Echelon Corporation (ELON)

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Echelon Corporation (ELON)

Q3 2009 Earnings Call Transcript

November 4, 2009 5:00 pm ET


Annie Leschin – IR

Ken Oshman – Chairman and CEO

Chris Stanfield – EVP and CFO


Dale Pfau – Cantor Fitzgerald

Sean Hannan – Needham & Company

Elaine Kwei – Piper Jaffray

Colin Rusch - ThinkEquity

Joe Maxa - Dougherty & Company

Justin Cable – Global Hunter Securities

Carter Shoop – Deutsche Bank



Good day, ladies and gentlemen, and welcome to the third quarter 2009 Echelon Corporation's earnings conference call. My name is Anna, and I will be the coordinator for today’s call. (Operator instructions)

I would now like to turn the presentation over to Annie Leschin, Investor Relations. Please proceed.

Annie Leschin

Thank you, operator. Hello everyone and thank you for joining us this afternoon for our third quarter 2009 earnings conference call. With me on today's call are Ken Oshman, Chairman and Chief Executive Officer; and Chris Stanfield, Executive Vice President and CFO, both of whom will present prepared remarks.

By now, you should have received a copy of the press release we issued a short time ago. If you would like a copy, please visit our website at www.echelon.com.

Before we begin, I would like to let everyone know during the fourth quarter, Echelon will be participating in the Stephens Conference On November 17th in New York. As other events are scheduled, 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, 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.

The financial information presented on 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 quarterly scheduled financial release.

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

Ken Oshman

Thank you, Annie, and good afternoon everyone, and thank you for joining us. Let me begin with the announcement that we just made about the transition in its CEO at Echelon. As you know from the announcement, I will be stepping down as CEO of Echelon and Bob Maxfield will become CEO, as the Board of Directors initiates a search for a permanent CEO.

I will become the executive chairman of Echelon. I have the utmost confidence that Bob Maxfield will do an outstanding job as the CEO of Echelon, and I will do everything that I can to help him. As you may remember during the difficult period following the death of Bea Yormark, Bob immediately rose to the occasion and served as Senior Vice President of Products as we conducted a search that culminated in Bob Machlin joining Echelon to fill that role.

Since then Bob acted for a while as a consultant and subsequently as an advisor to Bob Machlin and me. Before that Bob was a founder and member with me at the top management team at ROLM Corporation. Bob will be joining us today during our Q&A session. I don't intend to leave Echelon only to transition to a different role that will allow me to be a big contributor to the future success of Echelon, while working on my medical problems.

Regarding my health, there is really nothing else beyond the press release that I can or will say at this point. I have lung cancer. Like predicting what a wild dog would do, one never can exactly foresee what will happen with cancer, but my illnesses is both treatable and curable, and I intend to fully recover from this disease.

Now I will turn to the business at Echelon. We had good news in the quarter. We signed a framework contract with Duke Energy, which was just recently awarded a $200 million stimulus package to accelerate deployments in Ohio and Indiana. We won a contract for the full deployment of a new smart grid infrastructure for Fortum, the largest utility in Finland.

We added important new partners for both our LonWorks Infrastructure and NES product lines. We managed our expenses and our manufacturing costs very well, and we slightly exceeded our financial expectations for the quarter. In the face of all this good news, the one persistent concern we have is that there is no great visibility that the traditional markets that we serve are about to return to their normal levels of activity and growth.

For our LonWorks Infrastructure product line, markets such as building, industrial and transportation controls show little signs of vibrancy yet. Having said that, we don't see further deterioration, and we expect that we have seen the bottom of this cycle. The worldwide real estate market is slow, depressing the buildings market. The semiconductor equipment industry seems poised to recover, albeit from a very low point and capital investments are simply being deferred even if they provide great short-term financial returns.

Our NES product line is the leader in the smart grid marketplace and that market continues to get a lot of press and attention, especially in the United States. For the most part however, activity remained somewhat stalled worldwide. Utilities in the US awaited results of the stimulus package, which with the recent awards by the government should have a very positive impact over the next 6 to 12 months. Elsewhere utilities awaited progress from government regulations or the availability of financing.

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