Echelon Reports Revenues of $31.3 million for Second Quarter

7/17/2003 - Echelon Corporation (NASDAQ: ELON) 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.

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 more than 30 million LonWorks based devices into homes, buildings, factories, trains, and other systems worldwide.

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.

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