Echelon Corporation Reports 2007 Fourth Quarter, Full Year Results(San Jose, CA– February 7, 2008) - Echelon Corporation (NASDAQ: ELON) today announced financial results for the fourth quarter and year ended December 31, 2007. "Entering 2007 we set a target of reaching non-GAAP profitability in Q4. I am pleased to report today that we met our goal, not only on a non-GAAP basis, but also on a GAAP basis. Fully diluted GAAP earnings per share were $0.03 and non-GAAP earnings per share were $0.09," said Ken Oshman, Echelon's chairman and CEO. "We achieved this important goal by recording significant sales of our NES products and by keeping a close watch on product costs. The result has been both higher gross profit and higher margins than we projected going into the year." For the quarter ended December 31, 2007, revenues were $46.9 million compared to revenue of $13.9 million for the same period in 2006. Echelon's revenues for the fourth quarter of 2007 were comprised of $27.7 million from our Networked Energy Services (NES) product line, $13.1 million from our LonWorks® infrastructure product line, and $6.1 million from the Enel project. Revenues for the quarter ended December 31, 2006 were comprised of $93,000 from our NES product line and $13.8 million from our LonWorks infrastructure product line. The GAAP net profit for the quarter was $1.4 million, or $0.03 cents per fully diluted share, compared to a GAAP net loss of $6.5 million, or $0.17 cents per share for the fourth quarter of 2006. Gross margin for the quarter was 41.0% compared to 58.6% for the same period in 2006. Total operating expenses were $19.0 million compared to $15.9 million for the same period in 2006. For the year ended December 31, 2007 revenues were $137.6 million compared to revenues of $57.3 million for the year ended December 31, 2006. Full year 2007 revenue consisted of $70.6 million from products and services sold to our NES customers, $52.8 million from sales of our LonWorks infrastructure products and services, and $14.2 million related to the Enel project. These amounts compare to 2006 totals of $791,000 from products and services sold to our NES customers, $49.4 million from our LonWorks infrastructure sales, and $7.1 million related to the Enel project. The GAAP net loss for the year was $14.5 million, or $0.36 cents per share compared to a net loss of $24.4 million, or $0.62 cents per share for the prior year. Gross margin for the year was 36.5% compared to 58.2% for the prior year. Total operating expenses were $70.0 million, compared to $63.2 million for the prior year. Excluding stock-based compensation expenses, the non-GAAP net profit for the quarter was $4.0 million, or $0.09 cents per fully diluted share, compared to a non-GAAP net loss of $5.3 million, or $0.13 cents per share for the same period in 2006. For the year, the non-GAAP net loss was $7.9 million, or $0.20 cents per share, compared to a non-GAAP net loss of $19.5 million, or $0.49 cents per share for the same period in 2006. All non-GAAP information in this release is reconciled in the "Reconciliation of Non-GAAP to GAAP Results" table below. Mr. Oshman continued, "Energy continues to be a force worldwide, driving growth and excitement in our markets. As we exit 2007 and enter 2008, this momentum is reflected in the success of our NES advanced metering infrastructure products, where we recently announced that we have launched our first project with a major North American utility and that we have now shipped over one million smart meters worldwide, all built on the same core electronics, firmware, and networking platform. Each achievement marks an important milestone for Echelon and, we believe, for the emerging advanced metering industry. "In our LonWorks infrastructure product line, while we saw mostly flat to negative growth among our traditional OEMs in the controls industry this past year, we saw some exciting growth in customers focused on energy savings and demand response. While this growth was not enough to overcome the shortfalls from the traditional controls customers, we believe it is a healthy sign and reflects the same trend we see in the NES market where energy concerns are driving growth." "As consumers, businesses, and governments become increasingly concerned with and engaged in managing energy costs and reducing carbon emissions, we see both our LonWorks infrastructure and NES product lines benefiting. As we move towards a truly smart electricity grid, where pricing and other information available through the NES system is linked with LonWorks networks in homes and buildings, businesses and consumers will be able to control their energy consumption and provide levels of demand response far beyond what has been done up until now. We have spent the last two decades building the products, partnerships, and expertise needed to deliver the smart grid — and we are excited to be at the center of this market." Information about news and events from the fourth quarter can be found at http://www.echelon.com/company/press/. Echelon will be holding an analyst call on February 7th, 2008 at 11:00 am PT (1:00 pm Central/2:00 pm Eastern). Analysts and other interested parties may listen in on the call via live webcast at http://www.echelon.com or access the call at 800-414-9222 (callers outside the US please use +1-847-413-3402). Due to a limited number of available phone lines, the company asks that only those persons without web access use 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 the end of February. Business Outlook Echelon management offers the following guidance for the quarter ending March 31, 2008 and the full year ending December 31, 2008. All non-GAAP estimates exclude the impact of any stock-based compensation charges
Use of Non-GAAP Financial Information Echelon continues to provide all information required in accordance with GAAP, but believes that an investor's 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 Echelon's operating results. Echelon presents these non-GAAP financial measures to provide investors with an additional tool for evaluating Echelon's 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. Echelon's management uses certain non-GAAP financial information, namely operating results excluding the impact of stock-based compensation charges made in accordance with SFAS 123R, to evaluate its ongoing operations and for internal planning and forecasting purposes. Accordingly, we believe it is useful for Echelon's investors to review, as applicable, information that both includes and excludes stock-based compensation (and the related tax impact) in order to assess the performance of Echelon's 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 is based in San Jose, California, with international offices in China, France, Germany, Italy, Hong Kong, Japan, Korea, The Netherlands, and the United Kingdom. Further information regarding Echelon can be found at http://www.echelon.com. ### Echelon, LonWorks, Digital Home, and the Echelon logo are registered trademarks of Echelon Corporation registered in the United States and other countries. Pyxos is a trademark of Echelon Corporation in the United States and other countries. Other product or service names mentioned herein are the trademarks of their respective owners. This press release may contain statements relating to future plans, events or performance including statements regarding continued or accelerated growth in energy management applications and in LonWorks infrastructure and NES products in 2008 and beyond; and Echelon's financial outlook for the quarter ending March 31, 2008 and the year ending December 31, 2008. 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 in North America and elsewhere around the world, and LonWorks infrastructure products relating to the energy management and residential markets, other risks associated with uncertainties pertaining to the timing and level of customer orders; risks associated with the ability of Echelon products and services to perform as designed and to meet customer and consumer expectations; the risk that a utility that awards a tender to Echelon or one of its resellers will not proceed with a deployment, will order fewer than the number of meters anticipated by Echelon or will cancel one or more orders or the entire project; the risk that NES hardware or software products will not pass certain governmental or utility tests or otherwise be accepted within expected time periods or at all; the risk that Echelon does not meet expected productions or shipment schedules for the NES system; risks that the application of U.S. generally accepted accounting principles could significantly affect the NES revenues that Echelon expects to recognize from time to time; risks related to changing business conditions which may result in additional operating expenses in 2008 including, but not limited to, impairment of intangible or other long-lived assets, addition of reserves for excess inventory and purchase commitments, equity compensation expensing 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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