Echelon Reports First Quarter 2014 Results
Public Company Information:
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.
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 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 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
|Cash and cash equivalents||$||17,311||$||14,648|
|Accounts receivable, net||9,880||10,522|
|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|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Current portion of lease financing obligations||2,314||2,257|
|Total current liabilities||20,918||21,201|
|Total stockholders’ equity||64,707||67,977|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|Three Months Ended|
|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|
|Product development (1)||5,073||6,744|
|Sales and marketing (1)||3,642||4,493|
|General and administrative (1)||3,770||3,886|
|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 attributable to noncontrolling interest||117||148|
|Net loss attributable to Echelon Corporation stockholders||(3,973||)||(9,247||)|
|Net loss per share:|
|Shares used in computing net loss per share:|
|(1) Amounts include stock-based compensation costs as follows:|
|Cost of product||108||143|
|Cost of service||27||15|
|Sales and marketing||89||308|
|General and administrative||316||375|
|Total stock-based compensation expenses||883||1,383|
RECONCILIATION OF NON-GAAP TO GAAP RESULTS
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|
|GAAP net loss|
|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:|
|INFORMATION BY SEGMENTS|
|(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:|
|Segment gross profit 1||1,909||6,873||—||(135||)||8,647|
|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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|Three Months Ended|
|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||)|
|Change in operating assets and liabilities:|
|Deferred cost of goods sold||33||(117||)|
|Other current assets||22||(514||)|
|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|
|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|