Echelon Narrows Loss

Echelon Corporation (ELON - Snapshot Report) reported second quarter 2009 revenue of $22.6 million, exceeding the Zacks Consensus Estimate of $22.0 million. Net loss for the quarter was $0.23 per share, better than the Zacks Consensus Estimate of $0.28 per share.

Total revenue for the second quarter was $22.6 million, in line with the company’s guidance range of $21.0 million to $23.0 million. Revenue for the quarter decreased 29.8% from the year-ago period and increased 24.1% from the previous quarter. Revenue by product line includes $10.0 million from Networked Energy Services (NES), $10.9 million from LonWorks infrastructure products, and $1.7 million from Enel.

This compares to the company’s expectation of LonWorks Infrastructure revenue of approximately $11.0 million and NES revenue of about $9.4 million. The sequential increase in revenue occurred as the Smart Grid project in Denmark proceeded as planned, and going forward the company expects increased interest for energy saving products, enabled by Echelon’s technology.

Gross margin for the reported quarter increased 360 basis points year-over-year to 43.2%. Gross margins for the quarter were above management’s expectations due to favorable product mix. Operating margin was -37.9% versus -23.5% in the year-ago period. Operating expenses were higher than expected in the quarter. Operating loss margin increased in the current quarter, as operating expenses decreased at a lower rate than revenue, on an annualized basis.

GAAP net loss for the quarter was $9.5 million or $0.23 per share, compared to a net loss of $7.4 million or $0.18 per share in the year-ago quarter, and $10.6 million or $0.26 per share in the previous quarter. This compares to the company’s expectation of a GAAP loss per share in the $0.28 to $0.32 range.

Excluding stock-based compensation, non-GAAP net loss for the quarter was $5.5 million or $0.13 per share, compared to a net loss of $3.6 million or $0.09 per share in the year ago quarter, and $7.5 million or $0.19 per share in the previous quarter. This compares to the company’s expectation of a Non-GAAP loss per share of $0.18 to $0.22 in the second quarter of 2009.

The company exited the quarter with $82.5 million in cash and short-term investments, versus $87.7 million in the previous quarter. During the quarter, long-term liabilities remained decreased to $26.1 million from $26.5 million in the previous quarter.

For the third quarter of 2009, Echelon expects revenue to be in the range of $21.0 million to $23.0 million, GAAP loss per share of between $0.24 and $0.26, and Non-GAAP loss per share to be $0.15 to $0.17. We expect growth at ELON to be back-end loaded due to new customer orders but remain uncertain on how quickly the new projects will be awarded.