gross profit to total gross profit presented in the Condensed Consolidated Statement of Operations.




(In thousands)


  Three Months Ended
  March 31,
  2014 2013
Cash flows provided by (used in) operating activities:      
Net loss including noncontrolling interest $(4,090) $(9,395)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and amortization 923  1,058 
Increase in allowance for doubtful accounts 33  11 
Loss on disposal of fixed assets 3  3 
Reduction of (increase in) accrued investment income 5  (6)
Stock-based compensation 883  1,383 
Change in operating assets and liabilities:      
Accounts receivable 609  609 
Inventories 824  1,172 
Deferred cost of goods sold 33  (117)
Other current assets 22  (514)
Accounts payable 605  (809)
Accrued liabilities (1,912) 5,197 
Deferred revenues 647  (297)
Deferred rent (9) (9)
Net cash used in operating activities (1,424) (1,714)
Cash flows provided by (used in) investing activities:      
Purchases of available-for-sale short-term investments (8,993) (12,984)
Proceeds from maturities and sales of available-for-sale short-term investments 13,983  12,990 
Change in other long-term assets 3  6 
Capital expenditures (302) (172)
Net cash provided by (used in) investing activities 4,691  (160)
Cash flows provided by (used in) financing activities:      
Principal payments of lease financing obligations (541) (503)
Proceeds from exercise of stock options 17   
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units and upon exercise of stock options (7) (17)
Net cash used in financing activities (531) (520)
Effect of exchange rates on cash: (73) (392)
Net change in cash and cash equivalents 2,663  (2,786)
Cash and cash equivalents:      
Beginning of period 14,648  18,876 
End of period $17,311  $16,090 


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