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Last updated on April 17, 2014 at 21:23 EDT

Echelon Reports Fourth Quarter and Full Year 2012 Results

February 12, 2013

SAN JOSE, Calif., Feb. 12, 2013 /PRNewswire/ — Echelon Corporation (NASDAQ: ELON) today announced financial results for the fourth quarter and full year 2012 ended December 31, 2012.

  • Q4 Revenues: $23.8 million
  • Q4 GAAP Net Loss: $4.1 million; GAAP Net Loss per Share: $0.10
  • Q4 Non-GAAP Net Loss: $2.7 million; Non-GAAP Net Loss per Share: $0.06
  • 2012 Revenues: $134.0 million
  • 2012 GAAP Net Loss: $12.8 million; GAAP Net Loss per Share: $0.30
  • 2012 Non-GAAP Net Loss: $4.7 million; Non-GAAP Net Loss per Share: $0.11

“While 2012 was a challenging year in the smart grid market, we made some significant strides in Echelon’s strategic transformation. We entered new territories with our subsystems strategy, developed new advanced metering products via our Echelon-Holley joint venture and successfully implemented cost saving and gross margin enhancing initiatives,” said Ron Sege, chairman and CEO of Echelon.

“We ended the fourth quarter with a number of promising system and sub-system pilots and deployments, indicating that our strategy of targeting geographies with strong fundamentals for investment in grid modernization is sound. As we expect 2013 to be another year of modest demand in the smart grid market, we will continue the difficult task of restructuring our operations while investing in our strategic initiatives.”

Total revenues for the fourth quarter were $23.8 million, down from $40.5 million in the same period last year. Revenues from Echelon’s systems sales, reflecting sales to our utility customers, were $10.7 million for the fourth quarter, down from $26.4 million in the same period last year. Revenues from Echelon’s sub-systems, largely from commercial customers, were $13.1 million in the fourth quarter, down from $14.2 million a year ago. Included in sub-systems revenues were $2.9 million of sales to Enel in the fourth quarter compared to $2.1 million in the same period last year.

For the full year of 2012, revenues were $134.0 million compared to $156.5 million in 2011. System and sub-system revenues both decreased 14% to $85.2 million and $48.8 million, respectively. Within sub-system sales, Enel project sales decreased 9% to $6.5 million.

Gross margin in the fourth quarter of 2012 was 47.0% compared to 39.2% in the fourth quarter of 2011. Total operating expenses for the quarter were $14.9 million compared to $19.8 million in the fourth quarter of 2011.

GAAP net loss for the fourth quarter was $4.1 million, or $0.10 cents per share, compared to a net loss of $4.2 million, or $0.10 cents per share, in the same period last year. Non-GAAP net loss for the fourth quarter was $2.7 million, or $0.06 cents per share, compared to a non-GAAP net loss of $1.3 million, or $0.03 cents per share for the fourth quarter of 2011.

GAAP net loss for the full year of 2012 was $12.8 million, or $0.30 cents per share, compared to GAAP net loss of $13.0 million, or $0.31 cents per share, for the same period in 2011. Non-GAAP net loss for the year was $4.7 million, or $0.11 cents per share, compared to non-GAAP net loss of $3.4 million, or $0.08 cents per share in 2011.

Restructuring Charge
The company expects to incur a $2.5 to $3.0 million restructuring charge in the first quarter related to a workforce reduction that will affect approximately 15% of its employees. These actions are expected to be implemented over the next 12 months.

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

  • Total revenues are expected to be between $24.0 million and $26.0 million, with systems and sub-systems revenues accounting for about 50% each.
  • Non-GAAP gross margin is expected to be approximately 45-46%.
  • Stock-based compensation expense is expected to be approximately $1.0 million.
  • Non-GAAP loss per share amounts are expected to range from $0.06 to $0.11, based on a fully diluted weighted average shares outstanding of 43.0 million.
  • GAAP loss per share is expected to be between $0.16 and $0.21.

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 888-771-4371 or 847-585-4405 outside the U.S and provide the confirmation number 34104452. 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 ASC 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 (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.

Visit the Smart Energy Blog by Echelon.

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 geographies; the potential for system and sub-system pilots and deployments to expand; and Echelon’s anticipated performance, including revenue and gross margin rates, for the first 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; 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 Annual Report on Form 10-K 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)

                                                      December 31,           December 31,
                                                                     2012                   2011
                                                                     ----                   ----
                                     ASSETS

    Current Assets:
       Cash and cash
        equivalents                                               $18,876                $17,658
       Short-term
        investments                                                42,979                 40,998
       Accounts
        receivable, net                                            15,725                 35,215
       Inventories                                                 11,729                 11,125
       Deferred cost of
        goods sold                                                    846                  6,536
       Other current
        assets                                                      2,662                  4,044
                                                                    -----                  -----

    Total current
     assets                                                        92,817                115,576

    Property and
     equipment, net                                                21,777                 27,201
    Other long-term
     assets                                                         8,989                  8,928
                                                                    -----                  -----

                                                                 $123,583               $151,705
                                                                 ========               ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current Liabilities:
    Accounts payable                                               $8,551                $18,313
    Accrued
     liabilities                                                    4,637                  7,755
    Current portion of
     lease financing
     obligations                                                    2,056                  1,870
    Deferred revenues                                               4,912                 12,716
                                                                    -----                 ------

    Total current
     liabilities                                                   20,156                 40,654
                                                                   ------                 ------

    Long-term
     liabilities                                                   19,632                 21,943

    Total
     stockholders'
     equity                                                        83,795                 89,108
                                                                   ------                 ------

                                                                 $123,583               $151,705
                                                                 ========               ========

                                                ECHELON CORPORATION
                                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                     (In thousands, except per share amounts)
                                                    (Unaudited)

                                                    Three Months Ended             Twelve Months Ended
                                                       December 31,                    December 31,
                                                       ------------                    ------------
                                                        2012                 2011              2012        2011
                                                        ----                 ----              ----        ----
    Revenues:
    Product                                          $22,088              $39,484          $129,475    $152,699
    Service                                            1,710                1,051             4,542       3,788
                                                       -----                -----             -----       -----

    Total revenues                                    23,798               40,535           134,017     156,487
                                                      ------               ------           -------     -------

    Cost of revenues:
    Cost of product (1)                               12,039               24,026            75,391      87,063
    Cost of service (1)                                  570                  601             2,171       2,262
                                                         ---                  ---             -----       -----

    Total cost of revenues                            12,609               24,627            77,562      89,325
                                                      ------               ------            ------      ------

    Gross profit                                      11,189               15,908            56,455      67,162
                                                      ------               ------            ------      ------

    Operating expenses:
    Product development (1)                            6,559                8,750            30,009      34,755
    Sales and marketing (1)                            4,949                6,536            21,461      25,719
    General and administrative
     (1)                                               3,426                4,489            15,050      17,897
    Restructuring charges                                 --                   --             1,176          --
                                                         ---                  ---             -----         ---

    Total operating expenses                          14,934               19,775            67,696      78,371
                                                      ------               ------            ------      ------

    Loss from operations                              (3,745)              (3,867)          (11,241)    (11,209)
    Interest and other income
     (expense), net                                     (167)                 129              (361)          6
    Interest expense on lease
     financing obligations                              (329)                (357)           (1,360)     (1,468)
                                                        ----                 ----            ------      ------

    Loss before provision for
     income taxes                                     (4,241)              (4,095)          (12,962)    (12,671)
    Income tax expense                                    71                  100               219         329
                                                         ---                  ---               ---         ---

    Net loss                                          (4,312)              (4,195)          (13,181)    (13,000)
                                                      ------               ------           -------     -------
    Net loss attributable to
     non-controlling interest                           (207)                  --              (363)         --
                                                        ----                  ---              ----         ---
    Net loss attributable to
     Echelon Corporation
     stockholders                                    $(4,105)             $(4,195)         $(12,818)   $(13,000)
                                                     =======              =======          ========    ========

    Net loss per share attributable to Echelon
     Corporation stockholders:
    Basic                                             $(0.10)              $(0.10)           $(0.30)     $(0.31)
    Diluted                                           $(0.10)              $(0.10)           $(0.30)     $(0.31)

    Shares used in computing net loss per share:
    Basic                                             42,905               42,290            42,650      42,083
    Diluted                                           42,905               42,290            42,650      42,083

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

    Cost of product                                         $104     $237   $566   $864
    Cost of service                                           29       50    111    112
    Product development                                      430    1,080  2,304  3,891
    Sales and marketing                                      436      741  1,896  2,251
    General and
     administrative                                          412      797  2,099  2,531
                                                             ---      ---  -----  -----

          Total stock-based
           compensation expenses                          $1,411   $2,905 $6,976 $9,649
                                                          ======   ====== ====== ======

                                              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                      Twelve Months Ended
                                                December 31,                              December 31,
                                           -------------------                     --------------------
                                               2012               2011                         2012          2011
                                               ----               ----                         ----          ----

    GAAP net loss                           $(4,105)           $(4,195)                    $(12,818)     $(13,000)

       Stock-based
        compensation                          1,411              2,905                        6,976         9,649
       Restructuring
        charges                                  --                 --                        1,176            --

       Total non-GAAP
        adjustments to
        earnings from
        operations                            1,411              2,905                        8,152         9,649

       Income tax effect
        of reconciling
        items                                    --                 --                           --            --
                                                ---                ---                          ---           ---

    Non-GAAP net loss                       $(2,694)           $(1,290)                     $(4,666)      $(3,351)
                                            =======            =======                      =======       =======

    Non-GAAP net loss per share:
       Diluted                               $(0.06)            $(0.03)                      $(0.11)       $(0.08)

    Shares used in computing net loss per
     share:
       Diluted                               42,905             42,290                       42,650        42,083

                                       ECHELON CORPORATION
                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          (In thousands)
                                           (Unaudited)

                                                                          Twelve Months Ended
                                                                             December 31,
                                                                             ------------
                                                                               2012               2011
                                                                               ----               ----
    Cash flows provided by (used in) operating activities:
    Net loss including non-controlling
     interest                                                              $(13,181)          $(13,000)
    Adjustments to reconcile net income to net cash provided by (used in)
     operating activities:
    Depreciation and amortization                                             6,579              5,921
    Loss on disposal of fixed assets                                             22                128
    Increase in allowance for doubtful
     accounts                                                                    40                 25
    Reduction of (increase in) accrued
     investment income                                                           (6)                70
    Stock-based compensation                                                  6,976              9,649
    Change in operating assets and liabilities:
    Accounts receivable                                                      19,405            (10,121)
    Inventories                                                                (642)            (2,106)
    Deferred cost of goods sold                                               5,686             (3,926)
    Other current assets                                                      1,386                164
    Accounts payable                                                         (9,669)             8,033
    Accrued liabilities                                                      (3,249)             1,185
    Deferred revenues                                                        (7,906)             3,806
    Deferred rent                                                               (43)               (53)
                                                                                ---                ---

    Net cash provided by (used in) operating
     activities                                                               5,398               (225)
                                                                              -----               ----

    Cash flows provided by (used in) investing activities:
    Purchase of available-for-sale short-
     term investments                                                       (83,926)           (71,978)
    Proceeds from maturities and sales of
     available-for-sale short-term
     investments                                                             81,957             87,850
    Change in other long-term assets                                            (15)               (17)
    Capital expenditures                                                     (1,129)            (2,349)
                                                                             ------             ------

    Net cash provided by (used in) investing
     activities                                                              (3,113)            13,506
                                                                             ------             ------

    Cash flows provided by (used in) financing activities:
    Principal payments of lease financing
     obligations                                                             (1,971)            (1,731)
    Repurchase of common stock from
     employees for payment of taxes on
     vesting of restricted stock units and
     upon exercise of stock options                                          (1,325)            (2,265)
    Proceeds from exercise of stock options                                      --                945
    Proceeds from non-controlling interests                                   1,960                 --

    Net cash used in financing activities                                    (1,336)            (3,051)
                                                                             ------             ------

    Effect of exchange rates on cash:                                           269               (247)
                                                                                ---               ----

    Net increase in cash and cash
     equivalents                                                              1,218              9,983
    Cash and cash equivalents:
    Beginning of period                                                      17,658              7,675
                                                                             ------              -----

    End of period                                                           $18,876            $17,658
                                                                            =======            =======

SOURCE Echelon Corporation


Source: PR Newswire