Echelon Corporation (NASDAQ:ELON), a leading independent control networking company for the Industrial Internet of Things (IIoT), today announced that it has reached an agreement with the landlord of its 150,000 square foot San Jose, CA headquarters related to the long-term leases for office space the company no longer requires.

Under the terms of the agreement, the existing leases, which run through 2020, have been terminated and replaced with a short-term lease for a smaller portion of the facility that will run through the remainder of 2015. In return for this early termination, the company has agreed to a one-time up front cash payment of $10.0 million and lease payments for the balance of 2015 totaling $900,000. This will eliminate the remaining lease obligation payments of $21.4 million.

“This is an important example of our commitment to reducing our operating expenses in alignment with one of our three strategic initiatives,” said Ron Sege, Chairman and CEO of Echelon. “While the accounting rules are complex, we expect this transaction to significantly lower the company’s breakeven and to translate into considerable long-term economic value for the company.”

As a result of this transaction, net cash (total cash and investments less lease obligations) on the balance sheet will increase by approximately $5.5 million. On a non-GAAP basis, the company estimates facilities related savings will be between $400,000 and $600,000 per quarter for the balance of 2015. On a GAAP basis, the company anticipates that the transaction will result in additional depreciation expense of approximately $1.5 million per quarter through the end of 2015 as the remaining building assets are amortized off its balance sheet.

For Q2 2015, the lease termination agreement results in a revised estimated non-GAAP loss of ($0.04) to ($0.07) per share versus the previous guidance of ($0.05) to ($0.08). On a GAAP basis for the second quarter of 2015, the lease termination results in a revised estimated loss of ($0.05) to ($0.08) per share versus the previous guidance of ($0.07) to ($0.10). Once the company moves to a new, right-sized headquarters in Q1 2016, both GAAP and non-GAAP savings are estimated to improve by approximately $800,000 per quarter.

Historically, Echelon has been required to account for these leased facilities as though it were the owner, with both the buildings and related lease obligation debt reflected on the company’s balance sheet. Among other things, as a result of the lease termination, the net book value of the buildings will be reduced to approximately $5.0 million, which will then be amortized over the remainder of 2015 in conjunction with the new short-term lease. In addition, for GAAP purposes, the company will record a one-time benefit in the second quarter associated with the termination of the lease of approximately $1.5 million.

Use of Non-GAAP Financial Information

Echelon continues to provide all information required in accordance with GAAP, but believes that an investor’s evaluation of our ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, we provide non-GAAP net income and non-GAAP net income per share data as additional information relating to Echelon’s operating results. Echelon presents these non-GAAP financial measures to provide investors with an additional tool for evaluating Echelon’s operating results in a manner that focuses on what Echelon believes to be its ongoing business operations. 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 GAAP.

Echelon’s management uses certain non-GAAP financial information, namely operating results from continuing operations excluding restructuring charges, litigation charges, impairment charges, the impact of stock-based compensation charges made in accordance with ASC 718 (formerly SFAS 123R), as well as certain other non-routine charges including accelerated depreciation, to evaluate its ongoing operations and for internal planning and forecasting purposes. Accordingly, we believe it is useful for Echelon’s investors to review, as applicable, information that both includes and excludes these charges (and the related tax impact) in order to assess the performance of Echelon’s business and for planning and forecasting in future periods. Whenever Echelon reports such non-GAAP financial measures, a complete reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure is provided. Investors are encouraged to review these reconciliations to ensure they have a thorough understanding of the reported non-GAAP financial measures and their most directly comparable GAAP financial measures.

About Echelon Corporation

Echelon Corporation (NASDAQ:ELON) is a leading independent control networking company for the Industrial Internet of Things. Echelon delivers multi-protocol and multi-media elements necessary to design, install, monitor and control industrial-strength 'communities of devices' within the lighting, building automation and Internet of Things markets worldwide. The company develops and sells complete systems and subsystems for target applications, plus system-on-chips (SoCs), embedded software, and commissioning and management tools for OEMs. With more than 100 million Echelon-powered devices installed worldwide, the company helps its customers easily and safely migrate existing control systems to the most modern platforms, while bringing new devices and applications into an ever-growing global Industrial Internet. Echelon helps its customers reduce operational costs, enhance satisfaction and safety, grow revenues and perform better in both established and emerging markets. More information about Echelon can be found at http://www.echelon.com and at the company's blog at http://blog.echelon.com/.

Echelon, the Echelon logo, and IzoT are trademarks of Echelon Corporation registered in the United States and other countries. Other product or service names mentioned herein are the trademarks of their respective owners.

Risk Factors Regarding Forward-Looking Statements

This press release contains “forward-looking” statements within the meaning of Section 21A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created thereby. Echelon advises caution in reliance on forward-looking statements. Forward looking statements include, without limitation, the expected accounting treatment related to the above-described transaction, the expected impact of the above-described transaction on the Company’s financial statements and results, the Company’s performance during the upcoming quarters and balance of the year, the expected impact on the Company’s breakeven point, the Company’s expectation that the above-described transaction will translate into considerable economic value for the Company, the Company’s opportunities for future growth, and the Company’s guidance for the second quarter of 2015. Actual results could differ materially from those projected in forward-looking statements as a result of a number of risks and uncertainties. Such risks and uncertainties, include, but are not limited to, risks associated with the Company’s ability to rent other facilities at a reduced rental rate, the Company’s ability to contain and reduce expenses, the completion of the Company’s analysis of the proposed accounting methodologies that form the basis of the projections described above, the continued development and growth of markets for Echelon's products; the risk that we will not realize our expectations with respect to the successful integration and growth of the products we acquired from Lumewave; failure to achieve revenue estimates or maintain expense controls; circumstances that may delay the time frame for achieving our business outlook; the timely development of Echelon's products and services and the ability of those products and services to perform as designed and meet customer expectations; the risk that Echelon does not meet expected or required shipment, delivery or acceptance schedules for its products and that Echelon may incur penalties or additional expenses or delay revenue recognition as a result; and other risks identified in Echelon's SEC filings. The discussion of risk factors are detailed in the Company’s filings with the Securities and Exchange Commission, including reports on its most recently filed Form 10-K and Form 10-Q. The financial information presented in this release reflects estimates based on information that is available to us at this time. Actual results, events and performance may differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.