Echelon 8-K Financial statements and exhibits

 

550 Meridian Avenue

San Jose, CA 95126

Phone: 408-938-5200

Fax: 408-790-3800

lonworks@echelon.com

www.echelon.com

News Information                                                     For Immediate Release

Press ContactInvestor Relations Contact

Steve Nguyen Echelon Corporation 408-938-5272 qnguyen@echelon.com Tina WilmottMcQUERTER -858-450-0030 x140twilmott@mcquerter.com   Chris Stanfield Echelon Corporation 408-938-5243 stanfield@echelon.com

Echelon Reports First Quarter Earnings of $0.03 per Share

SAN JOSE, CA – April 15, 2004 –Echelon Corporation (NASDAQ:ELON) today announced financial results for the quarter ended March 31, 2004, of $0.03 per diluted share, exceeding guidance of $0.01 per share.

"I am very pleased to start the year by exceeding our revenue and earnings per share guidance for the quarter," said M. Kenneth Oshman, Echelon’s chairman and chief executive officer. "Of particular importance to me is that in theLONWORKS^®infrastructure portion of our business, which we look to as one of our growth engines moving forward, we saw nearly 12% year-over-year growth and turned in our best performance since the first quarter of 2001. While our total revenue was down, as we h ad expected and forecast due to Enel moving down the price curve as they reach very high cumulative volumes, we performed well against our goals and I believe that we are positioned to continue doing so for the coming year in our two foundations for growth — theLONWORKSinfrastructure and Networked Energy Services (NES) businesses."

Revenues for the quarter ended March 31, 2004 were $27.0 million, a decrease of 17.2% from revenues of $32.6 million for the same period in 2003.LONWORKSinfrastructure revenue was $11.5M and Enel revenue was $15.5M. Net profit for the quarter ended March 31, 2004 was $1,119,000, or $0.03 cents per share, based on a fully diluted weighted average of 40,857,000 common shares outstanding, compared to a net profit of $4,217,000, or $0.10 cents per share, based on a fully diluted weighted average of 40,396,000 common shares outstanding for the same period in 2003. Gross margin for the quarter ended March 31, 2004 was 56.5%, compared with 50.7% for the same period in 2003. Total operating expenses for the quarter ended March 31, 2004 were $14.6 million, compared to $12.7 million for the same period in 2003.

The growing momentum behind the LONWORKSinfrastructure business was highlighted at Echelon’s North American Partner’s Conference in February. At the conference, representatives from the Army Corps of Engineers, NASA’s Kennedy Space Flight Center, the U.S. Government Services Administration and other significant users of LONWORKSbased solutions presented to an audience of equipment manufacturers, system specifies, and system integrators, highlighting the significant system and operating cost savings, efficiency gains, and enhanced functionality that has led them to require open LONWORKSsystems and Echelon’s infrastructure products in their projects. Additionally, at AHR Expo 2004, the largest North American show devoted to heating, ventilation and air-conditioning equipment, there was a very strong showing for LONWORKSbased open, interoperable building automation products. Highlights from the show included displays of competing LONWORKSbased solutions from market-leading manufacturers, a demonstration of an active multi-site facility management operations center able to assess and monitor any number of remote buil dings, and the introduction of a newly invigoratedLONMARK^®International.

In Echelon’s NES business, significant progress was made in the pre-deployment trial with Nuon in the Netherlands. All of the data concentrators and over one thousand meters in the trial have been physically installed in customers’ homes and Nuon has begun the process of logically integrating the meters into their back office systems. Additionally, Echelon’s NES VAR partners are now vigorously pursuing their own NES opportunities in a number of countries.

Notable during the quarter was that Enel made several public statements about their project in Italy, confirming that over 15 million meters have been installed, that over 12 million are connected on their network, and that they anticipate a four year payback for their over 2 billion euro investment in the system. We believe these statements demonstrate the reliability and scalability of Echelon’s power line networking technology and, by providing ‘real world’ business results, can help other utilities see that delivering multiple services over a single infrastructure — as the NES system does — can deliver huge cost savings and service improvements.

For those interested in further discussion regarding this release, Echelon's management will participate in a conference call today at 2:00 pm PDT. To access the conference call, dial 1-800-915-4836 (callers outside the US please use 973-317-5319); however, due to a limited number of available phone lines, the company asks that only those persons without Web access call 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 April 25^th, 2004.

Use of Non-GAAP Financial Information
In this earnings release,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 i nvestors 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 is the creator of theLONWORKSplatform, 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 nearly 40 millionLONWORKSbased devices into homes, buildings, factories, trains, and other systems worldwide.

The protocol underlying LONWORKSnetworks 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 LONMARKInteroperability Association, an open industry forum of hundreds of leading manufacturers, integrators, and users dedicated to promoting the use of interoperableLONWORKSdevices.More information aboutLONMARKinteroperability is available at http://www.lonmark.org. Further information regarding Echelon can be found at http://www.echelon.com.

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Echelon, LONWORKS, LONMARK,the LONMARKlogo, and the Echelon logo are trademarks of Echelon Corporation registered 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. Such statements may involve risks and uncertainties, including risks associated with uncertainties pertaining to the risks that our infrastructure business does not grow; risks that our NES project with Nuon is not successful or that our NES business does not develop as planned; risks relating to the growth of markets for Echelon's products and services and the ability of those products and services to perform as designed and 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.

The financial statements that follow should be read in conjunction with the notes set forth in Echelon's Form 10-Q when filed with the Securities and Exchange Commission; and with our 2003 annual report on Form 10-K, which was filed with the Securities and Exchange Commission in March 2004.

ECHELON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	March 31, 2004		December 31,2003
ASSETS
Current Assets:
Cash and cash equivalents	$	19,435	$	18,667
Short-term investments		131,430		126,256
Accounts receivable, net		17,614		20,110
Inventories		5,486		5,906
Other current assets		1,626		2,519
Total current assets		175,591		173,458
Property and equipment, net		18,857		19,098
Other long-term assets		21,596		21,572
	$	216,044	$	214,128
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	6,340	$	6,922
Accrued liabilities		4,484		4,793
Deferred revenues		1,225		998
Total current liabilities		12,049		12,713
Long-term liabilities		585		491
Total stockholders' equity		203,410		200,924
	$	216,044	$	214,128

ECHELON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
		2004		2003
Revenues:
Product	$	26,855	$	32,393
Service		188		245
Total revenues		27,043		32,638
Cost of revenues:
Cost of product		11,261		15,408
Cost of service		503		686
Total cost of revenues		11,764		16,094
Gross profit		15,279		16,544
Operating expenses:
Product development		6,215		5,095
Sales and marketing		5,058		4,670
General and administrative		3,330		2,936
Total operating expenses		14,603		12,701
Income from operations		676		3,843
Interest and other income, net		514		741
Income before provision for income taxes		1,190		4,584
Income tax expense		71		367
Net income	$	1,119	$	4,217
Net income per share:
Basic	$	0.03	$	0.11
Diluted	$	0.03	$	0.10
Shares used in computing net income per share:
Basic		40,502		39,788
Diluted		40,857		40,396

ECHELON CORPORATION
NON-GAAP CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Excluding adjustments itemized below

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
		2004		2003
Revenues	$	27,043	$	32,638
Cost of revenues		11,764		16,094
Gross profit		15,279		16,544
Operating Expenses:
Product development		5,884		4,998
Sales and marketing		5,058		4,670
General and administrative		3,330		2,653
Total operating expenses		14,272		12,321
Non-GAAP income from operations		1,007		4,223
Interest and other income, net		514		741
Non-GAAP income before taxes		1,521		4,964
Income tax expense		91		397
Non-GAAP net income	$	1,430	$	4,567
Non-GAAP net income per share:
Diluted	$	.04	$	0.11
Shares used in computing net income per share:
Diluted		40,857		40,396

An itemized reconciliation between net earnings on a GAAP basis and non-GAAP basis is as follows:

GAAP net income	$	1,119		$	4,217
Amortization of purchased intangible assets		331			97
Third party acquisition related costs		--			283
Total non-GAAP adjustments to earnings from operations		331			380
Income tax effect of reconciling items		(20	)		(30	)
Non-GAAP net income	$	1,430		$	4,567

ECHELON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

(Unaudited)

	Three Months Ended March 31,
		2004			2003
Cash flows provided by (used in) operating activities:
Net income	$	1,119		$	4,217
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,387			1,050
Loss on disposal of fixed assets		6			--
Provision for doubtful accounts		2			11
Change in operating assets and liabilities:
Accounts receivable		2,494			(3,560	)
Inventories		420			1,474
Other current assets		893			866
Accounts payable		(582	)		1,707
Accrued liabilities		(309	)		(8	)
Deferred revenues		227			(1,348	)
Deferred rent		94			27
Net cash provided by operating activities		5,751			4,436
Cash flows used in investing activities:
Purchase of available-for-sale short-term investments		(46,165	)		(50,173	)
Proceeds from sales and maturities of available-for-sale short-term investments		40,976			36,494
Purchase of restricted investments		(242	)		(169	)
Change in other long-term assets		(112	)		825
Capital expenditures		(822	)		(1,001	)
Net cash used in investing activities		(6,365	)		(14,024	)
Cash flows provided by financing activities:
Proceeds from issuance of common stock.		1,402			477
Net cash provided by financing activities		1,402			477
Effect of exchange rates on cash:		(20	)		(33	)
Net increase (decrease) in cash and cash equivalents		768			(9,144	)
Cash and cash equivalents:
Beginning of period		18,667			34,941
End of period	$	19,435		$	25,797