Data I/O (DAIO) 27 Apr 232023 Q1 Earnings call transcript

Good day, and welcome to the Data I/O First Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jordan Darrow, Investor Relations. Please go ahead.

Thank you, Betsy, and welcome to the Data I/O Corporation's First Quarter 2023 Financial Results Conference Call.

Anthony Joel and and Hatlen, Officer Data are I/O of Chief today of and Corporation; Chief I/O. me Ambrose, CEO President Data Financial With Operating Officer

made to revenues, construed tax future as involve and prediction statements risks, any from differ may and impact be those or product shortages, are operations, may which other economic reform, performance materially you future statements, uncertainties like supply which expressed events concerning markets, to results I'd implied known a or releases, actual position, factors, other that partnerships of unknown silicon begin, conference results call regulatory we by cause from that Before and new such of statements forward-looking conditions, in other financial and statements. chain this COVID-XX, estimated remind industry chip expectations,

and as the to in by I/O be other press statements. of to products, forward-looking completeness other new time part unduly Commission, reopening from these Russia duty international These the continued with war forward-looking XX-Q factors efforts chains global upon. and demand, Ukraine, filings supply risks, including China, other trade and including the with Data to of include update of from changes with under base, in any related no within XX-K Securities economic of competitors our the to and the The should activity outbreaks the record along releases in communications. and and relevant uncertainties and is and impact the activities automotive any orders time those based industry market and of of pricing recovery not and restrictions, accuracy COVID-XX, on the revenues relied conditions on among company statements level and shortages, the deliveries ability acceptance for product semiconductor level and installations, customer including market Forms overall, timing described company's Exchange

call the President like Data And CEO to of now over turn I/O. and Ambrose, to I would Anthony

thank Jordan, Well, very much, you everyone. and welcome,

first performance, will addressing CFO, by quarter. reported call look growth with I'll highest conditions end begin a operational to since XXXX level XX% challenges formal range, to QX quarter then and an remarks margins we I our fact numbers. for in return first traditionally Hatlen, excellent Gross the profitable the faced include was financial revenues detailed the quarter We and reflect QX. operating more we Joel quarter. quarterly my also at of reaching turn did top over our line the in we're high to and were and Year-over-year financial the that at compared XXXX. last challenging comparisons year a and normal more our QX the

of customer the base aided This to and through than also during quarter. revenue consumable recurring sales, PSV the helping a create increased XXX is systems XX wins installed accounted worldwide machines, to of our Our new in for sustainable XX% by total more more quarter. profile which revenue

in and to upcoming industrial globally. December China shock we automotive emissions the observed in COVID as in also Regionally, and strong continue changes automotive softness the regulations. growth first some market in as to forecast electronics, some January lead We well due the quarter we're and seeing in

stronger a in year. half to expect We China be bit the little the of second

safety very customers. is Number vehicles, to first customers This supply applications, long-term a systems, believe by the projections infotainment We the call. electric As one and systems in in adoption automotive our security. our QX, electronics that includes or tactical sales that increased short-term And several strong, annual of ADAS, including, accelerating automotive earlier, we're foremost, made in and active range automotive a and of new is more being we XX acquired products market. our growth our I in the the is factors. secular across in reiterating we is driven electronics and mentioned connectivity, improvement demand funnel silicon the of fundamentally growth last

is automation security in within industrial for advancements strength sector, the demand The including for factory increased second major and factories. driver demand us

products only Third the that security everywhere. onshoring growth. consumable is the content contribute requirements, overall Europe, is also acceptance revenue onshoring but of for and North products our Fourth built going recurring of by on regulation America. and is for America. security-enabled upon in policy There's our impact demand the and services North for And into not to finally that the and government of the recovery security to creation the

the electronics opportunity. recent prospects growth from third-party share Now a call are the earnings about bit I've to talked and the automotive excited long-term about call, But some to on this I'd insights announcements some there. transcripts long-term dynamics of you context give we so why quite industry and like

and projected announced XX% a testing be Teradyne First, would down year. this market that about

for look of they was said really they're market and but business. environment versus industrial you capital they were the they seeing a saw in industrial. on X/X, that down if Teradyne mobile It's some that overall strength say that equipment the only bullish was in everyone the X they're surface, pretty and beneath you the and headline did beneath very, market On what conditions quite very interesting and weak overall and bit, segment. average, the But PC extremely What trends. PCs difficult markets. smartphones in number seeing see of and industrial, tale and represent overall automotive sounds very X/X is automotive Because their a about automotive in

designing seen their was that but on they was they interesting Apple you CarPlay. longer and not be have that and supporting made the supporting that by own for and The said infotainment going no and were second their clusters to may call, their fact earnings General Motors, systems instrument us managing for announcement software

at in means of part stimulus about customers years. the discussions seen is been or won clusters. X us for already Now least alone the next to that that's instrument OEM this could in for the their this one to with additional we've business a have X industry. electronics to demand on have have And we'll segment. programming demand in what outlook an lowering decision one that before this business going into you of we've rather, automotive stimulate And seen EV demand. add you've be to impact Obviously, about material automotive announcements the top and for prices in the this, this good suppliers And

Shifting policy impact to little I'd about bit regulations like and technology. government talk the the and more IoT, about of a less to

chain, a protecting your is securing in to For hand IoT seen and the from monetizing right what years, now around we've device. is manufacturers. with better governments data, your want accountability government heavier you And your demanding an the world from what products, increasingly managing in your more software We're benefits securing why you're software, we've which seeing supply talking and security been better for and acting. have hardware, stepping your about devices, security are

was The latest here National the the of policy titled strategy recently that United issued is document States. Cybersecurity the

encourage would and is Now cybersecurity published you in March to be labeling of some Driving We'll of at IoT year. across device a to will X.X security, corporations years. there I'd is security look which yet be of I clearest to This think at specific been X.X also need put we've The was Development advocating very for include to that will comprehensive interesting Section look to for and requirement but website, it our this this. U.S. Section Manufacturers sections all of interest related you. improve board better very and Secure a There's It's products, Of Devices. copy on titled, forward. subscription a what the up consumers. a develop plan stronger going X.X.

software also software. liability those focuses who produce for designed X.X and impacts Section security creating poorly software on better insecure discusses and and

cases sounds their to manufacturers that this platform to is the support Now have designed and our could in very earlier, customers improve address positioned good to products our and X potentially these we're are items be. needs mentioned specifically with SentriX that to onerous I The well areas. news use

in continue we Japan. security little a a services about with across Japan collaboration announced in their the separate as formed deployment security in lines. the We SentriX microcontroller we IoT made quarter. Talking strong Leading first enable announcements we the significant and with more quarter, Corporation X to service first well first to pay-per-use our SentriX, to partnership a revenue have had bit Noa establish Technology Nuvoton provisioning And relationship product

security design product creator many protected Our Data medical software work to Nuvoton process security that for OEMs simplified metering, for are tool. and automation, solutions with deploying such enables SentriX high other I/O's as using building applications and IoT

Germany. Nuremberg, at Diego in APEX In marketing we the a and addition had these to shows our first strong trade very San in both World momentum Embedded quarter. in This included activities,

partners engineering fact, I/O a sales tremendous our to about these management and growth to trade real They're SentriX leads well we benefit the of security number start product In And forward and reawakening regulatory that to these community start we product qualified eager number eager We playing our quarter. development. as a with are of platform met second community talk remains a look we to with X our of had as with substantial and exciting better from of help marketing traditional excited years Data companies, mind. Combined they're very programming as to business. them. had data potential robust very after an show funnel and in how new bump defense. leads, to embedded secular in trends could with a People the

turn more Hatlen I'll it the that, look over a for Joel at With numbers. to detailed

good everyone. and Anthony, you, day Thank to

move December revenues, financial million I/O's from as sheet capital. strong with We the $XX.X working in end sheet profitability and cash, income had the margins with first quarter Data in and last as from discussing first year. growth balance ended million quarter XX. $XX.X start to statement. by improved at the the up The cash condition balance of gross $XXX,XXX and I'll well

that quarter were than in note quarters. we to actually cash payment more strength certain items we first and quarter. has of in typically and operational As disciplines, year, company first annual our With accrued cash the able grow use other business public continued each other our typically the costs

March track Inventory $XX.X Net to receivables increased from XX. $X.X collection working was on million XX was of within million up XXXX. outstanding, or Days as million days This capital target sales a is DSO, March of XX. from December on XX million slightly range. $XX our $X at at XX, December measure, at

hold several support in to our shortage levels. last related resilience our the and as address to quarters, inventory robust backlog supplier our During increase bookings and decisions additional inventory a to the improve risks,

from levels normal and return more Our December normal XX and $X.X backlog to XX, $X.X a million at down was operations. XXXX, March million on reflecting

on Now statement. to the income

quarter of of This first in $X.X and board For and be QX quarter, Automotive of was addressable across XX% the and drove million us $X flat strength from first sequentially. orders million XXXX to XXXX were up and year the XX% continues revenue bookings primary market. up the to electronics quarter profitability last our first was in from QX. of reflected

and were quarter. XX% On XX%, a XX%. with were revenues XX% for breakdown breakdowns and for were equipment capital basis, geographic XXXX, of revenue percentages of software consumables revenue international XX% about and the the quarter sales respectively. which services consistent First first XX%, was were all represented This XX%,

emission prepare coming quarter the fourth Europe they in China for saw million recovered We off and for $X.X of effective QX down automotive strong in in $X.X from million, COVID first the bookings First very softer in and XXXX quarter was new as $X.X QX July softness million X. XXXX. a expected were regulations from quarter bookings.

to currency and up first quarter in XX.X% of margins were and first were in XX.X% and at the exchange channel significant of rates, the variances. quarter negatively The from quarter Gross in favorable fourth the primarily impacting quarter due and was XXXX factory operations. normal the there increase mix when from favorable fourth XXXX, product XX.X% were issues more

operating in and costs. expenses the $X.X XXXX. quarter million compensation differences quarter the recruiting-related Operating commissions, to primary the the first of $X.X and expenses for are in million shows, incentive in higher $X.X quarter trade fourth channel in The first were million year-over-year quarter compared

you costs. seasonal As substantial know, and have QX public we company audit

with tax. loss first first R&D of XXXX. fourth and $X.X quarter taxes March million income administrative quarter in the fourth our million in the of to quarter expenses consisted the in million in overseas subsidiaries million of state operating $X.X in Taxes the a $X to the compared priority. carryforwards were Selling, the $XX net on had continues quarter be profits and of R&D first $X.X on The and company and million quarter of U.S. the our million in $X.X in was XX. foreign first general approximately Funding expense of the compared XXXX quarter quarter XXXX. as first $X.X million

as income the XXXX. per fourth first quarter Net EBITDA debt. XXXX have a loss negative the shares the share with in diluted continue loss net or Adjusted $XXX,XXX in $XX,XXX $X.XX XXXX was and fourth remain $X.XX XXXX. financially quarter's and had earnings in quarter share strong we earnings XX, XXXX of $X.XX no of of or first quarter of very EBITDA $XXX,XXX XXXX's compared in per quarter quarter EBITDA first of was We million share or per of back the with the of in $X.X of adjusted first Overall, of compares March to X,XXX,XXX adjusted $XXX,XXX the XXXX. outstanding on $XXX,XXX and

plan Anthony XXXX. funnel, double-digit his remarks, to addressed with continue the in as growth revenue forward, sales in we continued for Looking strong

expenses We primary currency margins the of the to be due and and changes. with variations flat year. of Gross throughout to high-XXs XXXX, exception continue expected to to incentive expect a mid- impact range operating continue the sales throughout to in compensation are relatively of

of first you remarks the the would please my start That quarter XXXX. process? Q&A for concludes Operator,

first today comes Research. David The Singular Instructions] from question Marsh with [Operator

the Congratulations on fiscal start to the strong year.

you Dave. Thank very much,

guess I a that close in gross to plays to came you for the margin your year to how for the up substantially on in first really year? quarter? pretty which quarter zero into balance how is the just and tease gross about of first expectations wanted which really little XX%, guidance first Could And the above you're year-over-year. the in margins, level talk that able I

Yes.

and to could the operating environment we more that enabled I thing revenues think I all a the that working number get say factories good X really normal It had would this. is out. backlog our

we better of in factory in favorable well particular. it's level. a that, as particular, tailwind variances as mix We a to was down had helpful. exchange normal currency And at compared So had rates there the then quarter fourth the channel a very in

we in So selling costs. we commissions gross have discounts either margins, sales down or in have distributor

in commission had discount where channel as an distributor internationally. we quarter, we stronger to are pay Americas, typically the area mostly This sales opposed a which a

Joel, saying So what spending up that's reasons was you're one of why because the is SG&A. in

Yes.

and which that net awash, in channel higher were profitability mix. because get and we margins is the But mix had to you'll higher of -- what where the margins of sold, but spending The determines impact we with sort higher QX.

Correct.

I Cybersecurity discuss And would the expect income line then a to be I to legislation? to we your on wanted around guess time focus comments And of my just we where and forward? a purchases second long meaningful of about how of reflected in in might it new kind Act bit question, shifts terms little type in your start reflect take to this statement might going see what

the to vacation. for But maybe is adjourn thing -- the the that us X motion I think and think handwriting important on X products they Dave, they're all when Yes, the the except for to are the have I you're it design now, and moves even about most other talking to to know years the seeing things. going nothing people takes or regulations finalize quickly if government, those summer wall,

years XX even an X products now, If embedded IoT they're going life or to have of expected longer. cases, some you're to designing in

they're people the on the with of new What round new those design back back security it's who they're range of to and in shortages, doing designs. with to a few have across not years industries, they mind have defense being I a that for product idea now supply engineers in forcing COVID, think coming have coming new designs is been due office, for a playing broad

now what to on So that they case, the is it's for if people risk facing I security brand their thing, means think influences potential people to from add they're folks yet the And do another to wrong government thing the design. thing. going now exposure the and instead their wrong doing have of it

factor So like business, that long-term a we for we tailwind market. another see about it just that SentriX our as

The next Kevin question WestPark comes with Capital. Garrigan from

speaking with you, Great again.

results. my on echo the me Let congrats

a few for me. questions Just

kind the So it's part, of first X-part question. a

new snail's customer said securities of question strategy. last split between with kind on of automotive more evenly wins, XX Dave's a they automotive? you of And majority industrial? those governments move kind conversations Or at a are the in how off pace. So Can of color little then are the And national and then give of us you those going on customers? your are kind going

are of until of need using conversations the yes, potentially Or these gung-ho SentriX? wait I we mean kind about they are initial kind So it? like, talking are we'll

Sure.

So the typically were X it us X good have this think or new majority customers automotive, that and was I X, but with there new in wins in actually We maybe on and a it come a and really new or the X others X was in in X for wins, customers. one new been unusual quarter, of might a regard. quarter

On we're starting conversations people And are adding more broad-based. SentriX, to capabilities the on their happening, security it's seeing second lot it's a one because products.

machines a silicon which Trade to actual think mentioned, one had a is not they're show why in had one I Frankly, more it's out people want face-to-face to new we they there, e-mail. lot capabilities we're machine for It's Zoom is security. That's the sell get negotiate I We of do. to say with we market. are in or in the security and And And people straightforward very challenges of the we COVID to in to factor our the and SentriX Germany, it's our the pretty government at Embedded can over was when regulations conversations the it's target you from World want we making tough think you. the easy As X available. to provisioning office. pretty do The influential mature, easier. things office great Show bought like don't with fifth

to do be someone thinking change in down actually changing I conference everyone to sit room And been change and a for We're saw through paying teams certainly We trade people. down to because people in year. get at hard applications and is which to door, this our is think want travel or walk shows. What's entertainment the that's better I lot what access and more them sales I'm my much to would a a sit process and in to out to have be more certainly having it available. get tough doing.

So a to piece that It's where needs of. aware the the investors again, the happen. make I finally to think figured want regulation out gotten I is this to point government's

So says mainstream is the lunatic beyond and market. least of fringe it's that the entering at the probably

Okay. Got ton it. Yes, that makes sense. a of

Great. quick Okay. a just as And follow-up.

the look up year, in But or kind that X the have you are of as then keep And the out of you things what night? books. about? X quarter kind XXXX rest what to at the X excited things you So are that the of or X of you're X

Every time I news, turn on the distressing. it's TV

and pay So on. much is it's they're because is poison. on Maybe raise pick and game, do going maybe is the I your by deflation. too they Fed crunch. and the caused But that doing a Bank debt government rather not hockey the business the credit Silicon tight, watch pretty way. can't the Inflation, investors limit concern well, on general collapse the maybe don't on Kraken the to Maybe anymore, Valley has let's

fast. get follow variables, want those you to you'll If pretty depressed macro

in view, they're that products, are doing? that they going I wanted market things relevant industry of the news in is what did automotive the within specifically reason And continuing, an weakness okay, what our are which that when But industrial. people strength you're you when pockets and of think PC read script, to excellent headline The Teradyne that, is our to get. is to go which overall are buy job soft, they to smartphones, answer that, products. and I some The and buying call I are our the I the pockets of be micro there are version articulating out yes, think more could

And trying X investors to so cover and what attention I digging not version, pay story I'm the in is really guess to message into to but what's the automotive. going news and beneath headline the on number

own Nothing know have own going to automotive, good. also to mentioned I that's very system. own stuff have consoles don't what, you our ton supporting much, and because Data software, great, space, infotainment lot I/O with we're a want going infotainment for And pile memory experience. the When that. the monitors in the a We're prices automotive GM can we're provision to the of flash customer we cutting a commercial but of we of demand, stimulate because our because Well, our provision in wrong that's to stuff have Apple, in says, too, thanks space. do tablet we to in

long-term. these variables are bullish the and that very, again, not out as things So are mid- look we for macroeconomic very are us over that

question [ph] next from Investor. Private The a who Chris comes is Bakowski,

me quarter news as about in Congratulations production basically I well. suppliers of Tesla's from Tesla wanted ask might all is also all the as because the There's be suppliers. there's that of going as from is automotive to not stop high cutting kinds the the the great of China. of asking sector prices news hoped price that reductions to And subsidies. on for

improvement talk China? in will what's expecting And So later you gives -- what there? that can be you about that? confidence there you're happening you And for already said

the China I I'm we in Yes. think of certainly Sure, in you that the in because that And Business in to I said and was remarks I on they is should way have glad a expand earlier. lot it revealed inventory situation question chance China some me December we saw in And think turbulence January. had in a it soft The QX. reopening there's after the gives probably really see Chris. QX. asked QX.

understanding China. things. Their this good. And some March pretty couple about looks on going the automotive keep to forward It improving. confidence regulations gives that, emissions admissions there's old an weekly you it's July trends I What grace We can't X. way it. a for period. thing that then to sell able numbers really are the their you're the be the of changing that that XX-day think are do in sell they also after cars of look eye my a under is us But they're And

make of are they if need have old emissions when them standard, rid that to So these changes, now. get they cars they any the

it as the create some to right, And at end so of old -- they does localized disruption building day, say, to of there. And is switch the on any the the anymore. not demand models. have the chain models all I but supply the over still I'm new

China it. Data you tremendous content hard mentioned very market. well some can I real on think having least buy volume anywhere before, very We're I has calls be to And in EV a production in these China. I/O without one. positioned as the I automobile find would It think at world don't has a that certainly in

what industry. a they need. on suppliers. from the deal us about total in a we And what so to I much the deliver market don't continue auto typical the of suppliers, ask they And for all because That's for a hiccup China auto know us, for behavior we and should had growing. much asking quality a pretty definitely be buy they and cost haircut normal big back and haircut is then pretty Tesla it time. perspective, And our think the their

Matt with from Equitable. Winthrop comes question next The

progress. I'm you a while. fair retail guys I've little ask wanted Nice a good to following for a broker I making and see you're sword. double disclosure. been to

force we And also, once of quarters, most that. couple of bookings really year? products? a a a distributor gives rely the looking in feel in so other for the versus than later commissions mentioned Do you marketplace expand consistency yet sales in picking in-house last an good you on there about while. in of much the more to Is that And corona You of local at amount something seem things to like you up. in the and backlog, confidence love terms are there's

very Matt. you much, thank Well,

So on we're the depending a on different we model in. what process, region sales have

Europe. and salespeople, in have We like direct places that's preferred model our certainly

We of of the service local also and North reps in reasons, variety mix a lot distributors strong and local are South servicing do U.S., Asia. And have support, very and in good, for in reps we language Asia through America. of have in we some business very a a distribution

So We've it tried serves to our what's the region. great sales sales and to the best customers' on our really only service. engagement region that optimize for available reliable capabilities depends our also or be not in needs needs

that's So a sales question.

the needs be on on. And just factors, into yes, and question, that some fact about excited new need they new low-cost on you hours, one they midterm I/O global programming, doing, in just going people region, and second so capability, I unique are the about. there's more in has out, silicon the excited need know there addressed back On people the far, XXnd by you business. open are, a a then coming version support more more the we I security, keep the And programmed. cars, I/O. just of tease more automotive but the X it I'm probably Data for long why leading to term, the that And and They about caller's to programming rid worldwide service. items market. of presence. could expand on the up silicon previous country, a on that's shortages, what that's that Data the in talk a getting that we're presence I China factory which and of that and supplier If

keep just going. let's So

The Michael Investor. Private comes a next who is question from [ph] Cooper,

a the production. years sales X cycle product understand into bit maybe prototype is? SentriX come know and designers to they then more until little and go service maybe wanted your I product it's in or I how do that line

in to influence had doing front able funnel? you on last Is the that cycle number sales that you on seeing in you designers think down? customers few end the And sense that in are us Can today? coming product the up a -- give So maybe bring I you indicated more production. you kind are quarter, of some

Yes.

one, let the production So me that first. answer

good and we continued So in QX. production QX, revenue they production We customers in start had had pay-per-use several QX. in

phase, On full the XX production. by need the good they going think got or design market. new product we then talk If cycle, I during go we're designing to X months to into customer, could to to customer of understanding very take them introduction as a XX to they're you've which

down and about them excited One what the of we're a do their to goes completed that us it to enable go into reasons between for that so the the to we It we when upfront that a announced figured is products and way, bit than reduces up out normal with production. we overall, production. and our game can with a silicon we win. go you security SentriX going time sale, our the a all work their security will But data more into sat in between when require not programming case you in still design engage catch little already allows how customer to that work and with by with And I/O's way customers. to with a Data only have doing the but the the Data them customer we how or algorithm it into you you're partner provisioning little later right, an here's can they to I/O and and Nuvoton that's do customers use the time production engagement

Advisers. question with Fisher next Cast Avi Long from comes The

I mean, describe a Could what quick buying new customer that something Two new PSV a else? is client or a ones. win you is?

system. is Usually, an Avi, when system. win, customer Yes, it's automated a sell we

And small SentriX a it's site. a be have customers manual a or they any I/O Data win. equipment -- that at might system don't Some amount

fourth customer a count a win. we would sold as not a would at If a a that that it's the X customer, SentriX that's new customer customer we've if where new example, -- that, working a customer with with If brand-new for customer new win a a they for years win. it's been win. that open we be new If and a a opening factory, win. customer and So a system factory it's up up we that's location

and to remarks. our session. this conclude closing the management for gentlemen, to will back would I question-and-answer conference turn over any Ladies like

Okay. Well, much, you very thank operator.

Select Singular Spring June I'd I'll believe Research May Annual and for XX Conference. close, Solstice Before be doing the that, will Shareholder in of will day then guarantee the longest Meeting I be be a we I remind will on to I that the just our XX May for XX. you And conferences that virtual. on Conference, everyone the having that year. of Singular also Summer Research like QX, be couple And

much. today's So with to thank call, that, very I'd everyone like and conclude

Thank has conference attending today's for now you presentation. The concluded.

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