ELON

Echelon Corporation (ELON)

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Echelon (ELON)

Q3 2012 Earnings Call

November 01, 2012 5:00 pm ET

Executives

Anne M. Leschin

Ronald A. Sege - Chairman, Chief Executive Officer, President and Member of Stock Option Committee

William R. Slakey - Chief Financial Officer and Executive Vice President

Analysts

Sean K.F. Hannan - Needham & Company, LLC, Research Division

Patrick Jobin - Crédit Suisse AG, Research Division

John Quealy - Canaccord Genuity, Research Division

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Echelon Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the call over to Annie Leschin from Investor Relations. You may proceed.

Anne M. Leschin

Thank you, Operator. Hello, everyone, and thank you for joining us this afternoon for Echelon's Third Quarter 2012 Earnings Conference Call. With me on today's call are Ron Sege, Chairman and Chief Executive Officer; and Bill Slakey, 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 time ago. If you would like a copy, please visit our website at www.echelon.com.

Additionally, we will refer to a set of slides that we have posted on the IR section of our website to help walk through the quarterly results and our outlook for the market.

Now I'd like to remind everyone that during the course of this call, we may make statements related to our business outlook, future financial operating results, accounting matters and overall future prospects. These are forward-looking statements 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 information that is available to us at this time. Actual results can 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'd like to turn the call over to Ron Sege. Ron?

Ronald A. Sege

Thank you, Annie, and thank you all for joining us on our third quarter 2012 earnings call. Before I turn to business, I want to wish those of you who have been affected by Hurricane Sandy a speedy and safe recovery.

Let me begin with the quarter's results and then give you an update on our strategic initiatives. Beginning with Slide 3, we delivered revenue of $29.1 million for the quarter. This was well below the $43.8 million in the third quarter of 2011 due to the winding down of our system projects with Duke in Ohio and Fortum in Finland. We had a non-GAAP operating loss of $0.06 versus a non-GAAP operating profit of $0.04 in the same period last year. We were cash flow-positive this quarter and are pleased to report that we have more cash in the bank today than we did at the beginning of 2012.

Moving on to Slide 4. The third quarter marked the 2-year point in my tenure at Echelon. While we have had some disappointments, we have accomplished a great many of the initiatives that we outlined during the last 2 years and have laid a solid foundation for Echelon's future growth and profitability as the market strengthens.

First, we have made the difficult but important strides in reducing our cost structure over the last several quarters with a reduction of more than 27% in operating expenses since the end of 2010. This has allowed us to reach non-GAAP breakeven in 4 of the last 7 quarters. While streamlining operations, we've been able to invest in crucial areas of our technology and in product cost improvements.

Second, we have redirected our sales and marketing efforts towards today's growing geographies such as Brazil, China and Japan, where the economic benefits of grid modernization are strongest. In Brazil, we now have multiple pilots up and running with more on the horizon. In China, our joint venture received Chinese state grid approval for our communication technology and embedded software, and it has begun to win pilot projects.

Third, we made the decision to re-emphasize our roots as an embedded, multi-application platform supplier, our subsystem strategy, which is allowing us to access more markets by effectively engaging with local development partners that need world-class technology.

Finally, by honing in on Echelon's real asset, our differentiated power line and embedded control system technology, we are enhancing partnerships such as eMeter, now a Siemens business, and recruiting new distribution partners like Kapsch, an energy services company in Europe. This focus on technology enables us to launch innovative new products to meet our customers' needs such as our Control Operating System, or COS applications, which are receiving good marks in the industry.

Our multi-application platform met with a very positive reception at Metering Europe a few weeks ago, where we hosted a record number of meetings with customers, prospects and partners. During this conference, we reiterated our vision of going beyond metering towards modernizing the low-voltage grid with applications such as transformer monitoring, loss detection, and outage and power quality monitoring. We demonstrated these applications running on our head-end software, our Edge Control Node an our latest Open Smart Grid Protocol, or OSGP advanced meters. We also participated in the industry's first multi-vendor OSGP showcase and exhibited interoperability with other smart grid standards such as DLMS.

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