Echelon Reports $1.4M Loss

May 14

SANTA CLARA, Calif.May 10, 2018 /PRNewswire/ — Echelon Corporation (ELON) today announced financial results for the first quarter ended March 31, 2018.

“The first quarter saw increased momentum across our Industrial IoT product line and continued interest in our smart city and smart enterprise intelligent lighting solutions,” said Ron Sege, Chairman and CEO. “With the announcement of our new SmartServerIoT this quarter, we are targeting the 80% of connectable industrial devices which are not IP-based and therefore require an edge server device. The SmartServer IoT embraces legacy devices, extends to devices connected with emerging technologies and enhances both by leveraging cloud-based analytics. We expect these capabilities to help customers more quickly achieve improved business outcomes without ‘ripping and replacing’ existing systems. We also believe that our new reseller partnership will help us deliver solutions for smart cities, smart buildings and other industrial control applications to not only Echelon’s installed base of more than 140 million devices, but also to new customers worldwide.”

Financial Highlights

  • Revenue$7.8 million.
  • GAAP Operating expenses $6.0 millionNon-GAAP Operating expenses $5.6 million.
  • GAAP Net Loss$1.4 millionGAAP Net Loss per Share$0.30.
  • Non-GAAP Net Loss: $0.9 millionNon-GAAP Net Loss per Share: $0.21.
  • Cash & investments: $19.1 million.

Revenue was $7.8 million in the first quarter, an increase from $7.7 million, or 1.7% from the previous year.

GAAP gross margin in the first quarter was 55.9% compared with 57.3% a year ago. The year-over-year decline is the result of higher indirect costs in the first quarter.

GAAP operating expenses for the quarter were $6.0 million, up from $5.6 million during the same period last year. Non-GAAP operating expenses for the quarter were $5.6 million, up from $5.2 million a year ago. The increases were primarily driven by elevated R&D costs associated with new product introductions consistent with the Company’s strategy.

GAAP net loss for the quarter was $1.4 million, or $0.30 per share, compared to a net loss of $1.3 million, or $0.28 per share in the same period last year. Non-GAAP net loss for the first quarter was $0.9 million, or $0.21 per share, compared with non-GAAP net loss of $0.8 million, or $0.18 per share a year ago. The year-over-year increase in non-GAAP net loss was primarily attributable to lower gross margin and increased operating expenses this quarter.

Included in both GAAP and non-GAAP results for the first quarter of 2018 were foreign currency translation losses of $223,000, which were attributable to fluctuations in foreign currency denominated short-term intercompany balances. This compares to foreign currency translation losses of $88,000 in the first quarter of 2017. Partially offsetting these foreign currency translation losses in the current quarter was a gain of $424,000that was recognized upon the final liquidation of the joint venture with Holley Metering in China. These foreign currency translation losses, as well as the gain on the joint venture liquidation, are reflected in the Interest and Other Income (Expense), Net line of the condensed consolidated statements of operations.

The Company ended the quarter with $19.1 million in cash and investments.

Connected Lighting Solutions Highlights

Inquiries for connected lighting solutions continued to grow in the first quarter as more customers became interested in the benefits of Echelon’s differentiated solutions, and market interest in smart city and smart enterprise applications accelerated. We continue to see strengthening in the market, however sales cycles are expected to remain unpredictable and implementations of these complex systems can take many months, resulting in lumpy revenue in this product line.

Connected lighting projects previously highlighted, including a major city in New England, the City of Rancho Cucamonga and a major city in Silicon Valley, all continue to roll out and are at various stages of deployment and installation.

During the quarter, a Federal military base selected Echelon as part of their LED base-wide streetlight project. The military base is deploying Echelon intelligent lighting controls not only for energy savings, but also for remote control of beacon lights to alert emergency paths for base activities. The base chose Echelon control solutions due to the proven reliability of the solution.

Echelon recently announced a global value-added reseller agreement with Allied Telesis (ATI) whereby ATI will incorporate Echelon’s intelligent lighting solutions into its smart city and smart campus projects. Using Echelon’s next generation intelligent lighting solutions, ATI can turn otherwise ordinary LED streetlight retrofits into 21st century smart city networks capable of fine-tuned control and forming the backbone for future smart city applications.

LonWorks®-enabled Embedded IoT Platform Highlights

During the quarter the company continued to promote the value of its ’embrace, extend and enhance’ Industrial IoT strategy. This strategy leverages existing control infrastructure such as that built on LonWorks and other protocols (’embrace’) and allows customers to extend these networks with emerging technologies such as Bluetooth, WiFi and Zigbee (‘extend’).  These networks can then easily be connected to emerging cloud-based analytics applications to collect and analyze data to optimize operations (‘enhance’).

At the center of this strategy is the new SmartServer IoT, announced during the quarter, a next-generation open and programmable edge server that will incorporate the most common industrial device protocols as well as Internet connectivity. The edge server delivers the value of the industrial IoT to traditional control systems such as LonWorks, BACnet or Modbus, releasing the data locked in those systems by bringing the worlds of operational technology, information technology, and cloud services together in a single system.

SmartServer IoT is an open, programmable and extensible platform where OEM’s and integrators can ease and accelerate the process of collecting data for valuable analysis. Users will benefit from a significant improvement in performance, faster development times, flexible deployment options and easy customization, all without having to rip and replace legacy devices. This new SmartServer is up to ten times faster and has more than 50 times the memory of its predecessor. With built-in support for the common industrial device protocols, developers can create solutions in days or weeks instead of months or years, saving untold hours of development time.

A report by IHS on the Industrial IoT Segment finds that greater than 80% of the billions of connectable industrial devices are non-IP based, highlighting the market potential for a multi-protocol edge server for capturing and making the data consumable from cloud analytics and AI services. Gartner suggests that, by 2020, 90% of IoT projects will utilize an IoT edge server gateway to connect legacy devices to emerging ones, up from 60% today. Further, International Data Corporation (‘IDC’) predicts that this year alone, 45% of IoT data will be stored, processed, and acted upon at the edge rather than sending it to a data center, providing a significant market opportunity for Echelon.

Echelon also announced the latest upgrade to its LON commissioning tool. This software allows customers to easily and securely deploy, configure, program, and operate large-scale networks of a wide range of devices from a Windows laptop.  The new upgrade is a key component of Echelon’s embrace, extend and enhance strategy to make embedded device networks easily and securely accessible to the cloud, and demonstrates Echelon’s ongoing leadership in innovation for the Industrial IoT.

Under the reseller agreement described above, ATI will be leveraging Echelon’s embrace, extend and enhance strategy to help more customers rapidly see the benefits of industrial IoT technologies.

Sales & Marketing Highlights

Echelon recently conducted its first Net Promotor Score (NPS) survey and found its brand loyalty at the same level as some well-known, highly-recognized companies such as Cisco, T-Mobile, Microsoft, Philips and Toyota. NPS is currently used by more than two-thirds of the Fortune 1000 and gauges the loyalty of a firm’s customer/partner relationships.

Echelon recently presented at the 2018 AHR Expo in Chicago, the world’s largest heating, ventilation, air conditioning and refrigeration marketplace, and at Light and Building 2018 in Frankfurt, Germany, the world’s leading trade fair for lighting and building services technology. At the conferences, Echelon announced its new next generation SmartServer IoT edge server supported by two whitepapers:

Accessing Data: The currency of the IoT and The lifeblood of Artificial Intelligence, and Overcoming Obstacles to Intelligent IIoT Applications

Outlook

Echelon’s guidance for the second quarter of 2018 is as follows:

  • Total revenues are expected to be in a range of $7.3 million to $7.7 million.
  • Gross margin is expected to be in a range of 55% to 57%.
  • GAAP operating expenses are expected to be in a range of $5.9 million to $6.1 million.
  • Non-GAAP operating expenses are expected to be in a range of $5.4 million to $5.6 million as we continue to incur near-term costs associated with the roll-out of new products. The Company expects these costs will return to more historical levels later in 2018.
  • GAAP loss per share is expected to be between $0.34 and $0.47, based on 4.5 million weighted average shares outstanding.
  • Excluding expected non-cash equity compensation charges of $0.11 per share, non-GAAP loss per share is expected to be between $0.23 and $0.36.