Form 8-K ECHELON CORP For: Feb 10

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February 10, 2015 4:11 PM EST


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
�
FORM 8-K
�
CURRENT REPORT
Pursuant to Section�13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 10, 2015
�
ECHELON CORPORATION
(Exact name of registrant as specified in its charter)
�
�
�
�
�
�
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)
�
(Former name or former address, if changed since last report)
�
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 February 10, 2015, Echelon Corporation issued a press release reporting on its results of operations for the quarter ended December 31, 2014. The full text of this press release is furnished in this report as Exhibit 99.1.
�




Item�9.01.
Financial Statements and Exhibits
(d) Exhibits
�
Exhibit
Number
��
Description
�
�
99.1
��
Press Release dated February 10, 2015, 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.
�
�
�
�
�
�
�
�
�
�
�
�
�
�
ECHELON CORPORATION
�
�
�
�
�
�
�
�
By:
�
/s/ William R. Slakey
�
�
�
�
�
�
William R. Slakey
Executive Vice President and
Chief Financial Officer
�
�
�
�
Date: February 10, 2015
�
�
�
�
�
�




EXHIBIT INDEX
�
�
�
�
Exhibit
Number
��
Description
�
�
99.1
��
Press Release dated February 10, 2015, 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 Fourth Quarter 2014 Results


SAN JOSE, Calif., February 10, 2015 - Echelon Corporation (NASDAQ: ELON) today announced financial results for the fourth quarter ended December 31, 2014.
"
Q4 Revenues: $9.6 million
"
Q4 GAAP Net Loss: $2.6 million; GAAP Net Loss per Share: $0.06
"
Q4 Non-GAAP Net Loss: $2.2 million; Non-GAAP Net Loss per Share: $0.05
Revenues, which consist of IIoT revenues only, were $9.6 million in the fourth quarter, up from $9.2 million in the previous quarter, and down from $12.5 million a year ago, including $446,000 of sales to Enel in the quarter compared with $3.2 million in the same period last year.
GAAP gross margins in the fourth quarter were 55.3% compared with 60.6% in the fourth quarter of 2013. Lower gross margins were driven by the reallocation of costs after the sale of the grid business and lower sales from Enel. Total operating expenses for the quarter decreased to $7.8 million from $8.6 million in the same period last year, and decreased from $12.6 million in the previous quarter.

GAAP net loss for the fourth quarter was $2.6 million, or $0.06 per share, compared with a net loss of $4.0 million, or $0.09 per share, including discontinued operations in the same period last year, and down from net loss of $7.2 million, or $0.17 in the previous quarter. Non-GAAP net loss for the fourth quarter was $2.2 million, or $0.05 per share, compared with a non-GAAP net loss of $1.4 million, or $0.03 per share for the third quarter of 2013, and $2.3 million, or $0.05 in the previous quarter.

2014 was a year of significant change for Echelon. We sold our grid business, introduced new products to modernize our product portfolio and broadened the applicability of our technology in the lighting control market by acquiring Lumewave, all while carefully managing our expenses, said Ron Sege, Chairman and CEO of Echelon. We see both the transition to Industrial IoT applications in our traditional customer base and the move to LED lighting as potential broad drivers of demand for our solutions.

Business Outlook

Echelons guidance for the first quarter of 2015 are as follows:
"
Total revenues are expected to be $8.6 million to $9.6 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 $7.5 million.
"
Non-GAAP loss per share is expected to be between $0.04 to $0.07, based on 44 million fully diluted weighted average shares outstanding.
"
GAAP loss per share is expected to be between $0.06 to $0.09.




"
Cash burn for the quarter is expected to exceed non-GAAP loss by $1.0 to $2.0 million due to expected payments as a result of the sale of our Grid business.
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 38791951. 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/.

###
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 first quarter of 2015.�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.
�
The condensed consolidated financial statements that follow should be read in conjunction with the notes set forth in Echelon's Annual Report on Form 10-K when filed with the Securities and Exchange Commission.

�
Investor Relations Contacts:
Annie Leschin
StreetSmart Investor Relations
+1 (415) 775-1788






ECHELON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
�
�
�
December�31,
2014
�
December�31,
2013
ASSETS
�
�
�
�
Current Assets:
�
�
�
�
Cash and cash equivalents
�
$
13,340

�
$
14,648

Restricted investments
�
1,401

�


Short-term investments
�
28,829

�
42,987

Accounts receivable, net
�
3,948

�
10,522

Inventories
�
3,243

�
6,445

Deferred cost of goods sold
�
935

�
1,649

Other current assets
�
1,084

�
2,040

Current assets of discontinued operations held for sale
�
597

�


Total current assets
�
53,377

�
78,291

Property and equipment, net
�
10,190

�
18,670

Other long-term assets
�
8,043

�
9,167

Long-term assets of discontinued operations held for sale
�
36

�


�
�
$
71,646

�
$
106,128

LIABILITIES AND STOCKHOLDERS EQUITY
�
�
�
�
Current Liabilities:
�
�
�
�
Accounts payable
�
$
3,614

�
$
5,424

Accrued liabilities
�
2,844

�
7,395

Current portion of lease financing obligations
�
2,459

�
2,257

Deferred revenues
�
3,126

�
6,125

Current liabilities of discontinued operations held for sale
�
1,024

�


Total current liabilities
�
13,067

�
21,201

Other long-term liabilities
�
15,402

�
16,950

Total long-term liabilities
�
15,402

�
16,950

Total stockholders equity
�
43,177

�
67,977

�
�
$
71,646

�
$
106,128





ECHELON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
�
�
Three Months Ended
�
Twelve Months Ended
�
December 31,
�
December 31,
�
2014
�
2013
�
2014
�
2013
�
�
�
�
�
�
�
�
Revenues
$
9,647

�
$
12,518

�
$
38,730

�
$
45,857

Cost of revenues (1)
4,316

�
4,928

�
16,818

�
18,015

Gross profit
5,331

�
7,590

�
21,912

�
27,842

Operating expenses:
�
�
�
�
�
�
�
�Product development (1)
2,286

�
2,830

�
9,510

�
10,922

�Sales and marketing (1)
2,498

�
2,130

�
9,098

�
9,061

�General and administrative (1)
2,854

�
3,599

�
13,741

�
14,644

Loss on write down of property, equipment and other


�


�
4,409

�


Litigation charges


�


�


�
3,452

Restructuring charges
164

�


�
391

�
2,254

Total operating expenses
7,802

�
8,559

�
37,149

�
40,333

Loss from continuing operations
(2,471
)
�
(969
)
�
(15,237
)
�
(12,491
)
Interest and other (expense) income, net
269

�
(216
)
�
930

�
(702
)
Interest expense on lease financing obligations
(261
)
�
(297
)
�
(1,100
)
�
(1,235
)
Loss from continuing operations before provision for income taxes
(2,463
)
�
(1,482
)
�
(15,407
)
�
(14,428
)
Income tax expense
97

�
55

�
211

�
311

Net loss from continuing operations attributable to Echelon Corporation Stockholders
(2,560
)
�
(1,537
)
�
(15,618
)
�
(14,739
)
Net loss from discontinued operations, net of income taxes


�
(2,704
)
�
(9,250
)
�
(3,679
)
Net loss from discontinued operations attributable to non-controlling interest, net of income taxes


�
218

�
535

�
808

Net loss from discontinued operations attributable to Echelon Corporation Stockholders, net of income taxes


�
(2,486
)
�
(8,715
)
�
(2,871
)
�
�
�
�
�
�
�
�
Net loss attributable to Echelon Corporation Stockholders
$
(2,560
)
�
$
(4,023
)
�
$
(24,333
)
�
$
(17,610
)
�
�
�
�
�
�
�
�
Basic and diluted net loss per share from continuing operations attributable to Echelon Corporation Stockholders
$
(0.06
)
�
$
(0.04
)
�
$
(0.36
)
�
$
(0.34
)
Basic and diluted net loss per share from discontinued operations attributable to Echelon Corporation Stockholders
$
0.00

�
$
(0.06
)
�
$
(0.20
)
�
$
(0.07
)
Basic and diluted net loss per share attributable to Echelon Corporation Stockholders
$
(0.06
)
�
$
(0.09
)
�
$
(0.56
)
�
$
(0.41
)
Shares used in computing net loss per share:
�
�
�
�
�
�
�
Basic
43,904

�
43,252

�
43,502

�
43,092

Diluted
43,904

�
43,252

�
43,502

�
43,092

�
�
�
�
�
�
�
�




(1)����Amounts include stock-based compensation costs as follows:
�
�
�
�
�
�
�
Cost of revenues
$
57

�
$
24

�
$
292

�
$
198

Product development
(36
)
�
59

�
(73
)
�
156

Sales and marketing
32

�
(112
)
�
206

�
84

General and administrative
152

�
161

�
1,114

�
967

Discontinued operations


�
229

�
(342
)
�
1,133

Total stock-based compensation expenses
$
205

�
$
361

�
$
1,197

�
$
2,538







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:
�
�
Three Months Ended
�
Twelve Months Ended
�
December 31,
�
December 31,
�
2014
�
2013
�
2014
�
2013
�
�
�
�
�
�
�
�
GAAP net loss
$
(2,560
)
�
$
(4,023
)
�
$
(24,333
)
�
$
(17,610
)
Stock-based compensation
205

�
132

�
1,539

�
1,405

Loss on write down of property, equipment and other


�


�
4,409

�


Litigation charges


�


�


�
3,452

Restructuring charges
164

�


�
391

�
2,254

Loss from discontinued operations, net of taxes


�
2,486

�
8,715

�
2,871

Total non-GAAP adjustments to earnings from operations
369

�
2,618

�
15,054

�
9,982

Income tax effect of reconciling items


�


�


�


Non-GAAP net loss
$
(2,191
)
�
$
(1,405
)
�
$
(9,279
)
�
$
(7,628
)
Non-GAAP net loss per share:
�
�
�
�
�
�
�
Diluted
$
(0.05
)
�
$
(0.03
)
�
$
(0.21
)
�
$
(0.18
)
Shares used in computing net loss per share:
�
�
�
�
�
�
�
Diluted
43,904

�
43,252

�
43,502

�
43,092







ECHELON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
�
Twelve Months Ended
�
December 31,
�
2014
�
2013
�
�
�
�
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
�
�
�
Net loss including noncontrolling interest
$
(24,868
)
�
$
(18,418
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
�
�
�
Depreciation and amortization
3,350

�
4,020

Goodwill impairment charges
3,388

�


Increase (decrease) in allowance for doubtful accounts
(57
)
�
47

Loss on disposal of Grid business
254

�


Loss on disposal of and write down of property, equipment and other
5,174

�
30

Reduction of (increase in) accrued investment income
(32
)
�
(6
)
Stock-based compensation
1,197

�
2,538

Amortization of interest on contingent consideration
43

�


Change in operating assets and liabilities:
�
�
�
Accounts receivable
2,535

�
5,151

Inventories
1,757

�
5,284

Deferred cost of goods sold
209

�
(797
)
Other current assets
1,232

�
450

Accounts payable
(81
)
�
(2,925
)
Accrued liabilities
(4,026
)
�
2,605

Deferred revenues
(846
)
�
978

Deferred rent
(35
)
�
(36
)
Net cash used in operating activities
(10,806
)
�
(1,079
)
�
�
�
�
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
�
�
�
Purchases of availableforsale shortterm investments
(28,977
)
�
(46,947
)
Proceeds from maturities and sales of availableforsale shortterm investments
48,000

�
46,946

Change in other longterm assets
36

�
(51
)
Cash paid for acquisition, net of cash acquired
(1,155
)
�


Proceeds from divestiture of Grid business, net of transaction costs
2,144

�


Capital expenditures
(703
)
�
(971
)
Net cash provided by (used in) investing activities
19,345

�
(1,023
)
�
�
�
�
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
�
�
�
Principal payments of lease financing obligations
(2,064
)
�
(2,056
)
Proceeds from exercise of stock options
17

�


Restricted investments 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
(423
)
�
(453
)
Net cash used in financing activities
(8,720
)
�
(2,509
)
�
�
�
�
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(1,127
)
�
383

�
�
�
�
NET CHANGE IN CASH AND CASH EQUIVALENTS
(1,308
)
�
(4,228
)
�
�
�
�
CASH AND CASH EQUIVALENTS:
�
�
�
Beginning of period
14,648

�
18,876

End of period
$
13,340

�
$
14,648

�



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