Echelon Corp. (ELON) filed Quarterly Report for the period ended 2009-09-30.
Echelon Corporation develops markets and supports products and services that allow everyday devices such as light switches washing machines assembly line robots thermostats gas pumps motion sensors air conditioners pumps and valves to be made `smart` and to communicate with one another and across the Internet. Their products and services are based on our LonWorks technology. Their products and services may be used across many industries to network together everyday devices in homes buildings factories and transportation systems. Echelon Corp. has a market cap of $548.7 million; its shares were traded at around $13.48 with and P/S ratio of 4.1.
Highlight of Business Operations:
We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific allowance against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. These determinations are made based on several sources of information, including, but not limited to, a specific customer’s payment history, recent discussions we have had with the customer, updated financial information for the customer, and publicly available news related to that customer. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment, the credit worthiness of our overall customer base, changes in our customers’ payment patterns, and our historical experience. If the financial condition of our customers were to deteriorate, or if general economic conditions continue to worsen, additional allowances may be required in the future, which could materially impact our results of operations and financial condition. Our allowance for doubtful accounts was $306,000 as of September 30, 2009, and $323,000 as of December 31, 2008.
Warranty Reserves. We evaluate our reserve for warranty costs based on a combination of factors. In circumstances where we are aware of a specific warranty related problem, for example a product recall, we reserve an estimate of the total out-of-pocket costs we expect to incur to resolve the problem, including, but not limited to, costs to replace or repair the defective items and shipping costs. When evaluating the need for any additional reserve for warranty costs, management takes into consideration the term of the warranty coverage, the quantity of product in the field that is currently under warranty, historical warranty-related return rates, historical costs of repair, and knowledge of new products introduced. If any of these factors were to change materially in the future, we may be required to increase our warranty reserve, which could have a material negative impact on our results of operations and our financial condition. Our reserve for warranty costs was $1.1 million as of September 30, 2009, and $849,000 as of December 31, 2008.
We also expect that some foreign utilities will require us to price our NES system in the respective utility’s local currency, which will expose us to foreign currency risk. For the nine months ended September 30, 2009, the portion of our NES revenues conducted in currencies other than the U.S. dollar, principally the European Euro, was about $28,000, or 0.1%. For the nine months ended September 30, 2008, the portion of our NES revenues conducted in currencies other than the U.S. dollar, principally the European Euro and the Australian dollar, was about $194,000, or 0.4%. To date, we have not hedged any of these foreign currency risks. In most cases, in the event of a significant contract award that requires us to price our NES products in the customer’s local currency, we intend to hedge this foreign currency risk so long as we can secure forward currency contracts that are reasonably priced and that are consistent with the scheduled deliveries for that project.
ELON is in the portfolios of Richard Snow of Snow Capital Management, L.P..
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