N@N

Echelon Reports 2010 Third Quarter Results

^{Published on 2010-11-03 14:26:15 - Market Wire}
 

SAN JOSE, Calif.--([ BUSINESS WIRE ])--Echelon Corporation (NASDAQ: ELON) today announced financial results for the third quarter ended September 30, 2010.

"Echelon delivered a solid quarter led by the strong performance in our LonWorks product line for commercial customers"

• Q3 Sales: $27.1 million (increased 14.6% over last year)
• Q3 Net Loss: $7.8 million GAAP; $4.7 million non-GAAP
• Q3 Net Loss per Share: $0.19 GAAP; $0.11 non-GAAP

aEchelon delivered a solid quarter led by the strong performance in our LonWorks product line for commercial customers,a said Ron Sege, president and CEO of Echelon. aDuring the quarter we introduced the Echelon Control System (ECoS), our open software platform for intelligent distributed control, and the Echelon Control Node (ECN) 7000 product line, and we are excited to have Duke Energy as our first electric utility customer for these ground-breaking additions to our NES smart grid solution. We also announced our ControlPoint module, which expands intelligence beyond the meter by allowing third party developers to build intelligent devices based on the newly announced Open Smart Grid Protocol (OSGP).a

aOverall the third quarter was an important quarter of innovation for Echelon. We continued to deliver products that bring the apower of controla™ to the increasingly dynamic electric grid edge a" an important area of previously untapped opportunities between the electrical transformers in a residential area and the consumer and utility devices beyond. With ECoS, ECN, ControlPoint and OSGP we are enabling the integration of devices and applications into a utilitya™s open-standard NES-based smart grid so it can be managed and controlled as a single high performance and efficient infrastructure, which our customers tell us is a top priority,a continued Sege.

Total revenues for the quarter were $27.1 million compared to $27.0 million in the second quarter of 2010 and $23.7 million for the third quarter of 2009. Revenues for Echelona™s LonWorks® infrastructure (LWI) products, sold to commercial markets, were $12.5 million in the third quarter, up from $11.9 million in the second quarter and $11.0 million in the same period last year. Revenues for Networked Energy Services (NES) products, sold to electric utilities, were $13.0 million for the third quarter, down from $13.5 million in the second quarter, but up from $11.5 million in the same period last year. Enel revenues were $1.5 million, roughly flat with $1.6 million in the second quarter and up from $1.2 million in the same period last year.

Gross margin for the third quarter of 2010 was 46.0% compared with 41.2% in the second quarter of 2010 and 43.5% for the third quarter of 2009. The sequential increase in margin was driven by improved margins in our NES product line. Total operating expenses for the quarter were $19.2 million compared to $17.9 million in the second quarter of 2010 and $17.8 million in the same period a year ago.

GAAP net loss for the third quarter was $7.8 million, or $0.19 cents per share, compared to a net loss of $6.9 million, or $0.17 cents per share, in the second quarter of 2010 and a net loss of $8.2 million, or $0.20 cents per share, for the third quarter of 2009. Non-GAAP net loss for the third quarter was $4.7 million, or $0.11 cents per share, compared to $3.9 million, or $0.09 cents per share for the second quarter of 2010 and a non-GAAP net loss of $4.6 million, or $0.11 cents per share, for the third quarter of 2009.

Business Outlook

Echelon offers the following guidance for the fourth quarter of 2010:

a Total revenues are expected to be $36.0 million to $38.0 million, with our NES revenues accounting for about 65%, our LonWorks revenues 32%, and Enel revenues 3%.

a Non-GAAP gross margin is expected to be in the range of 43.5% to 44.0%.

a Stock-based compensation expense is expected to be approximately $3.2 million.

a Non-GAAP loss per share is expected to be $0.04 to $0.08, based on a fully diluted weighted average shares outstanding of 41.8 million.

a GAAP loss per share is expected be between $0.11 and $0.15 for the quarter.

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 800-798-2796 and enter passcode: 10864761 (callers outside the US please use 617-614-6204). 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 investora™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 Echelona™s operating results. Echelon presents these non-GAAP financial measures to provide investors with an additional tool for evaluating Echelona™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.

Echelona™s management uses certain non-GAAP financial information, namely operating results excluding the impact of stock-based compensation charges made in accordance with SFAS 123R, to evaluate its ongoing operations and for internal planning and forecasting purposes. Accordingly, we believe it is useful for Echelona™s investors to review, as applicable, information that both includes and excludes stock-based compensation (and the related tax impact) in order to assess the performance of Echelona™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 leading the worldwide transformation of the electricity grid into a smart, communicating energy network, connecting utilities to their customers, enabling networking of everyday devices, and providing customers with energy aware homes and businesses that react to conditions on the grid.

Echelon's NES System a" the control networking infrastructure for the [ smart grid ]a" enables intelligent distributed control applications and devices that deliver maximum reliability, survivability and responsiveness. Through the Echelon Control System (ECoS) platform, the NES system enables any device, speaking any protocol, connected over any network to be integrated into local decision making and connected securely to enterprise IT systems through virtually any IP network. The NES System helps utilities compete more effectively, reduce operating costs, provide expanded services and help energy users manage and reduce overall energy use.

Echelon's LonWorks® Infrastructure [ products ] extend the smart grid throughout the electrical network including into buildings, factories and homes- powering tens of millions of energy aware, everyday devices made by thousands of companies, and connecting them to each other, to the electricity grid and to the Internet. LonWorks based products work together to monitor and save energy; lower costs; improve productivity; and enhance service, quality, safety, and convenience in utility, municipal, building, industrial, transportation, and home area networks.

More information about Echelon can be found at [ http://www.echelon.com ].

Echelon, LonWorks 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 Echelona™s anticipated performance for the fourth quarter of 2010 and thereafter, in particular markets and in general, 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, and in particular the risk that the Company may fail to receive projected orders for our NES products; the risk that global economic conditions will affect our customersa™ ability to receive approval for or finance NES or LonWorks-based deployments; risks relating to the ability of Echelon's products and services to perform as designed and meet customer expectations; the risk that a utility that awards a tender to Echelon or one of its resellers does not obtain necessary regulatory approvals, will not proceed with a deployment, will order fewer than the number of meters anticipated by Echelon or will cancel the project, or the risk that the project will not pass certain tests imposed by the utility; the risk that Echelon does not meet expected or required shipment, delivery or acceptance schedules for NES hardware or software products and that Echelon may incur penalties or additional expenses or delay revenue recognition as a result; risks that the application of U.S. generally accepted accounting principles could significantly affect the method of calculating and the timing of NES revenues; 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 Quarterly Report on Form 10-Q when filed with the Securities and Exchange Commission.