Echelon Reports Second Quarter 2012 Results

Category:

Tuesday, August 7, 2012 5:08 am PDT

Dateline:

SAN JOSE, Calif.
"Our performance in the first half of 2012 was solid as our careful control of expenses led to non-GAAP profitability and positive cash flow"

Echelon Corporation (NASDAQ: ELON) today announced financial results for the second quarter ended June 30, 2012.

  • Q2 Revenues: $40.8 million (decrease of 6.7% y/y)
  • Q2 GAAP Net Loss: $1.9 million; GAAP Net Loss per Share: $0.04
  • Q2 Non-GAAP Net Income: $0.2 million; Non-GAAP Net Income per Share: $0.01

"Our performance in the first half of 2012 was solid as our careful control of expenses led to non-GAAP profitability and positive cash flow," said Ron Sege, chairman and CEO of Echelon. "However, we are disappointed that new smart grid tenders continue to be delayed causing visibility to remain very limited. To counter the market pressure we are actively working to expand our distribution channels, pursue additional geographies and invest in our strategic product initiatives while managing expenses carefully until the market improves," added Sege.

Total revenues for the second quarter were $40.8 million, down from $43.7 million in the same period last year. Revenues from Echelon's systems sales, which are sales to our utility customers, were $28.0 million for the second quarter, down from $29.3 million in the same period last year. Revenues from Echelon's sub-systems sales, largely from commercial customers, were $12.8 million in the second quarter, down from $14.5 million a year ago. Included in sub-systems revenues were sales to Enel, which were $1.5 in the quarter as compared to $1.8 million in the same period last year.

Gross margin in the second quarter of 2012 was 39.4% compared with 46.2% in the second quarter of 2011. Total operating expenses for the quarter were $17.7 million compared to $19.7 million in the second quarter of 2011.

GAAP net loss for the second quarter was $1.9 million, or $0.04 per share, compared to a net loss of $0.1 million, or $0.00 per share, in the same period last year. Non-GAAP net income for the second quarter was $0.2 million, or $0.01 per share, compared to a non-GAAP net income of $2.2 million, or $0.05 per share for the second quarter of 2011.

Restructuring Charge

The company recognized a restructuring charge of $1.2 million in the second quarter related to a workforce reduction announced last quarter. The majority of these cost reduction activities were implemented during the second quarter, with the remainder to be implemented by March 2013.

Business Outlook

Echelon offers the following guidance for the third quarter of 2012:

  • Total revenues are expected to be between $26 million and $30 million, with sub-systems revenues accounting for approximately 40% of total revenue.
  • Non-GAAP gross margin is expected to be approximately 42%.
  • Stock-based compensation expense is expected to be approximately $2.0 million.
  • Non-GAAP loss per share amounts are expected to range from a loss of $0.06 to a loss of $0.12 based on a fully diluted weighted average sharesoutstanding of 42.5 million.
  • GAAP loss per share is expected to be between $0.11 and $0.17.

For those interested in further discussion regarding this release, Echelon's management will participate in a conference call today at 2:00 p.m. Pacific/5:00 p.m. Eastern time. To access the call, dial 866-203-3436 and enter passcode: 89275031 (callers outside the US, please use 617-213-8849). 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 as well as the impact of stock-based compensation charges made in accordance with FASC 718 (formerly SFAS 123R), 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 an energy control networking company, with the world's most widely deployed, proven, open standard, multi-application platform, selling complete systems and embedded sub-systems for smart grid, smart city and smart building applications. Our platform is embedded in more than 100 million devices, 35 million homes, and 300,000 buildings and powers energy savings applications for smart grids, smart cities and smart buildings. We help our customers reduce operational costs, enhance satisfaction and safety, grow revenues and prepare for a dynamic future. 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 anticipated performance, including revenues and gross margins, for the third quarter of 2012; the effect of the announced workforce actions on Echelon's business and operations; and potential future growth. 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; the risk that failure to achieve revenue targets, maintain expense controls and improve gross margins 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 Annual Report on Form 10-Q when filed with the Securities and Exchange Commission.

ECHELON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
  June 30,
2012
  December 31,
2011

 

 

ASSETS
 
Current Assets:
Cash and cash equivalents $ 17,389 $ 17,658
Short-term investments 42,981 40,998
Accounts receivable, net 24,721 35,215
Inventories 9,982 11,125
Deferred cost of goods sold 1,249 6,536
Other current assets   3,081   4,044

 

 

Total current assets 99,403 115,576
 
Property and equipment, net 25,125 27,201
Other long-term assets   8,865   8,928

 

 

$ 133,393 $ 151,705

 

 

 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities:
Accounts payable $ 11,383 $ 18,313
Accrued liabilities 4,928 7,755
Current portion of lease financing obligations 2,024 1,870
Deferred revenues   6,710   12,716

 

 

Total current liabilities   25,045   40,654

 

 

Long-term liabilities 20,928 21,943
 
Total stockholders' equity   87,420   89,108

 

 

$ 133,393 $ 151,705

 

 

ECHELON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 
 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

2012   2011 2012   2011

 

 

 

 

Revenues:
Product $ 39,845 $ 42,526 $ 79,331 $ 70,205
Service   977     1,217     1,824     1,920  

 

 

 

 

Total revenues   40,822     43,743     81,155     72,125  

 

 

 

 

Cost of revenues:
Cost of product (1) 24,230 22,966 46,680 37,618
Cost of service (1)   523     573     1,108     1,160  

 

 

 

 

Total cost of revenues   24,753     23,539     47,788     38,778  

 

 

 

 

Gross profit   16,069     20,204     33,367     33,347  

 

 

 

 

Operating expenses:
Product development (1) 7,393 8,874 16,194 18,472
Sales and marketing (1) 5,548 6.056 11,705 13,298
General and administrative (1) 3,599 4,771 7,945 9,661
Restructuring charges   1,176     -     1,176     -  

 

 

 

 

Total operating expenses   17,716     19,701     37,020     41,431  

 

 

 

 

Income (loss) from operations (1,647 ) 503 (3,653 ) (8,084 )
Interest and other income (expense), net 254 (153 ) (10 ) (513 )
Interest expense on lease financing obligations   (344 )   (371 )   (695 )   (748 )

 

 

 

 

Loss before provision for income taxes (1,737 ) (21 ) (4,358 ) (9,345 )
Income tax benefit   144     120     91     115  

 

 

 

 

Net loss $ (1,881 ) $ (141 ) $ (4,449 ) $ (9,460 )

 

 

 

 

Net loss per share:
Basic $ (0.04 ) $ (0.00 ) $ (0.10 ) $ (0.23 )
Diluted $ (0.04 ) $ (0.00 ) $ (0.10 ) $ (0.23 )
 
Shares used in computing net loss per share:
Basic 42,560 42,038 42,442 41,911
Diluted 42,560 42,038 42,442 41,911
 
 
 
(1) Amounts include stock-based compensation costs as follows:
Cost of product $ 47 $ 112 $ 296 $ 406
Cost of service 15 11 51 33
Product development 210 788 1,255 1,794
Sales and marketing 344 396 1,005 1,203
General and administrative   326     1,081     1,152     2,137  

 

 

 

 

Total stock-based compensation expenses $ 942   $ 2,388   $ 3,759   $ 5,573  

 

 

 

 

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:
 

Six Months Ended
June 30,

 

Six Months Ended
June 30,

2012   2011 2012   2011

 

 

 

 

GAAP net loss $ (1,881 ) $ (141 ) $ (4,449 ) $ (9,460 )
Stock-based compensation 942 2,388 3,759 5,573
Restructuring charges   1,176     -     1,176     -  

 

 

 

 

Total non-GAAP adjustments to earnings from operations 2,118 2,388 4,935 5,573
Income tax effect of reconciling items   -     -     -     -  

 

 

 

 

Non-GAAP net income (loss) $ 237   $ 2,247   $ 486   $ (3,887 )

 

 

 

 

Non-GAAP net income (loss) per share:
Diluted $ 0.01 $ 0.05 $ 0.01 $ 0.09
Shares used in computing net loss per share:
Diluted 42,922 43,376 42,958 41,911

ECHELON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Six Months Ended
June 30,

2012   2011

 

 

Cash flows provided by (used in) operating activities:
Net loss $ (4,449 ) $ (9,460 )
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 2,665 3,048
Loss on disposal of fixed assets - 37
Reduction of allowance for doubtful accounts (32 ) (18 )
Reduction of (increase in) accrued investment income 3 45
Stock-based compensation 3,759 5,573
Change in operating assets and liabilities:
Accounts receivable 10,505 (3,799 )
Inventories 1,130 (1,661 )
Deferred cost of goods sold 5,286 242
Other current assets 952 482
Accounts payable (6,861 ) 659
Accrued liabilities (2,873 ) 105
Deferred revenues (5,986 ) (935 )
Deferred rent   (23 )   (30 )

 

 

Net cash provided by (used in) operating activities   4,076     (5,712 )

 

 

Cash flows provided by (used in) investing activities:
Purchase of available-for-sale short-term investments (48,964 ) (14,979 )
Proceeds from maturities and sales of available-for-sale short-term investments 46,979 43,896
Change in other long-term assets (2 ) (17 )
Capital expenditures   (503 )   (1,479 )

 

 

Net cash provided by (used in) investing activities   (2,490 )   27,421  

 

 

Cash flows provided by (used in) financing activities:
Repurchase of common stock from employees for payment of taxes on vesting of performance shares and upon exercise of stock options (970 ) (1,683 )
Principal payments of lease financing obligations (960 ) (849 )
Proceeds from exercise of stock options - 910
Proceeds from non-controlling interests   285     -  

 

 

Net cash used in financing activities   (1,645 )   (1,622 )

 

 

Effect of exchange rates on cash:   (210 )   487  

 

 

Net increase (decrease) in cash and cash equivalents (269 ) 20,574
Cash and cash equivalents:
Beginning of period   17,658     7,675  

 

 

End of period $ 17,389   $ 28,249  

 

 

Contact:

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

Contacts

Press Information

Public Relations

pr@echelon.com

Investor Relations

Annie Leschin

annie@streetsmartir.com

General Inquiries

info@echelon.com