Echelon Corporation Reports Fourth Quarter, Full Year Results(San Jose, CA– February 3, 2005) - Echelon Corporation (NASDAQ: ELON) today announced financial results for the fourth quarter and year ended December 31, 2004, in line with previously stated guidance. "2004 was the beginning of a transition process for Echelon as the Enel project — which has been extraordinarily successful — began to wind down to its conclusion in 2005," said Ken Oshman Echelon's chairman and CEO. "This quarter, we once again saw very robust performance in our European LonWorks® infrastructure business. In North America, our infrastructure results were slightly below our expectation, due primarily, we believe, to our customers carefully managing their year-end inventory levels. Asia, and particularly Japan, did not perform to our expectations, which has been the case throughout the year. While 2004 was a challenge for us in Asia, based on the energy and enthusiasm we saw at the Shanghai LonWorld® exhibition and conference this past quarter, I feel optimistic about a recovery in the Asian LonWorks infrastructure business in 2005. The 2004 LonWorld event was both the first ever held in Asia and, with over 2000 attendees, our biggest LonWorld event ever. Overall I am pleased with the 2004 performance of our LonWorks infrastructure business and believe we are on the path to accomplish the goals we have set for continued growth in 2005." "Our networked energy services (NES) business did not achieve the volumes that we had originally planned in 2004. Although we did not ship in the volumes we had hoped, our value-added reseller partners and Echelon made great strides in the market, with over a half dozen trials spread across Europe and Asia now in various stages of planning or deployment. While the decision making process of utilities remains one that is very hard to predict and certainly harder still to control, we do believe that the pilot and tender activities that we are engaged in now will begin to bear fruit in 2005." Revenues for the quarter ended December 31, 2004 were $31.9 million compared to revenues of $23.5 million for the same period in 2003. Revenues for the quarter ended December 31, 2004 were comprised of $20.3 million related to the Enel project, $11.5 million from the LonWorks infrastructure business, and $54,000 from products and services sold to our NES customers. Included in the Enel revenue for the quarter ended December 31, 2004 was virtually all of the approximately $4.7 million of revenue associated with data concentrator products shipped to Enel during the third quarter of 2004. As previously announced, Echelon determined that revenue on these units should not be recognized until the rework associated with an Engineering Change Order agreed to between Echelon and Enel was completed and the units were returned to Enel. GAAP net income for the quarter ended December 31, 2004 was $3.0 million, or $0.07 cents per share, based on a weighted average of 41,198,000 fully diluted common shares outstanding, compared to net loss of $520,000, or $.01 cent per share, based on a weighted average of 40,337,000 common shares outstanding for the fourth quarter of 2003. Revenues for the year ended December 31, 2004 were $109.9 million compared to revenues of $118.2 million for the year ended December 31, 2003. Full year 2004 revenues were comprised of $64.1 million related to the Enel project, $45.7 million from the LonWorks infrastructure business, and $85,000 from products and services sold to our NES customers. GAAP net income for the year ended December 31, 2004 was $5.3 million, or $0.13 cents per share on a fully diluted basis, based on a weighted average of 41,007,000 common shares outstanding, compared to net income of $1.9 million, or $0.05 cents per share, based on a fully diluted weighted average of 40,792,000 common shares outstanding for the year ended December 31, 2003. Non-GAAP net income for the year was $5.8 million, or $0.14 cents per fully diluted share, compared to non-GAAP net income of $12.7 million or $0.31 cents per fully diluted share for the same period in 2003. 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 December 31, 2004 was 56.4% compared to 55.4% for the same period in 2003. Gross margin for the year ended December 31, 2004 was 56.2% compared to 55.9% for the year ended December 31, 2003. Total operating expenses for the quarter ended December 31, 2004 were $15.0 million compared to total operating expenses of $14.7 million for the same period in 2003. Total operating expenses for the year ended December 31, 2004 were $58.1 million, compared to $65.8 million for the year ended December 31, 2003. Highlights from the fourth quarter may be found at http://www.echelon.com/about/press/. These include:
Given that Echelon held an analyst call on January 17th, 2005 in conjunction with a press announcement of the company's Full Year 2005 Business Outlook and that the company's guidance is unchanged from that call, Echelon will not be holding an analyst call in conjunction with this release of the company's Q4 2004 results. Investors wishing to hear more from Echelon executives may attend the audio webcast of Echelon's presentation at the upcoming 17th Annual Roth Capital Partners Growth Stock Conference. Echelon's presentation will be webcast at approximately 1:00pm Pacific Time on Tuesday, February 22nd, 2005. Business Outlook On January 17, 2005, Echelon issued a press release providing guidance for full year 2005. Echelon management offers the following supplemental guidance for the quarter ending March 31, 2005 and the full year ending December 31, 2005:
Use of Non-GAAP Financial Information About Echelon Corporation Further information regarding Echelon can be found at http://www.echelon.com. ### Echelon, LonWorks, LonWorld, i.LON, LNS, and the Echelon logo are trademarks of Echelon Corporation registered in the United States and other countries. LonScanner is a trademark of Echelon Corporation 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 including statements regarding the receipt of Enel revenues; the outlook for our LonWorks infrastructure business in Europe, Asia and elsewhere; the outlook for our NES business, through tenders, trial installations and otherwise; and Echelon's financial outlook for the quarter ending March 31, 2005 and the year ending December 31, 2005. Such statements may involve risks and uncertainties, including risks relating to the development and growth of markets for Echelon's products and services, particularly the NES system and new infrastructure products and the ability of those products and services to meet customer and consumer expectations, risks associated with uncertainties pertaining to the timing and level of customer orders, demand for products and services, risks that the product deployment activities with Enel do not meet their target dates, or are terminated, risks that our development projects with other parties are not successful, risks that the arbitration with Enel may be decided adversely to Echelon's interests, risks related to changing business conditions which may result in additional operating expenses in 2005 including, but not limited to, impairment of intangible or other long-lived assets, addition of reserves for excess inventory and purchase commitments or other accounting charges, 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-K when filed with the Securities and Exchange Commission. ECHELON CORPORATION
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