ELON

Echelon Corporation (ELON)

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Echelon Corp. (ELON)

Q4 2008 Earnings Call

February 5, 2009 2:00 pm ET

Executives

Annie Leschin – Investor Relations

Ken Oshman – Chairman and Chief Executive Officer

Chris Stanfield – Executive Vice President and Chief Financial Officer

Analysts

Preetesh Munshi – Piper Jaffray

Joe Maxa – Dougherty & Company

[Alex Perts – American]

Carter Shoop – Deutsche Bank

Bill Gibson – Nollenberger Capital

Michael Carboy – Signal Hill Capital

Presentation

Operator

Welcome to the Echelon Corporation’s fourth quarter 2008 earnings call. With us today are Kenneth Oshman, CEO and Chris Stanfield, CFO. At this time we’ll turn the call over to Annie Leschin of Investor Relations. Please proceed.

Annie Leschin

Thank you for joining us today for our fourth quarter 2008 earnings conference call. With me on today’s call are Ken Oshman, Chairman and CEO, and Chris Stanfield, EVP and CFO who will both present prepared remarks.

By now you should have received a copy of the press release that we issued early this morning. If you would like a copy please visit or website at www.echelon.com. Before we begin, I would like to let everyone know that Echelon will be participating in the Thomas Weisel Technology and Telecom Conference on February 9th in San Francisco, the Deutsche Bank Small and Mid-Cap Conference on February 12th at Naples and, the Piper Jaffray Clean Technology and Renewables Conference on February 19th in New York and the Pacific Crest Emerging Technology Summit on February 27th in San Francisco. As additional events are scheduled this quarter, we will make additional announcements.

I would like to remind everyone that during the course of this call, we may make statements relating to our business outlook, future financial and operating results, accounting matters and overall future prospects. These forward-looking statements are based on certain assumptions and are subject to a number of risks and uncertainties. We encourage you to read the risks described in our press release, dated February 5, 2009, as well as in our SEC reports including our 2008 report on Form 10-K for a more complete disclosure of the risks and uncertainties related to our business.

The financial information presented in this call reflects estimates based on information that is available to us at this time. Actual results could differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements. Guidance will not be updated after today’s call until our next scheduled quarterly financial release.

I would now like to turn the call over to Ken Oshman.

Ken Oshman

I’ll begin the call with a few brief comments on our fourth quarter performance and highlights from our two product lines, LonWorks Infrastructure and Networked Energy Services, and then discuss the current environment and the factors affecting our longer term business outlook.

In summary, overall Echelon performed well in the fourth quarter meeting our projections even as the worldwide financial and economic crisis began to take hold, and our LonWorks Infrastructure business saw a drop off in December. Total sales were $36.8 million with gross margins of 35.9% resulting in a net loss of $6.3 million or $0.15 per share. Our cash position remains strong at $87.3 million in cash and marketable securities with no borrowings.

I’ll now turn to our LonWorks Infrastructure product line. On our last call we commented that while our outlook for LonWorks revenues remained cautious due to the ensuing economic slowdown, we had not yet seen any direct impact. For the first two months of the fourth quarter this remained the case as revenues were robust across industries. During December, however, that sentiment abruptly changed. The tone of our customers became extremely cautious reflected in the delay and push out of orders.

We believe that as the year ended many customers were focused on lowering inventories, conserving cash and preparing for the difficult economic times ahead. Having said that, in the first few weeks of January we saw shipments recover but it’s far too early to project a long-term trend.

There were a number of noteworthy highlights in the fourth quarter in our LWI business. After years of work in various committees and with supporting votes from countries around the world, LonWorks technology was adopted as a global control standard for building automation, control in building management by the International Organization for Standardization (ISO). This is a very significant milestone for our technology.

ISO is the highest level of standardization possible and validates the openness, enduring strength and flexibility across multiple industries of LonWorks technology. A networking technology now used by thousands of companies. Companies like Honeywell, Samsung and McDonalds. ISO standardization will help promote continued adoption of the platform in the growing market for energy management and control applications, an important growth opportunity of our LonWorks product line.

We believe LonWorks technology is gaining traction as the leading open networking standard for energy management in a wide variety of applications including street lighting, enterprise management, demand response, and commercial and home energy management.

This past quarter, we also demonstrated street lighting infrastructure using LonWorks technology at the Anchorage Street Lighting Conference. Typically accounting for roughly 40% of the city’s operating budget, street lighting represents an enormous opportunity for significant cost savings through energy conservation and reduced maintenance.

By networking the lights together and remotely managing them using Echelon’s products, in addition to saving energy, cities can also provide for optimal light output for health and safety while simultaneously lowering costs and decreasing unnecessary light and CO2 emissions.

Read the rest of this transcript for free on seekingalpha.com