Echelon Reports Second Quarter Results(San Jose, CA– July 15, 2003) - Echelon Corporation (NASDAQ: ELON) today announced financial results for the quarter ended June 30, 2003. Revenues for the quarter ended June 30, 2003 were $31.3 million, equivalent to revenues of $31.3 million for the same period in 2002. GAAP net loss for the quarter ended June 30, 2003 was $6.3 million or $0.16 cents per share, based on a weighted average of 39,954,000 common shares outstanding, compared to GAAP net income of $5.1 million or $0.12 cents per share, based on a fully diluted weighted average of 40,818,000 common shares outstanding for the same period in 2002. Revenues for the six-month period ended June 30, 2003 were $63.9 million, an increase of 8.5% over revenues of $58.9 million for the same period in 2002. GAAP net loss for the six-month period ended June 30, 2003 was $2.1 million, or $0.05 per share based on a weighted average of 39,875,000 common shares outstanding, compared to GAAP net income of $7.8 million, or $0.19 per share, based on a fully diluted weighted average of 40,812,000 common shares outstanding for the same period in 2002. Included in operating expenses for both the quarter and six-month period ended June 30, 2003, are in-process research and development, intangible asset amortization, and other costs totaling approximately $10.1 million associated with the acquisition of certain assets of Metering Technology Corporation. Excluding these and similar charges associated with acquisitions completed in prior periods, non-GAAP net income for the quarter ended June 30, 2003 was $3.1 million, or $0.08 per share, compared to non-GAAP net income of $5.2 million, or $0.13 per share for the same period in 2002. Non-GAAP net income for the six-month period ended June 30, 2003 was $7.7 million, or $0.19 per share, compared to non-GAAP net income of $8.3 million, or $0.20 per share for the same period in 2002. All non-GAAP information in this release is reconciled in the "Non-GAAP Consolidated Condensed Statements of Operations" table below. Gross margin for the quarter ended June 30, 2003 was 53.0%, compared with 52.5% for the same period in 2002. Gross margin for the six-month period ended June 30, 2003 was 51.8%, the same as for the same period in 2002. Total operating expenses for the quarter ended June 30, 2003 were $23.9 million, compared to $11.9 million for the same period in 2002. Total operating expenses for the six-month period ended June 30, 2003 were $36.6 million, compared to $24.1 million for the same period in 2002. "While I would like to have more revenue growth, given that we still see few signs of economic recovery around the world, especially in Japan and Germany, two of our larger markets, and given that we will recognize Enel-related revenue of about $2.7 million in the third quarter rather than the second, as described below, I feel that our results this quarter are quite good. I am also extremely pleased with the consistent strides we have made in executing our long-term strategy," said M. Kenneth Oshman, Echelon's chairman and chief executive officer. "In late June we announced a very important strategic alliance with Samsung under which Samsung will adopt our PL 3120® and PL 3150® Power Line Smart Transceivers and the LonWorks® platform for its HOME VITA home and consumer products. When we announced our power line smart transceiver products in January, we said that we believed that they would open new markets for intelligent everyday devices and further propel our growth; we believe our agreement with Samsung is a very important design win for these products and a tangible step in opening the new markets and achieving the growth that we foresee. And, yesterday, we announced a trial agreement with Continuon Nethbeheer, a leading Dutch utility grid operator and a subsidiary of the Dutch utility Nuon, under which we will together deploy our Networked Energy Services (NES) system in an end-to-end trial system. We have said for some time that we see a large and important growth opportunity in the electric utility industry with our NES system. While there is still much work ahead of us before this trial can result in a rollout to all of Continuon's 2.7 million served customers, yesterday's announcement is the first visible and very important step in tapping the enormous opportunity that we see in this market," continued Mr. Oshman. In addition to the announcements discussed above, Echelon's second quarter of 2003, as previously announced, was highlighted by a number of important events. Echelon announced, and has since resolved, a dispute with Enel S.p.A. of Italy over pricing of the power line transceivers used in Enel's metering project. The dispute was resolved in early July without the need for arbitration. Enel has been invoiced $2.7 million of the $3 million total for the additional units. Echelon expects that the full $3 million of revenue will be recognized for accounting purposes in the third quarter of 2003. Echelon announced the appointment of Anders Axelsson as Senior Vice-President of Sales and Marketing. Mr. Axelsson joins Echelon from Honeywell-Measurex, ABB, and Snap Appliances and brings extensive executive management, sales and marketing experience. The LonWorks platform and Echelon were recognized with a NOVA Award from the Construction Innovation Forum in May. The NOVA Award is the construction industry's "Nobel Prize" awarded only to those companies that have provided the industry with significant innovations that have improved the quality and reduced the costs of construction. Mr. Edwin Hill, the International President of the International Brotherhood of Electrical Workers (IBEW) said that, "Innovations like LonWorks control network technology will ensure that our industry is ready to meet tomorrow's construction demands with confidence." The IBEW is the world's largest electrical union. Echelon announced that it was elected as a Steering Committee member of the UPnP Forum. The Steering Committee defines the future technology focus and guiding principles of the Forum. The UPnP Forum includes 575 companies in consumer electronics, computer networking, and mobile products whose members design and publish device descriptions designed to allow data, multimedia, and control devices to connect transparently in home and corporate environments using open, Internet-based communication standards. Echelon began shipments for the PL 3120 Power Line Smart Transceiver. Power line smart transceivers offer a very low-cost, high performance, and proven network communications solution for manufacturers in the home appliance, metering, and other businesses. For those interested in further discussion regarding this release, Echelon's management will participate in a conference call today at 2:00 pm PDT. To access the conference call, dial 1-800-388-8975 (callers outside the US please use +1-973-694-2225); however, due to a limited number of available phone lines, the company asks that only those persons without Web access call this number. The call will be available live today, and for playback on the Investor Relations section of Echelon's web site (www.echelon.com) through July 22, 2003. Use of Non-GAAP Financial Information Echelon provides non-GAAP net income and non-GAAP net income per share data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Echelon believes that this presentation of non-GAAP net income and non-GAAP net income per share provides useful information relating to its financial condition and results of operations, which provides management and investors with a more complete understanding of Echelon's past performance and certain additional financial and business trends. 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 generally accepted accounting principles. About Echelon Corporation The protocol underlying LonWorks networks and the signaling used by Echelon's power line and free topology transceivers have been adopted as standards by the American National Standards Institute (ANSI). Echelon is a founding member of the LonMark® Interoperability Association, an open industry forum of hundreds of leading manufacturers, integrators, and users dedicated to promoting the use of interoperable LonWorks devices. More information about LonMark interoperability is available at http://www.lonmark.org. Further information regarding Echelon can be found at http://www.echelon.com. ### Echelon, LonWorks, LonMark, 3120, 3150, the LonMark logo, and the Echelon logo are trademarks of Echelon Corporation registered in the United States and other countries. Other marks belong to their respective holders. This press release may contain statements relating to future plans, events or performance. Such statements may involve risks and uncertainties, including risks associated with uncertainties pertaining to the risks that the R&D activities or subsequent product deployment activities with Enel are not successful, do not meet their target dates, do not expand or gain momentum, or are terminated, or that the contemplated transactions are challenged by third parties, and risks associated with the timing of receipt by us of payments under our project with Enel; risks that our development projects with other parties are not successful; risks relating to our strategic alliance with Samsung and the extent, if any, to which that alliance will open new markets for our project; risks associated with our trial with Continuon, our ability to achieve milestones under that agreement, and the extent, if any, to which the trial could lead to additional deployments; risks relating to the development of markets for Echelon's products and services and the ability of those products and services to perform as designed and meet customer and consumer expectations; risks related to the timing and amount of revenues, if any, derived from the Panoramix software platform; risks related to our acquisition of certain assets of MTC, , and the effect of the acquisition on Echelon's expenses and operating results this quarter and in future periods; and other risks identified in Echelon's SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Echelon undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The financial statements that follow should be read in conjunction with the notes set forth in Echelon's Form 10-Q when filed with the Securities and Exchange Commission; and with our 2002 annual report on Form 10-K, which was filed with the Securities and Exchange Commission in March 2003. ECHELON CORPORATION
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