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Executives

Annie 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

Chip Moore - Canaccord Genuity, Research Division

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Shawn E. Lockman - Piper Jaffray Companies, Research Division

Colin W. Rusch - ThinkEquity LLC, Research Division

Patrick Jobin - Crédit Suisse AG, Research Division

Dale Pfau - Cantor Fitzgerald & Co., Research Division

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

Echelon (ELON) Q1 2012 Earnings Call May 9, 2012 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Echelon First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Annie Leschin, Investor Relations. Please proceed.

Annie Leschin

Thank you, operator. Hello, everyone, and thank you for joining us this afternoon for Echelon's First Quarter 2012 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've received a copy of the press release that we issued a short time ago. If you would like a copy, please visit our website at www.echelon.com. Additionally, this quarter, we're going to refer to a set of slides that we have posted on our IR section of our website to help walk through the quarter's results and our outlook for the market.

Before we begin, I'd like to let everyone know that the during the quarter, Echelon will be participating in Deutsche Bank's Clean Tech Conference on May 14 in New York and the Piper Jaffray Internet of Things Conference on June 26 in Chicago. As additional events are scheduled, I will make other announcements.

And now I'd like to remind everyone that during the course of this call, we may make statements related to our business outlook, future operating financial results, accounting matters and overall future prospects. These are forward-looking statements based on certain assumptions and are subject to a number of risks and uncertainties. We encourage you to read the risks described in our press release, as well as in our SEC reports, including our report on Form 10-Q and subsequent reports on Form 10-K for a more complete disclosure of the risks and uncertainties related to our business.

The financial information presented in this call reflects estimates based on information that is available to us at this time. Actual results may differ materially, and Echelon is to undertake 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.

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

Ronald A. Sege

Thank you, Annie. Good afternoon, everyone, and thank you for joining us for our first quarter conference call. I'll begin with a summary of the quarter's results, and then discuss our business outlook and steps we are taking to improve our cost structure to protect our goal of profitability. Finally, I will give you an update on progress with longer-term strategic initiatives.

Turning to Slide 3. First quarter performance met our expectations on the top line and exceeded on the bottom line. Total revenue was $40.3 million, up 42% year-over-year, with 71% coming from our systems business and 29% from sub-systems. We reached non-GAAP breakeven during the quarter, demonstrating our focus on better expense management and gross margin expansion. We ended the quarter with $58.4 million in cash, which was roughly flat from the previous quarter. We continue to ship products in volume to large utility customers and saw momentum in Brazil and China build, but saw lower revenues from our sub-systems business.

Turning to Slide 4. Looking forward, as I mentioned last quarter, we need to convert a certain amount of our systems sales pipeline into 2012 revenues to achieve our full year financial goals. While we remain positive about our progress, especially given pilot activity and other leading indicators, new utility awards in our target markets are being delayed due to the macro environment. As a result, our pipeline is not converting into orders in revenue at the rate we had anticipated. Therefore, as Bill will expand upon, our visibility into the second half of the year is quite limited.

With sustained profitability and the funding of strategic initiatives to drive growth as our highest priorities, we are taking proactive measures in 4 areas to reduce expenses that will benefit us in the second half of the year and beyond. First, we are consolidating development activity around a more focused number of projects, as we continue to converge on our single energy control networking platform. Second, we are expanding our recently announced joint venture with Holley Metering to leverage JV-based R&D to develop products in this lower-cost region. Third, we expect to see benefits from our previously announced sales force reorganization that will reduce field-related expenses without impacting our growth prospects. Finally, we have identified benefits from efficiencies in operations and G&A as a result of ongoing operational excellence initiatives.

The results of all this is that we are reducing our workforce in targeted areas and benefiting from cost savings in other. While a very difficult decision, we are making adjustments to our spending to lower our breakeven level and ensure we can navigate through this period of uncertainty.

Despite the anticipated restructuring charges and the startup costs at our JV, we expect operating expenses to decline in 2012 versus 2011. We will remain diligent in controlling our lower expense run rate and continue to prioritize profitability in our operational decisions.

Let me now give you a brief update on each of our strategic initiatives. First, on Slide 5, in our grid systems business, we continue to deploy our NES systems at a rapid place for Duke Energy in Ohio and Fortum in Finland. In the Fortum project, I'm pleased to report that we successfully shift the COS software that enables power line communication to in-home displays, and therefore, recognize the deferred revenue for that project.

Systems shipments into Russia are continuing, as we expand sales to MRSK properties and the Russian Railways. We also shipped to various smaller projects in Western and Eastern Europe this quarter and have continued to win pilots in Asia and Continental Europe.

We introduced 2 entry-level meters for our grid systems this quarter, the MTR 0600 and 0630 to meet the unique needs of emerging residential markets, such as Eastern Europe and the Middle East where electricity usage is low and utility investment limited. Utilities can now begin by installing electric meters and later upgrade them with modular communication and control capabilities, thereby staggering their investment. Based on Echelon's COS-driven architecture and developed in collaboration with Holley Metering, these meters leverage our multi-application energy control networking platform for the Smart Grid.

In our sub-system -- in our grid sub-systems business on Slide 6. We currently have over 10 pilots in various stages, with large utilities in Brazil with our partner, ELO. In China, through Holley, we had a successful field trial of our technology with the utility in the 36-million-person province of Shaanxi. Based on this, it will soon be expanded to a 10,000-meter pilot. We recently submitted our power line solution to the China Sea grid [ph] for approval to sell throughout the country. Our sales pipeline in both countries continues to grow, with more than $100 million in active multiyear pipeline in Brazil and more than $70 million in China.

Turning to Slide 7. During the quarter, we also announced the creation of our Echelon-Holley joint venture. This is the logical extension of our previously announced commercial relationship with Holley, allowing us to sell our market-optimized solutions to utilities throughout China. Based on our core U.S.-developed technologies, additional products will be designed especially for developing world geographies. The JV will also allow us to leverage Chinese R&D and manufacturing capabilities to realize our Silicon Valley designed Smart Grid solutions for Western markets more quickly and at lower cost.

Turning to Slide 8. We also introduced new grid sub-system product, the CPM 0600, which quickly and at low-cost, transforms legacy meter designs into smart communicating meters. These meters are fully compatible with our multi-application energy control networking platform for the Smart Grid and have grid-sensing functionality for distribution automation as well. With this product, we are able to partner more easily and effectively with established local and regional meter manufacturers, allowing our partners to offer a complete Smart Grid solution. Mitsubishi in Thailand, VIDCOM in South Korea and Holley in China have all agreed to design meters with the CPM 0600. The positive response and quick adoption of this product gives us further confidence in our sub-systems' strategy for Smart Grid applications in low-cost territories.

Turning to our city and building sub-systems business on Slide 9. Street lighting remains most promising. We continue to see consistent activity in this area, albeit in small pilot deployments. Additionally, as countries increasingly integrate renewable power sources into their electric grid, intermittent power supply is fast becoming a significant challenge. This quarter, through local partners, we announced a unique micro grid deployment model in India and South Africa, with the potential to be replicated worldwide.

Micro grids offer the ability to manage supply and demand dynamically by distributing power generation from a variety of energy aspects to compensate for disruption in utility power. Built on Echelon's energy control networking platform and incorporating application software and services from our partners, these deployments are the first of their kind in these countries. Going forward, we plan to focus on areas of the Smart cities and building sub-system market, where our differentiation is the most unique, and we see the highest demand from customers.

Given our ability to influence the building automation market, we are prioritizing opportunities in which cities and buildings intersect the Smart Grid. For example, as more utilities offer energy management services to buildings, they can leverage our platform to easily participate in this market. They can also easily extend the same platform into street lighting and intermittent renewable management.

In summary, we once again made progress in Q1 towards our goals of growth and profitability. Looking into the second half, while we have a growing pipeline of sales opportunities in both systems and sub-systems, market headwinds in our targeted geographies are limiting our visibility and creating additional uncertainty. As a result, we are taking proactive measures to further streamline our cost structure, while maintaining our go-to-market strategy and R&D priorities. While very difficult, they reflect our demonstrated commitment to creating a sustainable and differentiated company.

Over the long term, we are confident in our strategy to capture the Smart Grid opportunity through a variety of channels and believe that our technology platform has broad applicability. As the environment for investment in the Smart Grid improves, system projects move forward, and our sub-system strategy takes hold in key geographies, we believe the actions announced today will position us to create long-term shareholder value via our unique differentiators.

Before I turn the call over to Bill, I'd like to thank all of our employees for their continued hard work, dedication and support of the ongoing progress and the difficult decisions we've made this quarter. We appreciate your confidence in the strategy and in our company. We are dedicated to successfully navigating through this period of uncertainty and carefully balancing the needs of customers, employees and shareholders.

Bill?

William R. Slakey

Thanks, Ron. Good afternoon, everyone, and thank you for joining us on our first quarter earnings call. Please note that all references to non-GAAP amounts exclude stock-based compensation and restructuring charges. For ease of reference, we have prepared a complete non-GAAP statement of operations for the quarter ended March 31, 2012, which can be found on the Investor Relations section of our website.

Beginning with Slide 11. We had a very solid Q1. Revenues for the first quarter were $40.3 million, up 42% from $28.4 million in the first quarter of 2011. Growth was driven by systems sales of $28.7 million, up from $14.6 million a year ago. First quarter's sub-system sales were $11.6 million, with commercial sales accounting for the majority at $11.4 million and $227,000 coming from Enel. In total, sub-systems' revenue decreased 15% from $13.8 million in the first quarter of 2011.

I'd like to make a quick comment on revenue recognition. Occasionally, our larger customers will have product acceptance curves in their contracts, which defer revenue recognition on certain units until an acceptance period has elapsed. However, we do not defer revenue on units where that acceptance is deemed perfunctory.

During the first quarter, we completed an analysis on acceptance history for our highest volume meters. We determined that 100% of these products had been accepted by our customers for over a 12-month period. Therefore, in Q1, we were able to recognize revenue on these meters at the point of delivery, rather than 2 to 3 weeks later when the acceptance period have lapsed. This resulted in the addition of $4.8 million in Q1 systems revenue that would have been deferred into Q2 under previous practice.

Moving to Slide 13, in gross margin. Non-GAAP gross margin for the quarter was 43.6%, down from 47.4% a year ago and up from 40% in the fourth quarter. The sequential improvement in gross margins was the result of 2 factors. First, we delivered the software associated with the CNX 3000 hardware module that we have been shipping since September. This led us to recognize an additional $1.5 million in revenue for meters that were delivered to Fortum in 2011, resulting in a onetime benefit of 220 basis points to our gross margin this quarter.

If the $1.5 million in deferred software revenue were excluded, gross margin on the remaining $38.8 million of revenue would've been approximately 41.4%. An improvement of 1.4% of sales from Q4, this improvement was driven by solid operational results across several categories.

Turning to expenses. Non-GAAP operating expenses in the first quarter were $16.8 million, a decrease of 11% from $18.9 million in the same period last year and down 2% sequentially. On a year-over-year basis, R&D declined 10% to $7.8 million. Sales and marketing expenses decreased 15% to $5.5 million. And general and administrative expenses decreased 8% to $3.5 million. Expenses declined due to lower project costs in R&D and sales and marketing, and lower compensation costs across all categories.

Over the last year, the company has made solid progress reducing its operating expenses, particularly in the context of having grown revenues by over 40% in 2011 and again in Q1. Interest and other expense was $264,000 in the first quarter, down from interest and other expense of $360,000 in the same period last year. This leaves non-GAAP net income for the quarter at $249,000 or $0.01 per share compared to a non-GAAP net loss of $6.1 million or $0.15 per share in the first quarter of 2011.

Moving to the balance sheet on Slide 14. Cash generated from operations during the quarter was $709,000. This was the result of non-GAAP profit achieved during the quarter, combined with a reduction in working capital needed, particularly accounts receivable. In total, we used $220,000 in cash during the quarter to end the quarter with cash, cash equivalents and short-term investments of $58.4 million.

As Ron explained in more detail, we are taking steps to reduce our operating expenses, including a workforce reduction of approximately 10% in the second quarter. We expect to incur a $1.2 million to $1.7 million restructuring charge for these activities.

With that, I would like to turn to guidance for the second quarter on Slide 15. We expect total revenue for the second quarter of 2012 to be in the range of $38 million to $41 million. We anticipate non-GAAP gross margin to be approximately 41% for the quarter, in line with what we achieved in Q1, excluding the onetime impact of revenue recognized from delivery of the CNX software.

Later in the year, we expect to see additional improvements in gross margin, as our higher-margin sub-system revenue grows as a percentage of total revenue and product cost decline. We anticipate operating expenses will be flat to down this quarter, as we begin to see the benefits of our restructuring activity. Finally, we estimate our non-GAAP earnings per share for the quarter to be between breakeven and a loss of $0.04. When $2.8 million of stock compensation and $1.2 million to $1.7 million for our restructuring charge are included, we expect our GAAP loss per share to be between $0.10 and $0.15 per share.

Looking into the second half of the year, visibility at present is not sufficient enough for us to be confident in our goal of modest revenue growth and non-GAAP profitability for 2012. This lack of visibility makes expense management even more important to us. With the progress we made in Q1 and the additional steps we are taking, we expect the operating expenses to be down year-over-year, even while making investments in our new joint venture.

With these expense actions and the improvement we expect in gross margins, we believe that we can achieve non-GAAP profitability at annual revenues in the mid-150s. However, as mentioned, visibility makes it difficult to predict our 2012 revenue, and lower revenue and results below breakeven are possible.

Throughout the year, we will continue to deliver new technology and invest in our partnerships and our sales efforts. The long-term market opportunity for us is a large one. And as the environment for Smart Grid improves, we believe these efforts will enable us to create long-term shareholder value.

I would now like to turn the call over to the operator for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John Quealy with Canaccord.

Chip Moore - Canaccord Genuity, Research Division

It's Chip Moore for John. Ron, was wondering, first, if maybe you could just give us a little more clarity on some of the pilots going on in Brazil and China? Where we stand in terms of the pipeline activity there?

Ronald A. Sege

Sure. So as I mentioned in the prepared remarks, pipelines growing in both places. In Brazil, we're up to almost a dozen pilots with leading utilities. As I've mentioned on previous calls, our partner there, ELO is incredibly circumspect about naming names because of the heavy competitive pressure. But the pilots are going extremely well, and as we've also said in the past, we expect those to start turning into deployments and revenue late this year and into next year. In China, we, again -- in my prepared remarks, I mentioned a pilot of our technology in the Shaanxi Province. That went exceptionally well. It was intentionally in a very harsh environment, a rural environment with agricultural pumps and whatnot on the power line, which as you know is -- creates a very harsh environment and we performed flawlessly according to the customer. In fact, we got a follow-on order for 10,000 endpoints as I mentioned. So we're very encouraged about the pilots and the pipeline development in both places.

Chip Moore - Canaccord Genuity, Research Division

That's helpful. And in terms of the lower visibility that you guys talked about, where are you seeing that mostly?

Ronald A. Sege

It really is across the board in our systems business. Our pipeline is most developed in Western and Eastern Europe, Middle East, Russia. And it's big, and it's broad. Deals just simply are taking longer to close than we had anticipated.

Operator

Your next question comes from the line of Joe Maxa with Dougherty & Company.

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Along the lines of the second half, I mean, you must have a -- are you feeling pretty confident about your base business with Duke and Telvent? And are you expecting that to run through the end of the year?

Ronald A. Sege

We are. We feel extremely confident. The Duke deployment is going well. And as we previously reported, the interim assessment says that reliability quality have been great. But we do expect Ohio to finish up this year, and then Telvent, we're also deploying aggressively at Fortum. So in both cases, volumes do start trailing off in the second half of the year, and as we previously reported we do need systems pipeline to close in order to achieve a breakeven and beyond.

Joseph A. Maxa - Dougherty & Company LLC, Research Division

And then one more is, can you talk a little bit about the competitive environment in Brazil and China?

Ronald A. Sege

Sure. In Brazil, everybody understands that, that's a big, rapidly growing market. Everybody talks about being there. The fact of the matter is that we are the first, and we still believe the only approved Smart Grid system there. And we're partnering with a partner that has roughly half the market, 40% of the market for electromechanical meters. But it'll be well contended for, which is one of the reasons that our partner is not very aggressive about announcing exactly who we're doing pilots with and so on. In the case of China, there's lots of local competition. The power line technology, which accounts for, we believe, half the market opportunity is not performing well, which is why we see great opportunity for us. There's really little to no Western competition in China, because folks just haven't developed the kind of partnerships that we're developing with Holley. But again, it's another rapidly growing big market, so we expect there will be competition there.

Operator

Your next question comes from the line of Ahmar Zaman with Piper Jaffray.

Shawn E. Lockman - Piper Jaffray Companies, Research Division

This is Shawn for Ahmar, guys. I, just quickly, wanted to ask you a little bit about the mix for next quarter. It looks like sub-system mix is going to pick up a bit. Is this how we should sort of look at the business going forward? Or is this really just kind of a 2Q event? And if you could talk about -- a little bit about what's behind that a little more.

William R. Slakey

You bet, Shawn. So sub-systems were unusually low this quarter, driven primarily by a very unusually low number from Enel. We have visibility on that number. It'll be up in Q2, and that'll help push the sub-systems business up. Then as we look out further into the year, we hope to get increasing contribution from some of the new sub-system customers. Holley and ELO will help a little bit there.

Shawn E. Lockman - Piper Jaffray Companies, Research Division

Got you. And if we could talk a little bit about China, in getting qualified there. If you guys could give us an update on that, what's -- how things are proceeding there? And then if you could talk a little bit about the $70 million pipeline in China that you have, is that -- over what period right now should we think about that $70 million?

Ronald A. Sege

Sure. So first on the qualification, we have submitted our products to the state grid for approval, right on plan, as we lay out last quarter. The processes over the next, hopefully, few weeks to a couple of months, we will get approval from the state grid, and then we can start deploying broadly throughout China. We are able to run pilots in the meantime, and we have started creating demand, as you know, from the $70 million pipeline. But in order to start broad deployments, we do need that state grid approval. Obviously, we've done all the testing internally. Holley's done all of the testing, and we're quite confident of getting it. So that's a big milestone in and of itself, because our technology had to be specifically modified to meet Chinese requirements. The $70 million pipeline, as we mentioned previously, will start being realized in 2013 and beyond. With approval, we're able to sell much more broadly. With the establishment of the joint venture, we'll be able to sell through competing meter manufacturers to Holley. So we do expect that pipeline to start expanding pretty aggressively. It's a 300 million-meter endpoint -- 300 million endpoint market as you know, with a modular communication design. So we can actually go after the installed base, as well as new meter wins. Does that help?

Shawn E. Lockman - Piper Jaffray Companies, Research Division

Absolutely. If I could just ask one final one here. If you could talk a little bit about what you guys have seen just on the pricing of meters in China. I know there's been some pressure on pricing there in the last 12 months or so. How does this sort of affect your part of that meter? Are you guys seeing pricing pressure as well on your components there?

Ronald A. Sege

Obviously, it is a price-competitive market as is anything in China. As I mentioned, the indigenous technology is simply not working. And that's causing all sorts of operational issues and operational costs and embarrassment and whatnot. So we did great in our pilots. It makes us unique over there in the Chinese market. In general, you can think about our sub-systems business, the margin being better than selling a complete meter. And we think that will hold up in China as well. It's all about differentiation. And we're quite confident based on the results of these pilots that we've got it.

Operator

Your next question comes from the line of Colin Rusch with ThinkEquity.

Colin W. Rusch - ThinkEquity LLC, Research Division

Can you talk a little bit about your expectations for the sales cycle in the micro grid product? That actually looks like it could have some meaningful legs. And I'd love to understand how big you see the opportunity and how quickly that might materialize.

Ronald A. Sege

It's very nascent. These -- we've been working on these 2 deployments for probably 6 to 9 months with our partners, and we're very pleased, they're very pleased. But it's really early days. But you're right, our technology, our energy control, networking platform is really perfect for being slotted in, in conjunction with partner products like generator sets and solar plants. So we will be aggressively pursuing the market. It's also a fairly difficult distribution channel. It's fairly fragmented. We're selling to campuses and retail malls and what have you, so we do have to develop a broader partnership network like the ones we're starting to develop in India and South Africa. But I highlighted it in the prepared remarks, because we do think it's a good opportunity, and it's example of how we're focusing on kind of the intersection of the grid and the building, moving forward in kind of our building segment.

Colin W. Rusch - ThinkEquity LLC, Research Division

Perfect. And how much do you think you can pull out of the cost of the products with the move towards working closer with Holley? Is that something where you could see a 30% plus cost reduction?

Ronald A. Sege

Bill, will comment on what we've built into our plans. I wish, but...

William R. Slakey

Yes, 30% percent cost reduction would be very, very steep. What we expect is that with new product designs including those coming from Holley and elsewhere that we can improve our gross margin from the 41.4 that we reported this quarter to something nearer the 45 points that the company used to report routinely. We need some revenue volume to do that, but that's the sort of range of improvement we're looking at over time, and that will be a combination of lower-cost designs on meters and a shift more towards sub-systems as a higher percentage of our revenue.

Operator

Your next question comes from the line of Patrick Jobin with Credit Suisse.

Patrick Jobin - Crédit Suisse AG, Research Division

So on the commercial sub-system business, just to go back to that for a second, it seems somewhat disappointingly from my perspective, even with some of the headwinds from Enel. Is it market-share-related pricing? Just a continued slowdown in the market? Any color there would be helpful.

Ronald A. Sege

Frankly, I think it's a combination of both. The macro tenant occupancy rates haven't come back, so I think the market is still lackluster. And then, if you dive into some of the big industrials to the extent they talk about these specific areas, the market is relatively slow. We saw particular slowdown in Europe, which is another indication of kind of the macro economy. But I do think it's fair to say that we are losing share in the space broadly, because this company's been focused in other areas where we believe we have higher return on investment opportunities, like in the Smart Grid area.

Patrick Jobin - Crédit Suisse AG, Research Division

Okay. And then on the restructuring effort, can you quantify maybe what exact cost savings you think you can achieve? And I would assume since the 12-month -- we wouldn't see the full effect until next year?

William R. Slakey

That's right. So we would expect this to affect approximately 10% of employees here. That would be enough to reduce our cost typically on their current run rate from 5% to 10%. Some of those costs will be added back at the JV. But on balance, we expect it will leave us with lower operating expenses this year versus last and in a position to have lower operating expenses again next year, if need be.

Operator

[Operator Instructions] Your next question comes from the line of Dale Pfau with Cantor.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

A couple of questions. One, you mentioned the challenges with the indigenous Chinese technology there for control over power line. Could you talk a little bit about what you're seeing with some of the other standards, the one over in Europe that they're trying to use and how they're going in trials? And then the second part of my question is, in spite of the challenges with closing some of these contracts, would you anticipate those to pick back up in the second half, and -- so we could see a stronger 2013? And when would you need to see these close to give you a little better comfort on the second half?

Ronald A. Sege

Let me take the first one and Bill take the second one. So you asked about standards in Europe, correct? Dale?

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Yes.

Ronald A. Sege

Yes. So PRIME is a legitimate competitor over there. That's what's being deployed in Spain. We're not active in that market, so it's really secondhand information. I hear the technology is working okay, not necessarily great. G3, which is the standard that is notionally to underpin the French market for example, is really not in production in any way, shape or form. So that's still to be deployed and to be proven out. And it's brand-new technology. And as we've learned over the years at Echelon, until you get a lot of mileage on these things, we can expect initial proving to be fairly rocky.

William R. Slakey

And as far as when do we need to see some deals close to get more visibility on the second half, well, clearly, we did not get as many deals closing this quarter as we anticipated, but we've got a large pipeline going. We think we'll get some deals to close here in Q2. Increasingly, or more of our business now, is in smaller deals that are nearer a turns business. So they will close one quarter and begin shipping the next quarter. So we think that, that's what we're going to be seeing here in Q2 and Q3 and a little bit in Q4.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

And so even with counting on some of the turns business, that doesn't give you comfort? Or are you being fairly cautious on your outlook?

Ronald A. Sege

You know, we're being cautious on our outlook. Our visibility is limited. And, Dale, I'm always the optimist, but we have to call it the way we see it. And it's a tough market out there in the near term as you know. And we're doing everything we can to get these deals closed, but they are really outside of our control.

Operator

Your next question comes from the line of Pavel Molchanov with Raymond James.

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

For the Chinese market and the Brazilian market, can you give us a sense of the addressable opportunity there? So I think with China you've referenced in the past numbers to the tune of 300 million meters. And how much of that might be accessible to you guys?

Ronald A. Sege

Sure. So 300 million endpoints/meters in China, 65 million in Brazil. In both cases about half, we believe, will be served by power line. And in the case of Brazil, that market is just getting started, though all 65 -- half of 65 million meters would be in our available market. In the case of China, there are probably 50 million meters into a 300 million-meter deployment, but as I said, the installed meters have a socketed or modular communication system. So either we can go back and install communications after the fact that if there isn't any, or if the communication is not performing well, then we can go back and upgrade it. And that makes even those 30 million meters available to us.

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

Okay. And when you reference multiyear pipelines of 100 million in Brazil, 70 million in China, what sort of sense of time does that encompass? Are we talking a decade, or is that more like a couple of years?

Ronald A. Sege

Yes. I mean, I think 2 to 3 years are typically these rollouts. And then the big question is, when do they start? And that's in general what we have: much less visibility into now than we did even a couple of quarters ago.

Operator

There are no further questions in queue at this time. I would now like to hand the conference back over to Mr. Ron Sege for any closing remarks.

Ronald A. Sege

Okay. Thank you, all, very much. Appreciate it, and we'll see you all soon.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.

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