echelon shareholder update: the transition...

ECHELON SHAREHOLDER UPDATE:

THE TRANSITION CONTINUES

MAY 19, 2015 ©2015 Echelon Corporation. All rights reserved

This presentation was prepared as of May 19, 2015 and contains

forward-looking statements. These forward-looking statements

speak only as to management’s current expectations. Forward-

looking statements involve risks and uncertainties. For a complete

description of risks, please refer to our current SEC reports on file

at www.echelon.com.

This presentation includes non-GAAP measures of financial

performance, which are not meant to be considered in isolation

or as a substitute for their GAAP counterparts. A reconciliation

between these measures is included in our May 11, 2015 earnings release and can be found on our website. Echelon disclaims any

obligation to update or revise forward-looking statements.

FORWARD LOOKING STATEMENT

©2015 Echelon Corporation. All rights reserved 2

Progress against our objectives

Priorities going forward

Recent announcement

AGENDA


Strategic Priorities – Diversified revenue

1. Focus our Grid division

2. IIoT migration

3. Target new verticals

Financial Discipline

2014 OBJECTIVES


Strategic Priorities – Diversified revenue

1. Focus our Grid division: Sale of Grid

2. IIoT migration: Roll out of IzoT platform

3. New verticals: Pivot investment to lighting

Financial Discipline

– Ongoing OPEX reduction

– Lease settlement

2015 UPDATE


GRID SALE: RATIONALE AND DEAL

SUMMARY

6 ©2015 Echelon Corporation. All rights reserved

Smart Meter market slowed significantly

– Government austerity

– Lack of mandates

We took pro-active steps:

– Narrowed focus to most promising territories with best fit

– Invested in new products to maintain differentiation

Nevertheless, mounting losses and cash burn

– Very uncertain market trajectory

Process to identify a buyer in 2014

SMART GRID– MULTI-YEAR SLOWDOWN


Purchased by S&T AG

– Closed September 30, 2014

– Price: $4.9M

Additional considerations

– Average $164K/Q sub-lease recovery

– Future chip sales to S&T

Reduced Losses

– Q115 Non-GAAP EPS ($0.03) vs. ($0.07) a year ago

SALE OF GRID BUSINESS

©2015 Echelon Corporation. All rights reserved

ECHELON GO-FORWARD STRATEGY

9

Maintain continued financial discipline

Help OEM customers migrate to the IIoT

Focus on lighting control vertical

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STRATEGY ELEMENT 1 HELP OEM CUSTOMERS MIGRATE TO THE IIOT


IIOT MIGRATION REQUIRES CONVERGENCE OF

SYSTEMS, TECHNOLOGIES AND PROTOCOLS

11

Silos of connectivity Many protocols

Wired and Wireless

• Complex

• Expensive

• Limited value


EMBEDDED SOLUTIONS MODERNIZATION: IZOT

12

12 NEW IZOT PLATFORM ELEMENTS IN 18 MONTHS

Flexible architecture: LonWorks, BacNet, IP;

Wired and Wireless


• No rip-and-

replace of

existing systems

• Fewer model

numbers

• Converged

applications

SALES AND MARKETING STRATEGIES EMBEDDED SYSTEMS/BUILDING AUTOMATION


Focused approach

Top-10 customers

IzoT training and roadshows

– 20 sessions over 200 customers

Aggressive marketing with LonMark

– International, Germany and Japan

Signed Digi-Key for global support

– Samples and design-ins

EARLY-ADOPTING IZOT CUSTOMER USE CASES

14

Industrial/commercial HVAC: Multi-protocol (Lon and BACnet) HVAC controls give our OEM customers larger addressable markets

Fire safety dampers: Multi-protocol control and monitoring

Sun blinds: Automated, sensor based control for daylight harvesting

Hospitals: Automated environmental controls and gas monitoring

Farm equipment : Robust and reliable automated monitoring of where there is no technical support

Electric vehicle charging: monitoring and control


Customers focused on data analytics strategies

Uncertainty as to what ‘last foot’ technologies to

deploy

– Operational Technology vs. Information Technology

– IP to the device, or to the gateway?

– Security

Industrial technologies vs consumer ones

– Driving more and more wireless connections

WHY NOT FASTER PROGRESS?


STRATEGY ELEMENT 2 FOCUS ON THE LIGHTING CONTROL VERTICAL


17

LIGHTING: LED + CONTROLS FOR MAXIMUM BUSINESS BENEFIT

ROI benefits of LEDs

• Lighting consumes ~20% of all energy worldwide

• Heat produced by lighting contributes to

42% of all cooling load in the U.S.

• LED life can be 10x incandescent


ROI benefits of controls

• +20% in energy savings

• Improve safety

• Lower maintenance

• Higher customer satisfaction

• Enable lighting-as-a-service

business models

• Quality of light can benefit: • Education

• Health, hospitals, geriatric care

• Retail, hospitality revenue

Source: Strategies Unlimited

Secure powerline and fast-to-deploy wireless

connectivity options

Converged architecture for lighting and building

automation

Independent of fixture, light engine and sensor for

complete customer freedom of choice

Programmable for multiple

applications / environments

ECHELON DIFFERENTIATION: “IF YOU HAVE IT,

WE CAN CONTROL IT”


IzoT-

Powered

LUMEWAVE BY ECHELON OUTDOOR LIGHTING SOLUTIONS

APPLICATION: Power Line, RF or both (Hybrid) Harsh environments, Tunnels,

Decorative fixtures, city wide deployments Products: Segment Controller CPD 3000 PL OLC, CMS Software, 3rd Party Sensors CPD 4000 RF OLC, Border Router

APPLICATION: RF Easy to deploy, complete solution ideal for campuses, parking lots, malls , car dealerships Products: Top900, MGE Ethernet

Gateway, MWX Microwave sensors, LumeStar Software

PowerLine ISO 14908, RF 802.15.4 (868, 902-928 MHz, Applicable Worldwide)

RF IEEE 802.15.4 (902-928MHz N. American Focus)

(Wi-Fi) Ethernet

Ethernet

Gateway

MWX 180U uW

Sensor

New

Lumestar


KEY TO LUMEWAVE BY ECHELON SOLUTION:

CUSTOMER MANAGEMENT SYSTEM (CMS)

Easy to install and use

Fast startup,

commissioning,

monitoring and

management down to

the node level

Adaptive controls with

motion detection

Map and display device information Single and multi-site management


UC Davis

$15B INDOOR LIGHTING CONTROL TAM 10X

OUTDOOR CONTROLS

US LED Lighting Market Size

Outdoor

Lighting

Replacement

Lamps

90% of the LED market is for retrofit applications - US D.O.E. 2010 report


LONG-TERM: CONTROLS + SENSORS WILL DRIVE

CORE BUSINESS VALUE

“How do we

save energy

and meet the

regulations?”



CORE BUSINESS VALUE

“How well is

this building

utilized?”



CORE BUSINESS VALUE

“How about

lighting as a

service?”



CORE BUSINESS VALUE

“How about

10% off those

shoes you

have been

admiring?”



CORE BUSINESS VALUE

“What color

light will ensure

the best

learning right

now?”


SALES AND MARKETING STRATEGIES LIGHTING


Building a dedicated lighting sales team

Focus on a few geographies

Add direct-touch lighting-experienced sales

executives

Complete build out of manufacturers rep channel

Develop strategic partnerships with fixture

manufacturers, Energy Services Companies (ESCOs)

Auto Dealerships

Over 18,000 in NA

Only 3% utilize

Lighting Controls

> $350M TAM

Municipalities

Street lights with smart controls to grow from <2M today to >100M

By 2025

40% of that investment expected in N. America

Educational Campuses

> 11,000 US Universities

>98,000 K-12 Public

>33,000 Private Schools

Retail/Shopping Malls

~1,000 Malls in NA

40% Cater to High End

Lighting represents high

Operational expense

FOCUSED ON KEY VERTICALS

28

Lighting is a Strategic Asset and Sales Tool. More sales/sq foot, better customer

satisfaction, improved education, safer environments. Extended fixture life, reduced theft, energy costs, maintenance, light pollution


EARLY ADOPTERS AND BEST BUSINESS BENEFIT

OUTDOOR: LUMEWAVE BY ECHELON IN CITIES

CAMBRIDGE, MASS.


OUTDOOR: LUMEWAVE BY ECHELON IN RETAIL

30

Customer needs

• Energy savings

• Improved safety and shopping experience

• Enhanced site and building beautification

• Simplified deployment and management


ESCO customer needs

– Meet energy savings goals

– Deliver service levels (SLAs)

– Improve customer shopping

experience

Lumewave by Echelon solution

benefits

– Fast installation; secure

– Scheduled and adaptive

– Every light is monitored for SLAs

INDOOR: GROCERY CHAIN POC VIA AN ESCO


FAST “NO NEW WIRES” LED + CONTROLS RETROFIT

STRATEGY ELEMENT 3 MAINTAIN CONTINUED FINANCIAL DISCIPLINE

32

$


OPEX REDUCTION & MARGIN EXPANSION


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* Q215 assumes mid-point of non-GAAP operating expense and gross margin guidance given on May 11, 2015

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

$5,000

$7,000

$9,000

$11,000

$13,000

$15,000

$17,000

$19,000

$21,000

Q1-11 Q1-12 Q1-13 Q1-14 Q1-15

Non-GAAP Operating Expenses Non-GAAP Gross Margin %

*

SIGNS OF IIOT REVENUE STABILITY

34

$


$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Q1-11 Q1-12 Q1-13 Q1-14 Q1 -15 *

* Q215 assumes mid-point of revenue guidance given on May 11, 2015

NON-GAAP RESULTS KEY FINANCIAL MEASURES

$M (except per share amounts and

percentages) Q1 FY15 Q4 FY 14 Q1 FY 14

Revenues $9.9 $9.6 $10.9

Gross Margin 56.6% 55.7% 59.3%

Operating Expenses $7.4 $7.5 $8.1

Operating Loss ($1.8) ($2.1) ($1.6)

Discontinued Operations — — ($1.5)

Net Loss ($1.3) ($2.2) ($3.1)

Loss per share ($0.03) ($0.05) ($0.07)

Cash and Investments $39.6 $43.6 $55.3

35 35

Retired $21.4M of lease obligations with $10M cash

payment

– 150K sq foot campus; occupied less than 40K sf and leased another 25K sf

Estimated non-GAAP expense reduction of $400K-

$600K/Q this year; up to $800K starting Q1 2016

GAAP accounting is complex due to our

capitalized leases

Relocate at the end of 2015

LEASE TERMINATIONS SIGNIFICANTLY LOWER

EXPENSES


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Sale of Grid – Focus on more promising, faster-growing markets:

Embedded IIoT platform and Lighting IIoT solutions

Compelling embedded offering: Comprehensive product refresh

Moving further into lighting: Lumewave acquisition + organic product plans gives us unique positioning

Continued disciplined financial management

SUMMARY: POSITIONING ECHELON FOR GROWTH


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The market opportunity is only beginning

SUMMARY: THE INTERNET OF THINGS -- THE NEXT

BIG THING

Every prediction in IoT talks about Billions of “things” and Trillions of $$$...

… BUT deriving value from “things” is predicated on the ability to

“connect them” (where the rubber hits the road).

$14.2 Trillion by 2030

http://www.informationweek.com/cloud/4-takeaways-from-accentures-$14-trillion-iot-prediction/a/d-id/1318738

http://www.gartner.com/newsroo

m/id/2636073

26 billion devices by 2030

$7.1 Trillion by 2020

http://www.zdnet.com/article/internet-of-things-market-to-hit-7-1-trillion-by-2020-idc/

50 billion devices by

2020 http://www.cisco.com/web/solutions/trends/iot/portfolio.html


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39

The Echelon logo, LonMark, LonWorks and IzoT Platform are

trademarks of Echelon Corporation that may be registered in the

United States and other countries. A full list of Echelon

trademarks is available at

http://www.echelon.com/company/legal/copyright.htm All other trademarks are owned by their respective owners


http://www.echelon.com/company/legal/copyright.htm

http://www.echelon.com/company/legal/copyright.htm

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