Form 8-K ECHELON CORP For: Nov 06
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E-mailSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section�13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
November 6, 2014
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ECHELON CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware | � | 000-29748 | � | 77-0203595 |
(State or other jurisdiction of incorporation) | � | (Commission File Number) | � | (IRS Employer Identification No.) |
550 Meridian Avenue
San Jose, California 95126
(Address of principal executive offices, including zip code)
(408) 938-5200
(Registrants telephone number, including area code)
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(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item�2.02. | Results of Operations and Financial Condition |
The following information is furnished (not filed) as Exhibit 99.1 hereto. This information shall not be deemed filed for purposes of Section�18 of the Securities Exchange Act of 1934, as amended (the Exchange Act ), nor incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On November 6, 2014, Echelon Corporation issued a press release reporting on its results of operations for the quarter and nine months ended September 30, 2014. The full text of this press release is furnished in this report as Exhibit 99.1.
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Item�9.01. | Financial Statements and Exhibits |
(d) Exhibits
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Exhibit Number | �� | Description |
99.1 | �� | Press Release dated November 6, 2014, of Echelon Corporation. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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� | � | � | ECHELON CORPORATION | |||
� | � | By: | � | /s/ William R. Slakey | ||
� | � | � | William R. Slakey Executive Vice President and Chief Financial Officer | |||
Date: November 6, 2014 | � | � | � | |||
EXHIBIT INDEX
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Exhibit Number | �� | Description |
99.1 | �� | Press Release dated November 6, 2014, of Echelon Corporation. |
Exhibit 99.1
� | � | � | � 550 Meridian Avenue San Jose, CA 95126 Phone: +1-408-938-5200 Fax: +1-408-790-3800 [email protected] www.echelon.com | |||
News Release
Echelon Reports Third Quarter 2014 Results
SAN JOSE, Calif., November 6, 2014 - Echelon Corporation (NASDAQ: ELON) today announced financial results for the third quarter ended September 30, 2014.
" | Q3 Revenues: $9.2 million |
" | Q3 GAAP Net Loss: $7.2 million from continuing operations, $2.0 million from discontinued operations; GAAP Net Loss per Share: $0.17 from continuing operations, $0.05 from discontinued operations |
" | Q3 Non-GAAP Net Loss: $2.3 million; Non-GAAP Net Loss per Share: $0.05 |
With the sale of the Grid business this quarter, we are now focused entirely on the emerging opportunities in the Industrial Internet of Things (IIoT) as Silicon Valleys leading independent controls company, said Ron Sege, Chairman and CEO of Echelon. This significant step should allow us to more vigorously pursue our strategic objectives of helping our customers converge existing control systems with modern IT ones, and penetrating the growing lighting controls market. To further the latter objective, we are very excited about this quarters acquisition of LumeWave, with its innovative outdoor lighting control system and strong US customer base.
The financial results highlighted in this release include discontinued operations related to the Grid business which was sold on September 30, 2014. The results highlighted below reflect results from continuing operations.
Total revenues from Echelons IIoT business were $9.2 million in the third quarter, down from $10.2 million a year ago, including $683,000 of sales to Enel in the quarter compared with $499,000 in the same period last year.
Total GAAP gross margins in the third quarter were 54.5% compared with 62.7% in the third quarter of 2013. Lower gross margins were largely driven by the reallocation of costs after the sale of the grid business. Total operating expenses for the quarter which included a facilities write-down of $4.4 million, increased to $12.6 million from $8.9 million in the same period last year.
GAAP net loss from continuing operations for the third quarter was $7.2 million, or $0.17 per share, compared with a net loss of $3.5 million, or $0.08 per share, in the same period last year. Non-GAAP net loss from continuing operations for the third quarter was $2.3 million, or $0.05 per share, compared with a non-GAAP net loss of $2.9 million, or $0.07 per share for the third quarter of 2013.
Business Outlook
Echelons guidance for the fourth quarter of 2014 (excluding revenues and results from the discontinued Grid business) are as follows:
" | Total revenues are expected to be $8.75 million to $9.75 million. |
" | Non-GAAP gross margin is expected to be in a range of 55% to 57% of revenue. |
" | Operating expenses are expected to be in a range of $7.0 to $8.0 million. |
" | Non-GAAP loss per share is expected to be between $0.04 to $0.08, based on 43.5 million fully diluted weighted average shares outstanding. |
" | GAAP loss per share is expected to be between $0.06 to $0.10. |
" | Cash burn for the quarter is expected to be approximately $7.0 to $9.0 million as a result of Grid sale transaction-related payments including fees and restructuring, along with the final $1.75 million payment from the previously announced legal settlement with Finmek. |
For those interested in further discussion regarding this release, Echelon's management will participate in a conference call today at 4:30 p.m. Eastern Time. To access the call, dial (888) 771-4371 or (847) 585-4405 outside the U.S and provide the confirmation number 38224335. An archived replay of the webcast will be available approximately two hours following the end of the call.
Use of Non-GAAP Financial Information
Echelon continues to provide all information required in accordance with GAAP, but believes that an investors evaluation of our ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, we provide non-GAAP net income and non-GAAP net income per share data as additional information relating to Echelons operating results. Echelon presents these non-GAAP financial measures to provide investors with an additional tool for evaluating Echelons operating results in a manner that focuses on what Echelon believes to be its ongoing business operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with GAAP.
Echelons management uses certain non-GAAP financial information, namely operating results from continuing operations excluding restructuring charges, litigation charges, impairment charges, the impact of stock-based compensation charges made in accordance with ASC 718 (formerly SFAS 123R), as well as certain other non-routine charges, to evaluate its ongoing operations and for internal planning and forecasting purposes. Accordingly, we believe it is useful for Echelons investors to review, as applicable, information that both includes and excludes these charges (and the related tax impact) in order to assess the performance of Echelons business and for planning and forecasting in future periods. Whenever Echelon reports such non-GAAP financial measures, a complete reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure is provided. Investors are encouraged to review these reconciliations to ensure they have a thorough understanding of the reported non-GAAP financial measures and their most directly comparable GAAP financial measures.
About Echelon Corporation
Echelon Corporation�(NASDAQ: ELON) is a leading independent control networking company for the Industrial Internet of Things. Echelon delivers multi-protocol and multi-media elements necessary to design, install, monitor and control industrial-strength 'communities of devices' within the lighting, building automation and Internet of Things markets worldwide. The company develops and sells complete systems and subsystems for target applications, plus system-on-chips (SoCs), embedded software, and commissioning and management tools for OEMs. With more than 100 million Echelon-powered devices installed worldwide, the company helps its customers easily and safely migrate existing control systems to the most modern platforms, while bringing new devices and applications into an ever-growing global Industrial Internet. Echelon helps its customers reduce operational costs, enhance satisfaction and safety, grow revenues and perform better in both established and emerging markets. More information about Echelon can be found at�http://www.echelon.com�and at the company's blog at�http://blog.echelon.com/.
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Echelon, the Echelon logo, and IzoT are trademarks of�Echelon Corporation�registered in the United States�and other countries. Other product or service names mentioned herein are the trademarks of their respective owners.
Risk Factors Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created thereby. Echelon advises caution in reliance on forward-looking statements. Forward looking statements include, without limitation, the companys opportunities for future growth, the companys ability to improve its financial model and accelerate its transition to the IIoT, and the Companys guidance for the third quarter of 2014.�Actual results could differ materially from those projected in forward-looking statements as a result of a number of risks and uncertainties. Such risks and uncertainties, include, but are not limited to, risks associated with the continued development and growth of markets for Echelon's products; the risk that we will not realize our
expectations with respect to the successful integration and growth of the products we acquired from Lumewave; failure to achieve revenue estimates or maintain expense controls; circumstances that may delay the time frame for achieving our business outlook; the timely development of Echelon's products and services and the ability of those products and services to perform as designed and meet customer expectations; the risk that Echelon does not meet expected or required shipment, delivery or acceptance schedules for its products and that Echelon may incur penalties or additional expenses or delay revenue recognition as a result; and other risks identified in Echelon's SEC filings. The discussion of risk factors are detailed in the Companys filings with the Securities and Exchange Commission, including reports on its most recently filed Form 10-K and Form 10-Q.�The financial information presented in this release reflects estimates based on information that is available to us at this time. Actual results, events and performance may differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
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The condensed consolidated financial statements that follow should be read in conjunction with the notes set forth in Echelon's Quarterly Report on Form 10-Q when filed with the Securities and Exchange Commission.
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Investor Relations Contacts:����������������������������
Annie Leschin
StreetSmart Investor Relations
+1 (415) 775-1788
ECHELON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
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September�30, 2014 | December�31, 2013 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 22,557 | $ | 14,648 | ||||
Restricted investments | 6,253 | |||||||
Short-term investments | 20,993 | 42,987 | ||||||
Accounts receivable, net | 3,453 | 10,522 | ||||||
Inventories | 3,783 | 6,445 | ||||||
Deferred cost of goods sold | 901 | 1,649 | ||||||
Other current assets | 1,745 | 2,040 | ||||||
Current assets of discontinued operations held for sale | 1,544 | |||||||
Total current assets | 61,229 | 78,291 | ||||||
Property and equipment, net | 10,994 | 18,670 | ||||||
Long-term assets of discontinued operations held for sale | 36 | |||||||
Other long-term assets | 8,279 | 9,167 | ||||||
$ | 80,538 | $ | 106,128 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 3,630 | $ | 5,424 | ||||
Accrued liabilities | 8,350 | 7,395 | ||||||
Current portion of lease financing obligations | 2,424 | 2,257 | ||||||
Deferred revenues | 3,216 | 6,125 | ||||||
Current liabilities of discontinued operations held for sale | 1,055 | |||||||
Total current liabilities | 18,675 | 21,201 | ||||||
Long-term liabilities of discontinued operations held for sale | ||||||||
Other long-term liabilities | 15,817 | 16,950 | ||||||
Total long-term liabilities | 15,817 | 16,950 | ||||||
Total stockholders equity | 46,046 | 67,977 | ||||||
$ | 80,538 | $ | 106,128 | |||||
ECHELON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended | Nine Months Ended | ||||||||||||||
September�30, | September�30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues: | |||||||||||||||
Product | $ | 9,164 | $ | 10,161 | $ | 29,035 | $ | 33,269 | |||||||
Service | 14 | 16 | 48 | 70 | |||||||||||
Total revenues (2) | 9,178 | 10,177 | 29,083 | 33,339 | |||||||||||
Cost of revenues: | |||||||||||||||
�Cost of product (1) | 3,877 | 3,711 | 11,586 | 12,742 | |||||||||||
�Cost of service (1) | 303 | 84 | 916 | 345 | |||||||||||
Total cost of revenues | 4,180 | 3,795 | 12,502 | 13,087 | |||||||||||
Gross profit | 4,998 | 6,382 | 16,581 | 20,252 | |||||||||||
Operating expenses: | |||||||||||||||
�Product development (1) | 2,305 | 2,711 | 7,224 | 8,092 | |||||||||||
�Sales and marketing (1) | 2,160 | 2,232 | 6,600 | 6,931 | |||||||||||
�General and administrative (1) | 3,765 | 3,925 | 11,114 | 11,045 | |||||||||||
Loss on write down of property, equipment and other | 4,409 | 4,409 | |||||||||||||
Litigation charges | 3,452 | ||||||||||||||
Restructuring charges | 2,254 | ||||||||||||||
Total operating expenses | 12,639 | 8,868 | 29,347 | 31,774 | |||||||||||
Loss from continuing operations | (7,641 | ) | (2,486 | ) | (12,766 | ) | (11,522 | ) | |||||||
Interest and other (expense) income, net | 719 | (606 | ) | 661 | (486 | ) | |||||||||
Interest expense on lease financing obligations | (271 | ) | (305 | ) | (839 | ) | (938 | ) | |||||||
Loss from continuing operations before provision for income taxes | (7,193 | ) | (3,397 | ) | (12,944 | ) | (12,946 | ) | |||||||
Income tax expense | 33 | 113 | 114 | 256 | |||||||||||
Net loss from continuing operations attributable to Echelon Corporation Stockholders | (7,226 | ) | (3,510 | ) | (13,058 | ) | (13,202 | ) | |||||||
Net loss from discontinued operations, net of income taxes | (2,141 | ) | (269 | ) | (9,250 | ) | (975 | ) | |||||||
Net loss from discontinued operations attributable to non-controlling interest, net of income taxes | $ | 179 | $ | 266 | $ | 535 | $ | 590 | |||||||
Net loss from discontinued operations attributable to Echelon Corporation Stockholders, net of income taxes | $ | (1,962 | ) | $ | (3 | ) | $ | (8,715 | ) | $ | (385 | ) | |||
Net loss attributable to Echelon Corporation Stockholders | $ | (9,188 | ) | $ | (3,513 | ) | $ | (21,773 | ) | $ | (13,587 | ) | |||
Basic net loss per share from continuing operations attributable to Echelon Corporation Stockholders | $ | (0.17 | ) | $ | (0.08 | ) | $ | (0.30 | ) | $ | (0.31 | ) | |||
Basic net loss per share from discontinued operations attributable to Echelon Corporation Stockholders | $ | (0.05 | ) | $ | 0.00 | $ | (0.20 | ) | $ | (0.01 | ) | ||||
Diluted net loss per share from continuing operations attributable to Echelon Corporation Stockholders | $ | (0.17 | ) | $ | (0.08 | ) | $ | (0.30 | ) | $ | (0.31 | ) | |||
Diluted net loss per share from discontinued operations attributable to Echelon Corporation Stockholders | $ | (0.05 | ) | $ | 0.00 | $ | (0.20 | ) | $ | (0.01 | ) | ||||
Shares used in computing net loss per share: | |||||||||||||||
Basic | 43,507 | 43,184 | 43,367 | 43,039 | |||||||||||
Diluted | 43,507 | 43,184 | 43,367 | 43,039 | |||||||||||
(1)����Amounts include stock-based compensation costs as follows: | |||||||||||||||
Cost of product | $ | 68 | $ | 64 | $ | 203 | $ | 171 | |||||||
Cost of service | 8 | 2 | 32 | 3 | |||||||||||
Product development | 130 | 132 | (37 | ) | 97 | ||||||||||
Sales and marketing | 79 | 10 | 174 | 196 | |||||||||||
General and administrative | 225 | 394 | 962 | 806 | |||||||||||
Discontinued operations | (824 | ) | 353 | (342 | ) | 904 | |||||||||
Total stock-based compensation expenses | (314 | ) | 955 | 992 | 2,177 | ||||||||||
ECHELON CORPORATION
RECONCILIATION OF NON-GAAP TO GAAP RESULTS
Excluding adjustments itemized below
(In thousands, except per share amounts)
(Unaudited)
An itemized reconciliation between net earnings on a GAAP basis and non-GAAP basis is as follows:
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Three Months Ended | Nine Months Ended | ||||||||||||||
September�30, | September�30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
GAAP net loss | $ | (9,188 | ) | $ | (3,513 | ) | $ | (21,773 | ) | $ | (13,587 | ) | |||
Stock-based compensation | 510 | 602 | 1,334 | 1,273 | |||||||||||
Loss on write down of property, equipment and other | 4,409 | 4,409 | |||||||||||||
Litigation charges | 3,452 | ||||||||||||||
Restructuring charges | 2,254 | ||||||||||||||
Loss from discontinued operations, net of taxes | 1,962 | 3 | 8,715 | 385 | |||||||||||
Total non-GAAP adjustments to earnings from operations | 6,881 | 605 | 14,458 | 7,364 | |||||||||||
Income tax effect of reconciling items | |||||||||||||||
Non-GAAP net loss | $ | (2,307 | ) | $ | (2,908 | ) | $ | (7,315 | ) | $ | (6,223 | ) | |||
Non-GAAP net loss per share: | |||||||||||||||
Diluted | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.17 | ) | $ | (0.14 | ) | |||
Shares used in computing net loss per share: | |||||||||||||||
Diluted | 43,507 | 43,184 | 43,367 | 43,039 | |||||||||||
ECHELON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
�
Nine Months Ended | |||||||
September�30, | |||||||
2014 | 2013 | ||||||
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: | |||||||
Net loss including noncontrolling interest | $ | (22,308 | ) | $ | (14,177 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 2,640 | 3,083 | |||||
Goodwill impairment charges | 3,388 | ||||||
Increase in allowance for doubtful accounts | 22 | 41 | |||||
Loss on disposal of Grid business | 254 | ||||||
Loss on disposal of and write down of property, equipment and other | 5,101 | 24 | |||||
Amortization of interest on contingent consideration | 18 | ||||||
Reduction of (increase in) accrued investment income | 18 | (2 | ) | ||||
Stock-based compensation | 992 | 2,177 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | 2,953 | 490 | |||||
Inventories | 1,217 | 3,686 | |||||
Deferred cost of goods sold | 242 | (885 | ) | ||||
Other current assets | 312 | 565 | |||||
Accounts payable | (379 | ) | (2,332 | ) | |||
Accrued liabilities | (1,047 | ) | 3,617 | ||||
Deferred revenues | (751 | ) | 1,181 | ||||
Deferred rent | (29 | ) | (28 | ) | |||
Net cash used in operating activities | (7,357 | ) | (2,560 | ) | |||
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: | |||||||
Purchases of availableforsale shortterm investments | (38,995 | ) | (38,953 | ) | |||
Proceeds from maturities and sales of availableforsale shortterm investments | 60,963 | 38,955 | |||||
Change in other longterm assets | 232 | (62 | ) | ||||
Cash paid for acquisition | (1,155 | ) | |||||
Proceeds from divestiture of Grid business, net of transaction costs | 4,861 | ||||||
Capital expenditures | (672 | ) | (811 | ) | |||
Net cash provided by (used in) investing activities | 25,234 | (871 | ) | ||||
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: | |||||||
Principal payments of lease financing obligations | (1,676 | ) | (1,530 | ) | |||
Proceeds from exercise of stock options | 17 | ||||||
Restricted cash used as collateral for line of credit | (6,250 | ) | |||||
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units and upon exercise of stock options | (411 | ) | (423 | ) | |||
Net cash used in financing activities | (8,320 | ) | (1,953 | ) | |||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (723 | ) | 178 | ||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 8,834 | (5,206 | ) | ||||
CASH AND CASH EQUIVALENTS: | |||||||
Beginning of period | 14,648 | 18,876 | |||||
End of period | $ | 23,482 | $ | 13,670 | |||
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