Echelon Corporation (ELON)

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Echelon Corporation (ELON)

Q4 2009 Earnings Call Transcript

February 10, 2010 5:00 pm ET


Annie Leschin – Investor Relations

Bob Maxfield – President and Chief Executive Officer

Chris Stanfield – Executive Vice President and Chief Financial Officer


Paul Coster – JP Morgan

Colin Rusch – ThinkEquity

Dale Pfau – Cantor Fitzgerald

Carter Shoop – Deutsche Bank

Elaine Kwei – Piper Jaffray

Joe Maxa - Dougherty & Company

Justin Cable – Global Hunter Securities

Brian Kremer – Roth Capital Partners

Ben Schuman – Pacific Crest Securities



Welcome to the Q4 2009 Echelon Corporation earnings conference call. My name is Jeff, and I will be your operator for today. (Operator instructions). I would now like to turn the conference over to your host for today, Ms. Annie Leschin, Investor Relations.

Annie Leschin

Thank you for joining us this afternoon for our fourth quarter 2009 earnings conference call. With me on today's call are Bob Maxfield, President 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 that we issued a short while 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 Piper Jaffray Clean Technology and Renewables Conference on February 23rd in New York as well as the Canaccord Sustainability Forum on March 4th in Deer Valley, Utah. As additional events are scheduled, we’ll make further 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 those in our SEC reports, including our report on Form 10-K and subsequent reports on Form 10-Q 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 the 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 Bob Maxfield.

Bob Maxfield

Good afternoon and thank you for joining us. I am pleased to be with you today on my first earnings call as Echelon’s president and CEO. Though I am new to this role, I have been involved with the company as an active board member for over 20 years and a senior member of the executive team for much of 2008. That experience has enabled a smooth management transition with very little loss of momentum, having stepped into this role with knowledge of the key opportunities and issues facing the company. I am very optimistic about the opportunities that lay ahead for Echelon, and I plan to continue our investment and product development and marketing activities in order to address the enormous worldwide market opportunities in the emerging smart grid and energy management.

On to the quarter, we ended 2009 on a high note. The fourth quarter was a bright spot in an otherwise grim year, of one of the worst recessions in history. Our 2009 performance reinforced our commitment to leading the smart grid revolution by winning key NES contracts around the world and capitalizing on the growing opportunities for our LonWorks products spurred by increased economic and regulatory focus on energy efficiency.

Throughout the year, we addressed the economic difficulties through prudent cost and cash management while maintaining investments in key products, adding to our sales force, and strategically expanding Echelon’s presence worldwide. Even with these investments, we ended the year with a strong cash position and near breakeven non-GAAP operating results in the quarter.

The December quarter was stronger than expected with $38.8 million of revenues, driven by increased NES deployments in Denmark and the US. We also saw particularly high levels of revenue from Enel this quarter. GAAP gross margins were 41.6%. Our GAAP net loss was $3.7 million or $0.09 per share. We also generated $5.2 million in operating cash flow, strengthening our balance sheet to end the quarter with $80.1 million in cash and investments.

I would now like to turn to some of the highlights of the quarter. I will begin with our LonWorks product line. In the fourth quarter, we began to see pockets of improved activity in some energy-driven markets, such as demand response and street lighting. However, the weak European economy and the slowdown in LonWorks’ largest market segment, building automation, again took their toll on results this quarter. Building automation continued at its fairly flat quarterly 2009 pace, mirroring the ongoing industry wide slowdown in commercial real estate.

Given how quickly how our OEMs responded to the sharp decline in revenues beginning in late 2008 by immediately adjusting down their inventory levels, any pickup in the building automation market should flow quickly to us. The challenging part is that the recovery in this market is dependent upon improvement in the commercial real estate market, which we expect to occur slowly throughout 2010 in the US and Europe.

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