ELON

Echelon Corporation (ELON)

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Echelon Corporation (ELON)

Q1 2010 Earnings Call Transcript

May 6, 2010 5:00 pm ET

Executives

Annie Leschin – IR

Bob Maxfield – President & CEO

Chris Stanfield – EVP & CFO

Analysts

Colin Rusch – ThinkEquity

Dale Pfau – Cantor Fitzgerald

Sean Hannan – Needham & Company

Paul Coster – JP Morgan Securities

Ben Schuman – Pacific Crest Securities

Charles Fishman – Pritchard Capital Partners

Craig Irwin – Wedbush Securities

Joe Maxa – Dougherty & Company

Bheeshma Chaudhary – Deutsche Bank

Justin Cable – Global Hunter Securities

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Echelon Corporation earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Annie Leschin, Investor Relations. Please proceed.

Annie Leschin

Hello everyone and thank you for joining us this afternoon on our first quarter 2010 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 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 during the second quarter, Echelon will be participating in Deutsche Bank’s Alternative Energy, Utilities and Power Conference on May 12th in Washington, DC; J. P. Morgan’s Global Technology, Media and Telecom Conference on May 18th in Boston; and Credit Suisse’s Future of Energy Conference on June 3rd in Washington, DC. 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 report on Form 10-K and 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 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, and guidance will not be updated after today's call until our next scheduled quarterly financial release.

And now, I would like to turn the call over to Bob Maxfield.

Bob Maxfield

Good afternoon everyone, thank you for joining us. As you have probably seen by now, today we filed a shelf offering for as much as $200 million. Though we believe we have sufficient cash to maintain our business for the foreseeable future, we believe the filing of this offering gives us the flexibility to access capital as needed over the next few years as our business grows.

With that, let me turn to the business. My focus since I came onboard as CEO two quarters ago has been first and foremost to ensure a seamless transition with the management team and to bring myself up to speed as quickly as possible; I feel that we are well along on that priority and that Echelon is running smoothly and effectively. The next priority has been to reassess our opportunities as a company and initiate a comprehensive review of the company’s overall strategies for markets, products, operations and finance

One of the results has been our new selling strategies in the form of our LonWorks solutions partner program and our NES direct selling program, which is targeted at uncommitted US investor-owned and larger municipal utilities. I will discuss both these programs in a little more detail shortly. I am confident that these two programs will have a positive impact going forward to ensure that Echelon remains a leading smart grid provider.

Let me begin with a review of the quarter’s results. I am pleased to report that Echelon’s business showed some signs of recovery this quarter, but not consistently throughout the world. In North America, the first quarter picked up noticeably, whereas in Europe, the recovery remained slower and spottier as each country works through not only its own financial situation, but also the severe difficulties of weaker EU member countries. Asia on the other hand has been the one geography that has seen little impact from the recession, particularly in China and India.

In total, Echelon’s March quarter exceeded our expectations with $18.1 million of revenues, driven by strong energy-related sales in our LonWorks product line. Both NES and Enel revenues were lighter this quarter as anticipated. GAAP gross margins reached 46.2%, reflecting the higher LonWorks sales. GAAP net loss was $10.6 million or $0.26 per share. Now, I will turn to some of the highlights of the quarter, beginning with the LonWorks infrastructure product line. Our LonWorks product line performed better than anticipated this quarter, driven largely by NOP-related [ph] applications, specifically demand response continued its strong seasonal ramp, showing strength in first quarter installations.

We see an emerging seasonal trend in this market, which indicates that the strongest quarters are the winter and spring months, and the weakest is the third quarter, resulting from the acceleration of orders in the first half of the year in preparation for the summer. It’s important to note that this was the first time one of our energy-related customers was among our leading LonWorks supply customers in a quarter, and we hope this will be an ongoing trend.

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