Data I/O Corp (DAIO) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Data I/O's second-quarter financial results conference.

At this time, all participant lines are in a listen-only mode and later, there will be an opportunity for your questions and instructions will be given at that time.

(OPERATOR INSTRUCTIONS).

As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to the President and Chief Executive Officer, Mr.

Fred Hume.

Please go ahead, sir.

Thank you and welcome to the Data I/O Corporation's second-quarter 2008 financial results conference call.

With me today is Joel Hatlen, Vice President and Chief Financial Officer of Data I/O.

Before we begin, I would like to remind you that the statements made in this conference call concerning future revenues, results from operations, financial position, economic conditions, product releases and any other statement that may be construed as a prediction of future performance or events are forward-looking statements, which involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.

These factors include uncertainties as to levels of orders, ability to record revenues based upon the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, pricing and other activities by competitors and other risks, including those described from time to time in the Company's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases and other communications.

The accuracy and completeness of forward-looking statements should not be unduly relied upon.

Data I/O is under no duty to update any of these forward-looking statements.

Revenues for the second quarter of 2008 were $8 million, up 30% from the $6.2 million recorded in the first quarter of 2008 and up 39% from the same quarter of 2007.

Net income for the quarter was $1.2 million, or $0.13 per share.

Operating income rose 77% to $1.1 million compared to the first quarter of 2008 and was $2.2 million higher than the loss of $1.1 million recorded in the second quarter of last year.

Cash at the end of the second quarter rose to $10.8 million.

Joel will comment on the balance sheet items in a few minutes.

Orders of $8.8 million were up 60% from the first quarter of 2008 and up 43% compared to the second quarter of last year.

In the second quarter, we recorded the highest level of orders in the past eight years.

Compared to the second quarter of last year, European orders were up 47%, orders from customers in Asia were up 22% and orders in the Americas were up 45%.

Orders for our automated systems were up 65% compared to the same quarter last year, while orders for our legacy productlines declined 16%.

Orders for consumables were up 41% compared to the second quarter of last year.

The Company continued to add new customers during the quarter and orders from wireless handset manufacturers and their related suppliers were particularly strong.

Backlog at the end of the quarter was $2.5 million, up approximately $1 million from the end of the first quarter.

Operating expense was $3,453,000, up from the $3,126,000 recorded in the first quarter of 2008 due primarily to an accrual of $300,000 for anticipated bonus payments for 2008 and increased sales commissions on the higher volume.

Gross margin was $4.6 million, or 57% of sales.

Direct materials, while up, were within the normal quarterly range.

The overall gross margin was below our goal of 60%, primarily due to decisions to increase the inventory obsolescence and warranty reserves.

Some of the highlights for the quarter include -- we revitalized our sales organization through additions of key personnel in the Americas and the addition of new channels globally.

We introduced and delivered our new extra-large format version of our highly successful Pro-Line RoadRunner to support special requirements of our automotive electronics customers on schedule.

Major customers embraced our new software solutions.

We took business from alternative programming solutions.

We gained marketshare globally and solidified our leadership position in the market.

We saw an increase in the number of institutional investors owning our stock.

The Seattle Times ranked us in their listing of the top public firms in the Northwest.

Among the top 100 firms, Data I/O ranked number two in gains in operating income, number two in increased profits and number eight in increased stock price.

We are particularly gratified to see that the changes we have made over the past few years are bearing fruit.

We have generated four consecutive quarters of substantial profitability with the fourth quarter trailing earnings of $0.72.

Growth compared to the first six months of 2007 exceeds our goal of 15%.

We continue to operate very close to our target business model.

Effectiveness and efficiency continued to improve throughout the Company and in the third quarter, we intend to increase the geographical coverage of our salesforce by the addition of more new channels.

We remain committed to delivering a steady stream of innovative solutions to our customers' business problems.

At this time, I will ask Joel to provide you with more information on our financial results.

Thank you, Fred.

Good day to everyone.

Revenues for the second quarter of 2008 were $8 million compared to $5.8 million in the second quarter of 2007, an increase of 39% as Fred mentioned.

International sales represented 82% of total sales for the quarter with Asian sales increasing 67%, European sales increasing 13% and the America sales increasing 55%.

The variations in sales percentages versus order percentages Fred discussed relates to the use over generation of backlog.

The backlog at the end of the quarter was $2.5 million, up $1 million for the quarter.

As Fred mentioned, revenues were up 30% from the first quarter of 2008.

The strong revenue growth was due primarily to our automated systems-related demand, especially the Pro-Line RoadRunner family, as well as our aftermarket adapters.

The gross margin for the second quarter of 2008 increased in dollars and percentage compared with the second quarter of 2007.

Gross margin as a percentage of sales was 57% for the second quarter compared with 49% for the second quarter of 2007.

The primary causes for this change was due to the higher sales volume, a favorable product mix, especially from the RoadRunners, and savings from our restructure actions taken in 2007, offset in part by the unfavorable factory variances Fred mentioned.

These variances included additions during the second quarter to the inventory obsolescence reserve, the warranty reserve, as well as some currency effects of euro-denominated costs.

Operating expenses were lower by $494,000 while including $300,000 of bonuses in the second quarter of 2008 compared with none in the second quarter of 2007, which included $632,000 of amounts related to restructure actions.

The restructuring accrual and actions are now 100% complete.

Income from operations was $1.1 million or 14% of sales for the second quarter of 2007 compared with a loss from operations of $1.1 million in the second quarter of 2007.

In accordance with US generally accepted accounting principles, GAAP, net income for the second quarter of 2008 was $1.2 million, or $0.13 per diluted share compared with a loss of $1.1 million or a $0.13 loss per share in the second quarter of 2007.

Earnings per share included the impact of equity compensation expense under FAS 123(R) of approximately $0.01 per share for both the second quarters of 2008 and 2007.

Note that the year-to-date net income includes a gain of $2.1 million from the sale of patents with retained licenses, which had been previously announced in the first quarter of 2008.

Data I/O's cash was $10.8 million at the end of the second quarter.

Our cash is invested in money market funds or government funds and is not invested in auction-rate securities or other commercial debt.

During the quarter, accounts receivable increased by approximately $1 million, primarily due to the increased sales volume, but reflected improvements also in collecting our international receivables.

Inventory decreased slightly during the quarter.

We were pleased to have the operating results that reflected the work we did in adjusting our financial structure in line with our breakeven model and relative to our target business model.

Looking at the rolling four quarters ending June 30, 2008, you will see that we are operating very close to our financial model.

The leverage and profitability from growth in revenues is the cornerstone on which we are focusing for 2008.

At this point, I will turn the discussion back to Fred.

Thank you, Joel.

We are entering the seasonally stronger period of our fiscal year.

With many substantive prospects in our sales funnels, we look forward to continued success throughout the year.

At this time, we will take your questions.

(OPERATOR INSTRUCTIONS).

Dave Kanen, Pointe Capital.

Hi, first, congratulations.

Excellent quarter.

My question is in regards to the seasonality.

Could you just reiterate to me the seasonality that you normally experience through the year?

Certainly, David.

Our business is seasonally weak in the first half of the year.

Traditionally, our first quarter and our second quarter are the weakest quarters of the year and we generally have substantial difference between the first half and the second half.

So basically, we are really entering this much stronger period of the year as we go into the third quarter.

Okay.

That sounds good.

Can you tell me, if possible, how many new customers there were?

We count, at this point in time, five major new customers during the second quarter, yes.

Okay, I am going to let somebody else ask questions, then I'm going to come back with some follow-ups.

Very good.

(OPERATOR INSTRUCTIONS).

Robert Kecseg, Las Colinas Capital Management.

Hi, guys.

I was going to say that is a super quarter.

I have been around for a long time.

I was going to say I have been around since this Company did $10 million in a quarter, which goes back to 2000, I think.

It does.

Is there any chance we could see that in the foreseeable future?

Well, there is always a chance.

We have lots of customers out there.

Bob, we estimate that we touch about 10% of the total volume of parts that are shipped each year.

So we have a lot of opportunity to grow and increase our share as we become more competitive with the alternative solutions and that is our goal.

I was going to ask you -- I always think of your business in those segments.

The programmer market where they do the massive amount of parts, is that still a part, a decent part of your business today?

Yes, we still do business with programming centers.

That is correct.

And the greatest part of this new customer base is mainly related to the auto industry?

Well, actually, the five major new customers we added in the first -- pardon me -- in the second quarter were pretty diversified among automotive and industrial and other sectors, yes.

And most of this is in the manufacturing side, not on the scientific design side?

That's correct.

And I was going to say -- on the gross margin obsolescence, I think, portion that Joel mentioned, I am trying to figure out if you back just the obsolescence part out of there, about how many dollars do you think that accounted for?

We took a charge for the quarter of $101,000 in obsolescence charges relating to some inventory in essence that had been carried on the books for the last -- between a year and two years -- that just has not moved.

So we decided to put a reserve on it.

We are pretty conservative about this, Bob, and frankly, very often, we find that we are able later on to recover that inventory and get a sizable gain from it.

But we have formulas and the drive is to do certain things conservatively from an accounting standpoint and that is the approach we take.

That is perfect.

I just was trying to get a quantity to kind of see what the GM would gross up to without that there.

I am just kind of assuming that won't be there every quarter.

That's correct.

I was going to say I am really looking forward to the second half because it definitely is the stronger part of your year.

Well, thank you.

We are too.

I was going to say you really came out on a good day today.

The market being down about 2%, 2.4% on the Dow.

Yes.

I will let somebody else ask some questions.

Thank you.

Well, thank you for being on the call.

(OPERATOR INSTRUCTIONS).

No one else is queuing up at this time, gentlemen.

You may continue.

Well, thank you very much for joining us this afternoon.

We appreciate your attendance on the call and we look forward to talking to you at the end of the third quarter.

Ladies and gentlemen, this conference is available for replay after 4 p.m.

Pacific time today through midnight on July 31.

You may access the replay service at any time by dialing 1-320-365-3844 and use the access code of 953414.

Again, that phone number is 1-320-365-3844 with the access code of 953414.

And that does conclude your conference for today.

Thank you for your participation and you may now disconnect.