Echelon Exceeds Earnings per Share Guidance with $0.11 EPS

10/15/2003 - Echelon Corporation (NASDAQ: ELON) announced financial results for the third quarter ended September 30, 2003 of $0.11 earnings per share, exceeding company EPS guidance of $0.07 to $0.09.

For the quarter ended September 30, 2003, revenues were $30.7 million, compared to $33.4 million for the same period in 2002. GAAP net income for the quarter ended September 30, 2003 was $4.5 million, or $0.11 per share on a fully diluted basis, based on a weighted average of 41,305,000 common shares outstanding, compared to net income of $5.3 million, or $0.13 per share, based on a weighted average of 40,619,000 common shares outstanding for the third quarter of 2002. Excluding certain charges associated with acquisitions completed in prior periods, non-GAAP net income for the quarter was $5.8 million, or $0.14 per share, compared to non-GAAP net income of $5.4 million, or $0.13 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 was 64.9%, compared with 51.0% for the same period in 2002 and total operating expenses were $14.5 million, compared to $12.2 million for the same period in 2002.

"We are very pleased with the results of this quarter," said M. Kenneth Oshman, Echelon's chairman and chief executive officer. "We saw healthy activity in all regions of the world. Europe, which is historically slow in the third quarter due to summer holidays, performed quite well. While one quarter does not make a trend, we were pleased to see our performance in Asia recover from a very weak second quarter to be more in line with expected growth. In North America, we believe that the cumulative effect of a number of important design wins for our LonWorks® platform in the building industry has started to yield results. In June, the City of Chicago released a request for proposal specifying LonMark® certified devices for new and retrofit properties. In August the Army Corps of Engineers passed the last major hurdle to finalizing an open systems specification for all their construction projects that includes significant Echelon infrastructure content including our LNS® operating system. Subsequently TAC, one of our leading OEM customers, was accepted as an integrator and solutions provider for Corps projects. And finally, we received our GSA Federal Supply Schedule Contract, making it easier for government agencies to purchase products directly from Echelon. In our utility industry business, our deployment with the Italian utility Enel and our new pilot project with the Dutch grid operator Continuon remain on track. While we continue to see economic tightness around the world, we are excited about the activity we see in our OEM business and the opportunities that we are pursuing in the utility industry."

For the nine-month period ended September 30, 2003, revenues were $94.6 million compared to revenues of $92.3 million for the same period one year ago. GAAP net income for the nine-month period ended September 30, 2003 was $2.4 million, or $0.06 per share on a fully diluted basis, based on a weighted average of 40,767,000 common shares outstanding, compared to net income of $13.1 million, or $0.32 per share, based on a weighted average of 40,769,000 common shares outstanding for the same period in 2002. For the same period, non-GAAP net income was $13.5 million, or $0.33 per share, compared to non-GAAP net income of $13.7 million, or $0.34 per share for the same period in 2002. Gross margin for the nine-month period was 56.1%, compared with 51.5% for the same period in 2002 and total operating expenses were $51.2 million, compared to $36.2 million for the same period in 2002.

Highlights from the third quarter may be found at http://www.echelon.com/about/press/. These include:

For those interested in further discussion regarding this release, Echelon's management will participate in a conference call today at 8:00 am Eastern Time. To access the conference call, dial 1-800-388-8975 (callers outside the US please use +1-973-694-2225) any time after 7:50 am ET. Echelon is hosting the earnings call at an earlier time to accommodate both market hours and the call hosts, who will be in Munich, Germany attending the LonWorld® 2003 Exhibition. The call will be available live today, and for playback on the Investor Relations section of Echelon's web site (www.echelon.com) through October 21, 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
Echelon Corporation (NASDAQ: ELON) is the creator of the LonWorks platform, the world's most widely used standard for connecting everyday devices such as appliances, thermostats, air conditioners, electric meters, and lighting systems to each other and to the Internet. Echelon's hardware and software products enable manufacturers and integrators to create smart devices and systems that lower cost, increase convenience, improve service, and enhance productivity, quality, and safety. Thousands of companies have developed and installed LonWorks products and more than 30 million LonWorks enabled processors have been shipped for use in homes, buildings, factories, trains, and other systems worldwide.

Further information regarding Echelon can be found at http://www.echelon.com.

Echelon, LonWorks , LNS, LonWorld, LonMark , and the Echelon logo are trademarks of Echelon Corporation registered in the United States and other countries.

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 timing and level of customer orders, demand for products and services, risks that the R&D activities or subsequent product deployment activities with Enel are not successful, do not meet their target dates, or are terminated, or that the contemplated transactions are challenged by third parties, risks that our development projects with other parties are not successful, risks relating to the development and growth of markets for Echelon's products and services and the ability of those products and services to meet customer and consumer expectations, 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.

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