ELON

Echelon Corporation (ELON)

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Echelon Corporation (ELON)

Q3 2010 Earnings Call Transcript

November 3, 2010 5:00 pm ET

Executives

Annie Leschin – IR

Ron Sege – President and CEO

Chris Stanfield – EVP and CFO

Analysts

Sean Hannan – Needham & Company

Craig Irwin – Wedbush Securities

Elaine Kwei – Jefferies

Michael Cox – Piper Jaffray

Carter Shoop – Deutsche Bank

Dale Pfau – Cantor Fitzgerald

Brandon Mora [ph] – ThinkEquity

Patrick Jobin – Credit Suisse

John Quealy – Canaccord Genuity

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Echelon Corporation earnings conference call. At this time, all participants are in a listen-only mode. We will be conducting a Q&A session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. 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 2010 earnings conference call. With me on today's call are Ron Sege, 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 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 that in the fourth quarter, Echelon will be participating in Stifel Nicolaus CleanTech Conference on November 9th in New York, Goldman Sachs CleanTech Conference in New York on November 11th, Stephens Fall Investment Conference on November 16th in New York, and the Robert Baird CleanTech Conference in San Francisco on December 1st. As additional events are scheduled this quarter, we will make other announcements.

Now, I would like to remind everyone that during the course of this call, we may make statements related 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 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 on this call reflects estimates based on information that's available to us at this time. Actual results could differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements, and 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 Ron.

Ron Sege

Thanks, Annie. Thank you, everyone again for joining us today for my first earnings call as CEO of Echelon. I am pleased to report that Echelon delivered a solid third quarter with $27.1 million in revenue and a non-GAAP net loss of $0.11 per share, slightly exceeding our guidance. Our LonWorks product line saw its strongest quarter since the recession began nearly two years ago and our 46% gross margin was led by improvements in our NES product line. We continue to prudently manage our balance sheet this quarter and we benefited from positive cash flow in the quarter.

Before I get into the quarter highlights, I'd like to take a moment to discuss how we are evolving the way we talk about our product lines. Historically, Echelon has discussed these in terms of our device networking or LonWorks infrastructure products and our smart grid infrastructure product or Network Energy Services. This will change as Echelon pursues an important initiative of becoming even more market and customer-focused.

Going forward, we will refer to LonWorks products as commercial products, given that our target markets for this line are principally a variety of public and private companies, governments, and other commercial entities. NES products will be known as utility products, as NES end customers are various utilities and energy service providers throughout the world.

By renaming our business in terms of end markets, we believe we will give the market and our customers a more clear and straightforward understanding of Echelon.

Now, let me move to key highlights of what was an exciting quarter for Echelon with the launch of our game-changing Echelon Control System or ECoS platform and other new products and offer my perspective of what I've seen and heard in the marketplace in my first two months as CEO; obviously, all this with the caveat that I still have much to learn about our company and the industry.

One of the fun parts of this job so far is that I have talked with a great many customers, partners, regulators, and suppliers around the world in the last few weeks. During the rest of my commentary, I will try to weave in themes and real world application anecdotes, because emerging markets such as the smart grid can never get enough of these in my experience.

First, the customer themes. The good news is that they are very similar around the world. Shift peak demand; reduce operating costs; improve delivery efficiency; add flexibility to adapt to new sources of power; reduce control system stovepiping and obsolescence-prone systems using multifunctional solution based on real, open standards; provide features and open interfaces to meet new opportunities such as street lighting control and demand response; and finally, provide tools to empower end customers with the ability to see and manage their energy consumption.

In short, these are very system oriented themes which play to Echelon's strengths. This is why our new focus of moving beyond the meter and bringing intelligent distributed control to the edge of the utility grid is so timely. By combining embedded and system software with purpose-built hardware into complete energy control systems, Echelon is able to uniquely meet the emerging needs of customers worldwide.

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