ECHELON CORP - FORM 8-K - EX-99.1 - PRESS RELEASE - November 7, 2013

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Exhibit 99.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
550 Meridian Avenue
San Jose, CA 95126
Phone: +1-408-938-5200
Fax: +1-408-790-3800
info@echelon.com www.echelon.com
News Release

Echelon Reports Third Quarter 2013 Results
Company Marks First Milestones in the emerging Industrial Internet of Things Market
    
SAN JOSE, Calif., November 7, 2013 - Echelon Corporation (NASDAQ: ELON) today announced financial results for the third quarter ended September 30, 2013.
•
Q3 Revenues: $18.0 million
•
Q3 GAAP Net Loss: $3.5 million; GAAP Net Loss per Share: $0.08
•
Q3 Non-GAAP Net Loss: $2.6 million; Non-GAAP Net Loss per Share: $0.06
“We recently achieved our first milestones in our strategic plan to participate in the emerging Industrial Internet of Things market,” said Ron Sege, Chairman and CEO of Echelon. “The introduction of our IzoTTM platform offers a smooth migration path to IP for the millions of users of legacy control protocols, and our partnership with Marvell should enable best-in-class wireless connectivity options along with our award-winning wired offerings. Our participation in the IIoT market and our large pipeline of opportunities in the Grid modernization market should combine to broaden our prospects for future growth.”
Total revenues for the third quarter were $18.0 million, down from $29.1 million in the same period last year. Revenues from Echelon’s systems sales, reflecting sales to utility customers, were $7.8 million for the third quarter, down from $17.8 million in the same period last year. Included in systems sales were $2.0 million of data concentrator sales to Enel. Revenues from Echelon’s sub-systems, largely from commercial customers, were $10.3 million in the third quarter, down from $11.3 million a year ago. Included in sub-systems revenues were $499,000 of sales to Enel in the third quarter compared with $1.8 million in the same period last year.
Gross margin in the third quarter of 2013 was 58.0% compared with 40.9% in the third quarter of 2012. Higher gross margins were driven by the one-time software deal with Ericsson related to the Sweden Grid Modernization Program. Total operating expenses for the quarter declined to $13.2 million from $15.7 million in the same period last year reflecting the Company’s strategy to prudently manage costs.
        
GAAP net loss for the third quarter was $3.5 million, or $0.08 per share, compared with a net loss of $4.3 million, or $0.10 per share, in the same period last year. Non-GAAP net loss for the third quarter was $2.6 million, or $0.06 per share, compared with a non-GAAP net loss of $2.5 million, or $0.06 per diluted share for the third quarter of 2012.






Business Outlook
Echelon offers the following guidance for the fourth quarter of 2013:
•
Total revenues are expected to be between $16.5 million to $18.5 million, with systems revenues accounting for 30% and sub-systems revenues accounting for 70%.
•
Non-GAAP gross margin is expected to be in a range of 47% to 49%
•
Stock-based compensation expense is expected to be approximately $1.0 million.
•
Non-GAAP loss per share amounts are expected to range from $0.07 to $0.12, based on 43.3 million fully diluted weighted average shares outstanding.
•
GAAP loss per share is expected to be between $0.09 to $0.14.
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 35883487. 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), a foundational leader in the Industrial Internet of Things, delivers all the 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 fourth quarter of 2013.  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; the completion of anticipated legal settlements; failure to achieve revenue growth, 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 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.
 
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)
 
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
13,670

 
$
18,876

Short-term investments
42,988

 
42,979

Accounts receivable, net 
15,185

 
15,725

Inventories
8,042

 
11,729

Deferred cost of goods sold
1,730

 
846

Other current assets
2,101

 
2,662

Total current assets
83,716

 
92,817

Property and equipment, net
19,415

 
21,777

Other long‑term assets
9,125

 
8,989

 
$
112,256

 
$
123,583

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
6,153

 
$
8,551

Accrued liabilities
6,574

 
4,637

Current portion of lease financing obligations
2,202

 
2,056

Deferred revenues
6,286

 
4,912

Total current liabilities
21,215

 
20,156

Long-term liabilities
19,399

 
19,632

Total stockholders’ equity
71,642

 
83,795

Total liabilities and stockholders’ equity
$
112,256

 
$
123,583






ECHELON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Product
$
17,175

 
$
28,056

 
$
65,633

 
$
107,387

Service
839

 
1,008

 
2,399

 
2,832

Total revenues
18,014

 
29,064

 
68,032

 
110,219

Cost of revenues:
 
 
 
 
 
 
 
 Cost of product (1)   
7,348

 
16,672

 
32,984

 
63,352

 Cost of service (1)   
211

 
493

 
862

 
1,601

Total cost of revenues
7,559

 
17,165

 
33,846

 
64,953

Gross profit
10,455

 
11,899

 
34,186

 
45,266

Operating expenses:
 
 
 
 
 
 
 
 Product development (1)   
5,294

 
7,256

 
17,160

 
23,450

 Sales and marketing (1)   
3,991

 
4,807

 
12,504

 
16,512

 General and administrative (1)   
3,925

 
3,679

 
11,045

 
11,624

Litigation charges
—

 
—

 
3,452

 
—

Restructuring charges
—

 
—

 
2,522

 
1,176

Total operating expenses
13,210

 
15,742

 
46,683

 
52,762

Loss from operations
(2,755
)
 
(3,843
)
 
(12,497
)
 
(7,496
)
Interest and other income (expense), net
(606
)
 
(184
)
 
(486
)
 
(194
)
Interest expense on lease financing obligations
(305
)
 
(336
)
 
(938
)
 
(1,031
)
Loss before provision for income taxes
(3,666
)
 
(4,363
)
 
(13,921
)
 
(8,721
)
Income tax expense
113

 
57

 
256

 
148

Net loss
$
(3,779
)
 
$
(4,420
)
 
$
(14,177
)
 
$
(8,869
)
Net loss attributable to non controlling interest
266

 
156

 
590

 
156

Net loss attributable to Echelon Corporation stockholders
(3,513
)
 
(4,264
)
 
(13,587
)
 
(8,713
)
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.08
)
 
$
(0.10
)
 
$
(0.32
)
 
$
(0.20
)
Diluted
$
(0.08
)
 
$
(0.10
)
 
$
(0.32
)
 
$
(0.20
)
Shares used in computing net loss per share:
 
 
 
 
 
 
 
Basic
43,184

 
42,806

 
43,039

 
42,564

Diluted
43,184

 
42,806

 
43,039

 
42,564

 
 
 
 
 
 
 
 
(1) Amounts include stock-based compensation costs as follows:
 
 
 
 
 
 
 
Cost of product
$
81

 
$
166

 
$
138

 
$
462

Cost of service
10

 
31

 
35

 
82

Product development
276

 
619

 
533

 
1,874

Sales and marketing
194

 
455

 
665

 
1,460

General and administrative
394

 
535

 
806

 
1,687

Total stock-based compensation expenses
$
955

 
$
1,806

 
$
2,177

 
$
5,565









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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
GAAP net loss
(3,513
)
 
(4,264
)
 
(13,587
)
 
(8,713
)
Stock-based compensation
$
955

 
$
1,806

 
$
2,177

 
$
5,565

Litigation charges
—

 
—

 
3,452

 
—

Restructuring charges
—

 
—

 
2,522

 
1,176

Total non-GAAP adjustments to earnings from operations
955

 
1,806

 
8,151

 
6,741

Income tax effect of reconciling items
—

 
—

 
—

 
—

Non-GAAP net income (loss)
(2,558
)
 
(2,458
)
 
(5,436
)
 
(1,972
)
Non-GAAP net income (loss) per share:
 
 
 
 
 
 
 
Diluted
$
(0.06
)
 
$
(0.06
)
 
$
(0.13
)
 
$
(0.05
)
Shares used in computing net income (loss) per share:
 
 
 
 
 
 
 
Diluted
43,184

 
42,806

 
43,039

 
42,564








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


 
 
Nine Months Ended
 
September 30,
 
2013
 
2012
 
 
 
 
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
 
 
 
Net loss including non controlling interest
$
(14,177
)
 
$
(8,869
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
3,083

 
5,308

Increase in allowance for doubtful accounts
41

 
17

Loss on disposal of fixed assets
24

 
—

Increase in accrued investment income
(2
)
 
(3
)
Stock-based compensation
2,177

 
5,565

Change in operating assets and liabilities:
 
 
 
Accounts receivable
490

 
18,244

Inventories
3,686

 
587

Deferred cost of goods sold
(885
)
 
5,611

Other current assets
565

 
981

Accounts payable
(2,332
)
 
(9,279
)
Accrued liabilities
3,617

 
(3,597
)
Deferred revenues
1,181

 
(7,290
)
Deferred rent
(28
)
 
(33
)
Net cash (used in) provided by operating activities
(2,560
)
 
7,242

 
 
 
 
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
 
 
 
Purchases of available‑for‑sale short‑term investments
(38,953
)
 
(66,947
)
Proceeds from maturities and sales of available‑for‑sale short‑term investments
38,955

 
63,970

Change in other long‑term assets
(62
)
 
(20
)
Capital expenditures
(811
)
 
(814
)
Net cash used in investing activities
(871
)
 
(3,811
)
 
 
 
 
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
 
 
 
Principal payments of lease financing obligations
(1,530
)
 
(1,461
)
Proceeds from noncontrolling interests
—

 
294

Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units and upon exercise of stock options
(423
)
 
(1,249
)
Net cash used in financing activities
(1,953
)
 
(2,416
)
 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
178

 
13

 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
(5,206
)
 
1,028

 
 
 
 
CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
18,876

 
17,658

End of period
$
13,670

 
$
18,686





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