Echelon's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Echelon Corporation (ELON)

Q2 2012 Earnings Call

August 7, 2012 5:00 pm ET


Annie Leschin – Investor Relations

Ronald A. Sege – Chairman, President and Chief Executive Officer

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


Joe Maxa – Dougherty & Co. LLC

Colin W. Rusch – ThinkEquity LLC

Craig E. Irwin – Wedbush Securities, Inc

Sean K. F. Hannan – Needham & Co. LLC

Scott Reynolds – Jefferies & Co., Inc.

Pavel Molchanov – Raymond James & Associates

Paul Coster – JPMorgan Securities LLC



Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Echelon Corporation Earnings Conference Call. As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. (Operator instructions) We will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over to your host for today’s call Annie Leschin from Investor Relations. Please proceed.

Annie Leschin

Thank you, operator. Hello, everyone, and thank you for joining us this afternoon for Echelon’s second quarter 2012 earnings conference call. With me today are Ron Sege, Chairman and Chief Executive Officer; 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 while ago. If you would like a copy, please visit our website at 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 quarter’s results and our outlook for the market.

Before we begin, I would like to let everyone know that during the third quarter, Echelon will be participating in Canaccord’s Annual Growth Conference on August 15 in Boston, Wedbush Securities’ Clean Tech & Industrial Conference on September 12 in San Francisco, and Credit Suisse’s Future of Energy Conference on September 20 and 21 in New York. As additional events are scheduled, we will make other announcements.

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 in our SEC reports, including our report on Form 10-Q and subsequent reports on Form 10-K 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 for joining us for our second quarter 2012 earnings conference call. Today, I’ll begin with a summary of the quarter’s results and review progress in our systems and sub-systems businesses, and then finish with a few words on our outlook.

Turning to Slide 3, we had a solid second quarter with total revenue of $40.8 million. This was a slight increase sequentially, with 69% coming from our systems business and 31% from sub-systems. For the fourth time in the last six quarters, we achieved non-GAAP profitability through tight expense management. We generated $3.4 million in cash to end the quarter with $60.4 million.

Our goal of sustained profitability remains critically important to us, and our recent cost reduction initiatives position us to benefit as the markets recover. Our increasingly cost-focused culture led to a sequential non-GAAP operating expense reduction of 7% this quarter. As we continue to carefully manage expenses and increase operational efficiencies, we will also continue to pursue key areas of product innovation and go-to-market programs. This includes beginning to fund our joint venture with Holley in China. This is crucial to our China go-to-market strategy and to our long-term cost competitiveness. Nevertheless, we do understand the importance of being intelligent on expense controls, especially given the challenging outlook, which I will discuss later in my remarks.

Turning back to our results, one of the highlights this quarter was our successful Partner Conference in Budapest, Hungary, where we doubled our attendance from last year and welcome Alstrom and LG CNS as new sponsors. One of the consistent pieces of the feedback at the conference was how our partners see strong benefits from running multiple applications on a single platform, giving them the ability to offer a broader portfolio of solutions to their customers.

During this event, we highlighted our new COS software release, which allows our Smart Meters to be upgraded in the field to function as multi-parameter grid sensors. In addition, we launched our Streetlight pilot-in-a-box program, so that partners new to the market can rapidly deploy a small pilot without having to become street lighting experts.

Let me now give you a brief update on each of our markets; turning to Slide 4. In our systems business, shipments to Duke Energy in Ohio and Fortum in Finland drove the majority of sales this quarter. Our rollout with Duke in Ohio continued strong in Q2, with a total of approximately 500,000 of our meters installed to-date. We are excited by the prospects of implementing some of the advanced features at Duke, including outage management and power quality measurement. We believe our demonstrated success in Ohio positions us well for future roll-outs in Duke’s other territories, when they are ready to proceed.

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