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Echelon (NASDAQ:ELON)

Q4 2013 Earnings Call

February 06, 2014 5:00 pm ET

Executives

Anne M. Leschin

Ronald A. Sege - Chairman, Chief Executive Officer, President and Member of Stock Option Committee

William R. Slakey - Chief Financial Officer and Executive Vice President

Analysts

Sean K.F. Hannan - Needham & Company, LLC, Research Division

John Quealy - Canaccord Genuity, Research Division

Patrick Jobin - Crédit Suisse AG, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Operator

Welcome to the Fourth Quarter 2013 Echelon Corporation Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. I'll now turn the call over to Anne Leschin. Anne Leschin, you may begin.

Anne M. Leschin

Hello, everyone, and thank you for joining us this afternoon for Echelon's fourth quarter 2013 earnings conference call. With me on today's call are Ron Sege, Chairman and Chief Executive Officer; and Bill Slakey, Executive Vice President and CFO, both of whom will present prepared remarks. By now you should have received a copy of the release that we issued a short time ago. If you would like a copy, please visit our website at www.echelon.com.

Additionally, we will refer to a set of slides that we have posted on the IR section of our website to help walk through the quarter's results and the outlook for our markets. Now I would like to remind everyone that during the course of this call, we may make statements related to our overall business outlook, future financial operating results, accounting matters and future prospects. These are forward-looking statements based on certain assumptions and are subject a number of risks and uncertainties.

We encourage you to read the risks described in our press release, as well as in our SEC report, including our report on Form 10-K and subsequent reports on Form 10-Q for a more complete disclosure of the risks and uncertainties related to our business. The financial information presented in this call reflects the estimates based on information that is available to us at this time. Actual results can differ materially. Echelon undertakes no obligation to update or revise these forward-looking statements, and guidance will not be updated after today's call until our next scheduled quarterly financial release.

And now, I'd like to turn the call over to Ron Sege. Ron?

Ronald A. Sege

Thank you, Annie. Good afternoon, and thank you for joining us today. I'd like to begin with an overview of the quarter's results and then discuss the progress we are making on our strategic goals.

Beginning with Slide 3. Overall, we met our fourth quarter guidance with total revenue of $18.1 million and a non-GAAP loss of $0.08 per share. Commercial subsystems revenue for the quarter was $9.4 million, excluding sales of components to Enel compared with $10.2 million last year. Total grid or systems revenue was $5.6 million compared with $10.7 million last year. Grid revenue continues to reflect the completion of our larger deployments coupled with the stagnation of the broader market.

Turning to Slide 4. For the last several quarters, we've been talking about the exciting opportunity we see unfolding in the Internet of Things. Not unlike the strategy that Cisco employed years ago of integrating legacy computer networks into the emerging technology of the Internet, we plan to expand our control networking platform to help industrial customers migrate the estimated 1 billion legacy control devices to what is expected to be the large market of the Industrial Internet of Things or IIoT.

Our in-depth knowledge of the requirements of industrial applications, including the challenges of long-lived assets, multiple protocols and demanding environments, combined with our 100-million-unit installed base, strong distribution and prominent brand, afford us a unique position in the market. We plan to leverage this by stepping outside of our historic Nero technology focus and embracing a variety of established control protocols and media to simplify the transition to the IIoT.

Our recent announcement of the IzoT platform, our next-generation multiprotocol FT 6050 chipset and our extension to wireless connectivity are being well-received by our customers, who can now more easily evolve their products to the IIoT and enable interoperability with the vast legacy installed base. We see particular opportunity in the building, lighting and grid verticals.

With that in summary, let me discuss our plans and how we see the opportunities by reviewing our 3 strategic objectives: leveraging our unique assets into the IIoT market; targeting key verticals, such as grid modernization; and maintaining strong financial discipline. Let me start by focusing in some depth on the topic that appears to be receiving the most attention recently, our plans for the IIoT market on Slide 5.

We see the IIoT as a next logical step in the evolution of the Internet. Computer networking in the first phases of the Internet enabled common converged applications across mainframes, PCs and mobile devices. Killer applications, included, email, the Web, e-commerce and social networking. The IIoT phase of the Internet will knock down the silos between types of devices in buildings, lighting and grid markets and therefore, enable powerful new converged applications in industrial and home settings. Building security systems will converge with lighting systems and environmental controls, all run on common IP infrastructure, thereby enabling powerful converged web-based applications.

A recent survey of our customers showed that some 80% are in fact planning to converge lighting, air conditioning and security systems in the future. We also estimate that more than 75% of today's commercial buildings, the lighting system is on one control protocol, the security system on another and heating and air-conditioning on the third. Even devices running in the air-conditioning system of a single building can be speaking different languages, like LonWorks and BACnet.

We believe the business case for migrating the large installed base and industrial devices speaking multiple protocols to a common IP infrastructure is quite compelling. Our technology can enable this migration with minimum complexity, no stranded assets, fewer stock keeping units, easy installation and the best economic value.

On Slide 6, analysts, such as IHS, expect some-50-billion devices to be part of the Internet of Things by 2025, with more of these devices actually in industrial applications than in consumer ones. IHS also estimates that today, only 10% of the equipment within buildings that could be connected to networks, in fact, are.

So why do we think the IIoT will develop at a more rapid pace now? There are 3 factors that give us confidence the market will accelerate in the next few years. First, we are in a time of hypercompetition. Mass customization from retail to factories is increasingly the standard. Excess costs must be taken out everywhere. Employees demand convenience and comfort and want to work in green buildings. The only way to be truly hypercompetitive today is to deploy ubiquitous sensors to collect telemetry and actuators to modify processes in situations as needed in near real-time.

Second, in the last few years, data connectivity has become near-ubiquitous. For the first time, we can now connect communities of sensors and actuators to each other and to cloud services in almost any situation.

Finally, the recent development of cloud-based data storage and analytics is enabling the collection and near real-time analysis of data and the transmission of results to field-based device communities for subsequent action.

Turning to Slide 7. So why Echelon? Again, 3 reasons: First, we excel at connecting devices with intelligent low-cost chips and modules into highly reliable and autonomous communities. Our applications such as elevator control and street lighting systems must work all the time, whether connected to the Internet or not; second, we specialize in industrial scale.

Echelon-enabled devices are deployed in communities consisting of hundreds or even hundreds of thousands of devices in buildings, on the grid or in other industrial applications. Echelon-enabled devices, such as thermostats, can auto-configure and seamlessly connect to other relevant devices on the network, such as air flow control units, exchanging information in a peer-to-peer manner and taking appropriate action. This means practical installation, commissioning and maintenance for the largest jobs. Our customers today certify their Echelon-enabled devices with LonMark International, an independent body to ensure seamless interoperability.

Historically, Echelon has focused on one protocol for control systems, LonWorks, and one connectivity option, wired. The unique insight we have had in talking to customers in the last 6 to 12 months is that they see high value in moving from the multiprotocol legacy control world to an IP-based Lon, they just don't see how to do it simply, economically and at low risk. From this insight, our IzoT multiprotocol multimedia platform was born as our third key differentiator.

On Slide 8. We announced to begin rolling out IzoT in Q4 2013. We first made available a beta version of the embedded device software on the popular Raspberry Pi platform so existing and new customers can begin to quickly prototype with the platform.

In Q4, we also reinforced our commitment to support wireless links by announcing that IzoT device software will be available in a Wi-Fi module, developed in collaboration with Marvell Technology. This will give customers a choice to connect their devices with highest-reliability wired solutions, using power line or free topology twisted pair or one of the easier-to-connect, but less-hardened wireless options.

Two weeks ago at the big AHR building show in New York City, we announced our latest embedded IIoT chipset, the FT 6050. Using our patent pending method, the running multiple protocols, this chipset includes the IzoT software running on free topology wiring. We demonstrated for the first time in controls history, a live set up with building automation devices from multiple OEMs built around alpha versions of the FT6050, running either the BACnet or LonWorks protocol on the same network. The operator used either LonWorks or BACnet consoles to manage all the devices. In addition, devices could be reprogrammed remotely through one protocol or another.

The FT 6050 support the IP protocol, which means standard IP systems and tools can interface, too, and interoperate with it. The reaction from our OEM customers and prospects to our announcements has been encouraging. Instead of having a stock keeping unit or SKU for devices running each flavor of protocol, OEMs can now develop on the FT 6050 and have one device that the installer can configure on the job. This can cut the number of SKUs by 1/2 to 2/3 or more.

Further, OEMs can install new devices in retrofit jobs that can interoperate with already-installed devices, meaning no stranded assets. And as devices migrate over time to IzoT, the installer can switch over to an IP-based system without physically touching the device. Finally, OEMs and installers can choose from wired or wireless connectivity based on individual situations and run the same upper layer protocols. The result is compelling business benefits, lower operational costs, simpler installations and easier migration to a common converged platform.

With our recent product announcements, we can now reach into roughly 85% of the controls market that is not based on the LonWorks protocol and the 50% that is based on wireless connectivity. This gives us a much broader target market.

While it is early days, activity indicators on Slide 9 has been positive since our first IzoT announcement. Website hits have increased more than 20% from prior to the announcement in October to the latest month. Incoming sales leads have more than doubled in the same time frame. And while sales and design cycles are long, request for eval kits that represent an early stage in our sales pipeline are encouraging.

We expect to begin shipping our new chipsets later this year. Over the next 12 months or so, we expect subsequent chip announcements, followed by initial design wins and potential revenue in 2015 and '16. We also plan to migrate our management and commissioning tools to a cloud-based offering this year.

The second component of our strategy on Slide 10 is to continue to target vertical opportunities in select markets where we can add unique value, such as grid modernization. While overall, the grid market continues at its slow pace, we remain optimistic that certain geographies, such as Poland, Norway and the Middle East may start to move in 2014.

Two weeks ago, we and our partners were shortlisted in an RFP process for a 350,000-meter pilot at Toron, one of the largest utilities in Poland. Because the bid requires multiple sources of standard-based meters, the availability of Open Smart Grid Protocol compliant meters from our partner, Mitsubishi, is playing a prominent role in this fit.

Last week, we also participated in interoperability demo led by Duke Energy at DistribuTECH in San Antonio. Echelon, along with 6 Duke partners, such as Alstom, SMC Electric and Verizon, demonstrated an automated under-voltage recovery application, sensed by the Echelon meter and automatically acted upon by systems from other vendors interoperating seamlessly in the field. Duke believes, as Echelon does, that true multi-vendor field-based interoperability in the utility industry is essential to bringing advanced applications to grid modernization.

More generally, according to the EC's Joint Research Centre, more than 170 million meters in the EU are expected to be made smart in the next few years due to the European 2020 mandates. So we believe it is primarily a matter of time before grid modernization planning activity picks up. However, until that activity translates into sizable awards, we remain circumspect as to industry growth.

Finally, on Slide 11, we continue to work very hard on the third element of our strategy: maximizing our financial model via strong cost controls and increase efficiencies to create significant leverage with a lower breakeven.

To wrap up on Slide 12, we are enthusiastic about the opportunity for Echelon to capitalize on its control networking heritage in the emerging IIoT market. We believe that conditions are now right for that market to develop in the next few years and that there is an important unmet need for migrating the large installed base of legacy devices to IP and to converged applications.

We see the best near-term opportunities in building, lighting and grid verticals and are starting to roll out new products targeting this year. We continue to see the grid market is promising in the longer-term and look forward to the next wave of awards. Just 1 or 2 wins can change the outlook of this business very quickly.

Finally, we remain focused on income statement leverage and balance sheet strength. I wish to, again, thank our employees, customers, partners and shareholders for their unending support as we transform our business and position it for growth. I'd like to now turn the call over to Bill. Bill?

William R. Slakey

Thanks, Ron. Good afternoon, everyone, and thank you for joining us. Let me begin by noting that all references to non-GAAP amounts exclude stock-based compensation. For ease of reference, we have prepared a complete non-GAAP statement of operations for the quarter ended December 31, 2013, which can be found on the Investor Relations section of our website.

Beginning with Slide 14 and 15. Revenues for the fourth quarter were in line with our guidance at $18.1 million, down 24% from $23.8 million in the fourth quarter of 2012. The decline was primarily due to the completion of large smart meter projects and the slow movement of new tenders in the smart grid market. As a result, systems revenue totaled $5.6 million compared to $10.7 million a year ago and $7.8 million in the third quarter of 2013. Sub-system sales for the fourth quarter were $12.5 million versus $13.1 million a year ago and $10.3 million in the third quarter of 2013.

Sales to Enel, which are included in our sub-systems revenues were $3.2 million in the fourth quarter versus $2.9 million a year ago and $499,000 in the third quarter.

For the year, total company revenues decreased 36% to $86.2 million. Systems revenue of $39.9 million, which was down 53% year-over-year, accounted for 46% of total revenues in 2013. Sub-systems revenues of $46.3 million, which decreased 5% year-over-year, comprised 53.7% of total revenue.

Turning to Slide 16. Non-GAAP gross margin for the fourth quarter was 49.9%, an increase from 47.6% recorded in the fourth quarter a year ago. Gross margin has improved as a percentage of revenue, as a result of mix shifts, including a shift toward higher-margin IoT products, as well as expense and headcount reductions. This quarter's gross margins were below third quarter margins of 58.5%, which, as a reminder, included $2.3 million of revenue from a onetime software sale. Looking forward, in the first quarter of 2014, we expect gross margins to return to levels seen in the first half of 2013.

Turning to operating expenses. This quarter, our non-GAAP operating expenses were $12.4 million, a reduction of 10% from $13.7 million a year ago. This was the result of ongoing expense management, including our restructuring activity earlier in 2013.

On a non-GAAP basis, R&D expense for the quarter was $5 million, sales and marketing expense was $3.9 million and G&A expenses were $3.4 million.

Higher gross margins, coupled with lower operating expenses versus last year have reduced the revenue we need to breakeven on a non-GAAP basis to $110 million to $120 million in annual revenue, depending on the precise mix of the products sold.

If you were to look at our 2 businesses separately, in 2013, our IoT revenues were $45.9 million, which consists of our commercial sub-system revenue, including sales of chipsets to Enel. This business generated gross margins in excess of 60%, and after all IoT specific R&D sales and marketing expenses are considered, this business generated a solid contribution margin at this revenue level.

In 2013, our grid revenues were $40.3 million, which consisted of sales of metering systems, sales of sub-systems to customers in Brazil and China and sales of data concentrators to Enel. This business generated gross margins in excess of 30%. For the year, the grid business generated a net negative contribution margin after specific R&D sales and marketing expenses. Note that in neither case does the contribution margin I'm discussing include an allocation for corporate G&A or other shared corporate expenses.

In 2014, we will be using this breakout of IoT and grid to discuss company performance rather than our 2013 breakout of sub-systems and systems.

Looking at the rest of the company P&L, interest and other expense totaled $513,000 this quarter compared with $497,000 in the fourth quarter of last year. Our joint venture with Holley in China generated a small loss this quarter. As the results are consolidated, Holley's share of the loss was $218,000, similar to last year's $207,000 loss in the fourth quarter. This is reflected as a slight benefit on our P&L.

Income taxes were $55,000 this quarter versus $71,000 a year ago. This led to a non-GAAP net loss for the quarter of $3.7 million or $0.08 per share compared to a non-GAAP net loss of $2.7 million or $0.06 per share in the fourth quarter of 2012.

On a GAAP basis, including stock compensation expense, the net loss for the quarter was $4 million or $0.09 per share. This compared to a GAAP net loss of $4.1 million or $0.10 per share in the same quarter a year ago.

Our stock-based compensation expense was $361,000 this quarter compared to $1.4 million in the same period a year ago. This quarter's charge was unusually low as we reversed previously expensed equity compensation costs for performance-based awards were best in this conditional and where the performance criteria is unlikely to be met.

For the full year of 2013, our non-GAAP net loss was $9.1 million or $0.21 per share compared to a non-GAAP net loss of $4.7 million or $0.11 per share in 2012. On a GAAP basis, net loss for the full year of 2013 was $17.6 million or $0.41 per share, compared to GAAP net loss of $12.8 million or $0.30 per share in 2012.

Moving to the balance sheet, on Slide 17. We ended the quarter with a healthy $57.6 million in cash, cash equivalents and short-term investments, a sequential increase of $977,000 from Q3. I believe we have done a very good job of managing the balance sheet this year. Accounts receivable and inventories in particular have been reduced by over $10 million in aggregate. This has helped the cash balance throughout the year, including our results in the fourth quarter. Going forward, we expect our cash usage to approximate our non-GAAP operating loss.

Let me turn now to guidance for the first quarter of Slide 18. We expect total revenue in the range of $16 million to $18 million. We anticipate approximately 60% of our revenue will come from sales of our IoT products, including Enel, and approximately 40% from sales of our grid products and systems. We expect our non-GAAP gross margins to return to a more normalized range of 46.5% to 48.5% of revenue.

We anticipate non-GAAP operating expenses to be in line with spending in the fourth quarter and approximately $11.75 million to $12.75 million. We estimate our non-GAAP earnings per share for the first quarter, excluding stock compensation and other items, to be a loss of between $0.08 and $0.13 per share. Including approximately $1 million or $0.02 a share in stock compensation expense, we expect our GAAP loss per share to be between $0.10 and $0.15.

In closing, on Slide 19, while 2013 was a tough year for us on the top line, we continue to execute on our strategic objectives. We took steps to reduce our costs and operating expenses to improve our gross margins and manage our cash effectively. This combination of efforts has reduced our breakeven revenue by 25% to 30% from 3 years ago.

We remain in a healthy cash position with nearly $58 million in cash or $1.34 per share of cash on the balance sheet. We did this all while funding new product development in our IoT business and continuing our sales efforts in support of pilot and bid activity in our grid business. We believe these efforts have laid the groundwork for future revenue growth.

And with that, I would like to now turn the call over to the operator for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we have Sean Hannan from Needham & Company online with a question.

Sean K.F. Hannan - Needham & Company, LLC, Research Division

I wanted to see if, specifically, on the Industrial Internet of Things, if we can perhaps elaborate a little bit more in terms of your view on when you suspect revenue could start to become a little bit more tangible based on the efforts, the progress and partnerships you've garnered so far, and you certainly alluded to a lot of excitement around the announcements that you've had. So just trying to understand how this can translate for us over the course of the next 12 months or so.

Ronald A. Sege

Yes, sure. Well, I would say there will be a series of leading indicators, Sean, as you have might imagine, in the chip business. So it starts with some of the ones that I mentioned in my prepared remarks. Website hit, lead generation, requests for eval kits, those all look promising now. We'll be shipping the eval kits with the new chips starting in Q2. That'll start the sales process, and these design wins can take 6 months and then -- to 12 months, even, and then, of course, the OEM has to start marketing and ramping up their own products. So that's why we say that we would expect the revenue benefit from all these new product announcements starting in 2015. But my hope and expectation is we will be able to show you some solid leading indicators during the course of this year.

Sean K.F. Hannan - Needham & Company, LLC, Research Division

Okay. That's helpful. And then, this question might be a little bit more for Bill. But the associated costs as we go through these efforts, can you outline for us a little bit more how we should anticipate that coming in for '14, kind of ahead of more of that rev-generation and as part of, say, the design efforts that will be underway? Anymore detail would be helpful.

William R. Slakey

Yes, Sean. On a given quarter, we may get a bump in R&D spending in particular as products move their through the development cycle. But generally speaking, we'll continue to manage our operating expenses in aggregate very closely. So I wouldn't expect, in general, expenses to go up a great deal from where they are on sort of the current quarter, Q4 current-quarter run rate. And Sean, it bounces up, up or down, as I've said, if there's a product coming through the pipeline.

Ronald A. Sege

Sean, another way of thinking of it is we carve the OpEx for our IoT investment out of the grid OpEx. And so the only bump-up in spending comes from when we put the chip out to be taped-out and fab-ed. So there are project expenses associated with that, but those typically are one-quarter expenses.

Operator

And we have John Quealy from Canaccord online with the question.

John Quealy - Canaccord Genuity, Research Division

So just -- I think, I'm getting the message you're sending here. But in terms of '14, the Internet of Things, it's more about design wins, getting some chipsets out, revenues hit in '15. That being said, how is the sort of base business in sub-systems? Are we seeing any lift from the building market? We're certainly seeing some macro headlines from ABI and other places that suggest non-res is picking up little bit. Can you just talk us through your current view of the legacy business, if you would?

William R. Slakey

Sure. And you know there's headwinds and tailwinds. The tailwinds come from some of the improving macro situation. And I do think we see the same data you see, and I think that's benefiting us marginally on the converse side, of course. The legacy LonWorks business continues to lose market share because of lack of investment over the years. Now as we've gone out and talked to our customers about our new IzoT strategy, we gotten a very warm reception starting with, "Boy, glad you're back. I thought you had given up on LonWorks." And it's too early to tell, but that could lead to some stabilization of market share. And I don't want to call that this quarter, but I do think that customers are [indiscernible] By the fact that we are reinvesting, that LonWorks has a future. Just so we're clear, with LonWorks, the LonWorks protocol continues to be supported fully inside of this IzoT framework. So customers who want to continue with LonWorks can, but now, we can attract BACnet customer, Modbus customers, and the future DALI customers and of course, all the customers who want to migrate from one or more of those protocols to IP. So my hope is that we'll see market share stabilization as the year proceeds, John.

John Quealy - Canaccord Genuity, Research Division

Okay, that's helpful. Just a bookkeeping question. So as we go to grid and Internet of Things in the segments, where does Enel go? Does it get split between the 2? How do we think about that Enel sort of annuity that you had?

Ronald A. Sege

The typical Enel business, the purchase of NPK or purchase of chipsets, that will be in the Internet of Things. On occasion, Enel orders data concentrators, as they did this year. In that case, that revenue would be in the grid on the metering side.

John Quealy - Canaccord Genuity, Research Division

Okay. So if we looked at last year, is it sort of 60/40 chips versus meters last year? How should we make that split just sort of looking at Q1?

Ronald A. Sege

In Q1 of last year, Enel revenues were entirely on the sub-systems side that we would call IoT this year. In Q2 and 3 of 2013, Enel purchased approximately $4 million of data concentrators that we recorded as systems revenue in 2013. And were they to purchase that again, we would record it as grid revenue. I think, John, for 2014, what you ought to anticipate and what we anticipate is Enel revenue will be entirely made up of chipsets and will fall entirely into the Internet of Things bucket. Does that help?

John Quealy - Canaccord Genuity, Research Division

Okay. Yes, that's very helpful. And just 2 more questions. So in terms of -- Ron, you were talking about this Polish pilot and things like that on the grid side. Is that sort of a one-off? If it comes in, it's going to be a great business. You're not really setting any expectations for that? Or is it something where you've been working it, you feel constructive and you feel competitive and it might turn into something in '15?

Ronald A. Sege

I would say, the latter. We've been working as we feel constructed -- constructive. We were down-selected. There were twice as many competitors. We're in 2 of the 4 final bids now. It's a dog-eat-dog world out there because there's so few deals, and it's like throwing a meat into a -- to a starving animal. But we've been working hard on this one, and it could -- it would move the needle if we want it.

John Quealy - Canaccord Genuity, Research Division

Okay. And then lastly, you're in a great cash position. It's exciting to see you launch Internet of Things. From an M&A or strategic perspective, are there things you're considering to jumpstart you from a sort of P&L perspective or design perspective? Just -- if you would give us your thoughts there about pushing it forward maybe on a corporate level?

Ronald A. Sege

Yes, yes. We're definitely looking at M&A that would not take us backwards in terms of the hard-fought games with the financial model that would fit with either as a platform, makes the platform -- IzoT platform richer, or would allow us to capitalize on some of the more exciting trends we're seeing in our target markets, specifically, in convergence of building systems and in the transition of analog lighting to digital lighting or LED lighting. So we are looking around, as we've talked about in the past, but nothing to announce yet.

Operator

And we have Patrick Jobin from Crédit Suisse online with a question.

Patrick Jobin - Crédit Suisse AG, Research Division

A few questions. First, just going back to the leading indicator comment, I appreciate -- certainly, you need to have design wins and that's a long process to get to revenue in '15. I mean, is there any way to look at the percent of your LonWorks customers you've engaged with thus far, outlining the new portfolio offering? Or how should we think about that?

Ronald A. Sege

I think I mentioned on previous calls that we kind of had this program of 100 in a 100, to visit our 100 top customers in 100 days. So we have done that. We did that both to collect information on what their biggest challenges are and then subsequently, to present the IzoT strategy. I would say that we've been very, very pleased with the response to that. In some ways, predictable. In some ways, not. As an example, one of our biggest OEMs at the AHR building show in the New York a couple of weeks ago, relatively -- quite a senior guy came and heard the strategy, came back the next day with one of his supply chain guys to make sure that, that person understood that with our strategy, instead of this company having 4 stock keeping units for the same product, the thermostat, let’s say, one for BACnet, one for LonWorks, one for Modbus and so on, that they could collapse that down to one. And there's -- so there's been a lot of light bulbs going on like that. And full-court press now to get to all of the influencers within these big companies. You don't just call Honeywell and they got it, right? You've got to call on all their designers, supply chain folks, et cetera. So it's a pretty heavy lifting on the sales side, but as I said, there are real benefits here to the supply chain, to the installers, to the strategists who have to migrate to the Internet of Things and so on. So I'm actually very pleased with the reception, Patrick.

Patrick Jobin - Crédit Suisse AG, Research Division

Okay. And then -- so my next question is somewhat related to that. When you're calling on not only current customers, but also a broader set of customers that maybe weren't engaged with LonWorks, I'm just trying to reconcile some of the comments that OpEx can be retained. I mean, you've done an amazing job at keeping costs under control. I'm just trying to understand how you build out your sales force to go after this opportunity?

Ronald A. Sege

Well, we may need to make investments in the sales force over time. We're going to do that in a very measured and careful way. The good news is that a lot of our customers are big and we get a concentrated sales effort. And they will help propagate the message. The customers will help propagate the message within their own organizations. But you're right. As we start seeing more success in reaching sort of further into the target market, we'll meet the assets to selling expense. But we really wanted to be a kind of a pay-as-you-go model. The other thing, of course, is we have a stable of VARs and distributors that can and will be a force multiplier as this IzoT message gets out there.

William R. Slakey

And Patrick, on the simple question of managing the expenses, there's still more blocking and tackling that we can do to whittle down expenses in some areas. But I think, as we do that now, we'll be putting that savings back into the business, in sales and IoT, for instance. So there's a little bit of room to generate dollars to add to the sales forces, et cetera.

Ronald A. Sege

And I guess, one more point I'd make, Patrick, is we are investing in marketing more aggressively than we had in the past. A little example of that is just the new look and feel of the presentation that you may have seen, and we're redoing our website and so on. But we are really expecting to use marketing to create lead generation, which will allow our sales force and our channels to be more productive than they've been in the past. This company just hasn't believed in marketing historically, and that's changing now.

Patrick Jobin - Crédit Suisse AG, Research Division

Understood. Last question, just shifting back toward the grid. Can you size up the opportunities you highlighted? You said you're excited about Poland, Norway and the Middle East? Just kind of rough idea of the number of opportunities you're looking at and what that can mean from a revenue standpoint, or some metric we can size those opportunities with?

Ronald A. Sege

Well, there's -- we're literally looking at dozens and dozens of opportunities in our pipeline. Just as a specific example, Toron, in total, is a 5-million-meter utility. And there's 2 or 3 other 5-million-meter utilities that we're engaged in, in Poland alone. And that -- while they would always split their bids among 2 or 3 different, manufacturers, you can do the math just to see what the potential is for Echelon if we win even 1 or 2 of those deals, given how low we've taken the breakeven in total in the company and therefore, in the grid. So Poland is the nearest-term opportunity for us followed by Norway. We are pursuing several large deals in the Middle East. They're not as quite as large as Poland, but they're big. They'll move the needle. The challenge there, of course, is the political uncertainty massive [ph]. And I wouldn't begin to predict which month or which quarter those could fall in. But there's -- they're real. The bids are out there. There's tremendous economic benefit in moving from -- to smart meters in terms of fab production and so on. So as I said in the prepared remarks, we don't need many of these awards to go our direction to make a huge difference in the financial profile of our grid business.

Operator

And we have Pavel Molchanov from Raymond James online with a question.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

So I know your policy is not to give full year guidance, but just directionally, I mean, do you think top line this year is more likely to be down or up on a full year basis from 2013?

William R. Slakey

Yes, Pavel. It could go either way. It is very dependent on when these grid tenders are awarded and when they start to ramp, assuming that we were to win our fair share. So it's very dependent on that. Obviously, at the current run rate, where the current run rates were to carry out through the year, we'd be low year-over-year. But if some of these grid tenders come in, in the second half of the year, we could be up here all year. So we intentionally don't give specific guidance because, at the moment, we don't have the visibility we need to do that.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay. CapEx was very low last year, less than a $1 million. Should they stay at essentially the same level or are there some kind of capacity investments you have to make as part of the IoT strategy?

William R. Slakey

Yes. I expect CapEx will remain at something -- at a very similar level this year. We are a fabless semiconductor company. So as we put new products into developments, our capital investment required fab is relatively modest.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay. And then lastly, you alluded earlier to corporate fixed cost being fairly flat in Q1. Essentially, does that imply that the restructuring, the headcount reductions, all of that is in the rearview mirror at this point?

Ronald A. Sege

Well, I think, what -- in terms of significant cost reductions restructuring et cetera, yes. I expect what will happen here is it will continue to manage that very closely at their current level. And as we tend to do one area, we'll try and put it back into sales and R&D if it drives the top line.

Operator

We have no questions at this time. I'll now turn the call over to Ron Sege for closing remarks.

Ronald A. Sege

Okay. I want to say thank you, all, for joining us today. As you can tell, we're excited about the potential for Echelon as we position ourselves to participate in this emerging IIoT market. We're working hard to leverage our assets, to broaden our target markets and to keep as much powder-dry as possible for future grid awards, and as we discussed, for any inorganic opportunities that makes sense as we move through the year. So we think we got the right team in place, and we appreciate your interest in our company, and stay tuned for upcoming announcements. So thank you, all, and have a good day.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.

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