I write this letter as a shareholder and firm believer in the technology which is developed by the employees of Echelon. In my opinion it is clear that the vision of those who develop products for our company is unsurpassed. As much as I believe in the employees ability to create and inspire this will not, in and of itself, result in a successful company. As a director of Echelon you presumably know this by the lack of follow through in LWI during the third quarter while the world began to focus on energy efficiency. As a shareholder I owe it to myself to express my displeasure with your lack of leadership in capitalizing on this market. I fear that misteps at this point in ELON's lifecycle will be magnified tenfold two years from now in lost opportunities. As a Director your sole job is to optimize shareholder value. I demand that the decisions made by you keep this in mind.
First, I would like to say that it is odd to me that millions of dollars were spent in the past couple of years in share buybacks only to have 1/3 of those shares returned to market this year when employees/officers/dare I say directors exercised options and dumped them on the market. I've heard for years Ken Oshman tell me that options are the only way to retain talent. Here's a suggestion, take that $24-30MM you authorized to buyback shares and use it to pay those employees a cash bonus. Clearly cash is what they prefer anyway.
It's also better for me as a shareholder that I don't have to read about VP's dumping 10's of thousands of shares each week. Another added benefit is I don't have to listen to the non-sense about Non-GAAP profitability.
This leads to my second point, the market doesn't like to hear comments about how management (ie you) is focused on Non-GAAP profitability as Ken suggested during the last conference call. Reality check, you are a company traded on NASDAQ; GAAP earnings are everything. If management doesn't understand this then it needs to move on. What I, as a shareholder, hear is "as long as we make money it doesn't matter how many options we issue." You need to know that it does matter to me and likely others. With all that is going on in the financial markets, you need to keep our earnings as simple as possible.
Ken also recently stated that "if we wanted to make money we would work for a hedge fund." I can only hope that he wasn't refering to the future earnings performance of our company. Unfortunately I have to assume this since no-one makes any attempt to clarify the matter. To the contrary, what follows is the 3Q conference call saying Non-GAAP profitability is what management are concerned with. This is in-excusable for management to make these comments and I fear it points to a general arrogance which is going to prevent ELON from maximizing its potential. As a director I believe you owe it to the employees and shareholders to immediately review existing management to determine if they are the right people to lead ELON going forward. The world is focuesed on your industry and it is vitol that you make the best use of the position Ken and Bea have put us in. We are a world leader in efficient technology. It may be that someone new needs to sell this image and take ELON to the next level. Sit idol now and you risk ELON being a footnote in history.
Having a vested interest in how this turns out, I offer the following suggestions which I believe will secure ELON's arrival as the next great technology companies: