Data I/O Corp (DAIO) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Data I/O Announces Fourth Quarter and 2013 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time.

(Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Anthony Ambrose. Please go ahead, sir.

Thank you. To everyone, thank you and welcome to the Data I/O Corporation fourth quarter and 2013 year-end financial results conference call. With me today is Joel Hatlen, Vice President and Chief Financial Officer of Data I/O. Before we begin I'd 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 the 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 SEC, 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.

Before I turn the call over to Joel to discuss our numbers in more detail, I'd just like to add a few comments to the earnings release. As you can see, Q4 was a weak close to an otherwise pretty improved year. As we talked about last quarter, the bookings had decelerated pretty sharply in the third quarter and continued to be weak until December. From that position we're seeing a stronger start to the first two months of 2014 compared to the same period in the fourth quarter 2013, and that strength is largely on the basis of our automated handlers.

In the fourth quarter all regions and segments were pretty soft and we saw the reduced booking levels, as I mentioned. For the year Americas and Asia exceeded their overall targets and Europe lagged behind plan. In general, the wireless market was stronger than expected and the automotive market is weaker than expected in 2013.

Coming out of the quarter, we had a nice automotive booking for the PSV7000 in the fourth quarter. We are very happy with this customer. It's a very well-known automotive customer and we are working with them to add some special features to the product and we should have that out to them late this quarter. We had a new industrial customer in the Americas, and one versus very strong competition towards the end of the quarter.

Relative to our comparable period in Q4, we have more bookings now overall now in Q1 and have built a very favorable and strong sales funnel for the PSV7000. As I indicated earlier, we see automotive picking up globally and the PSV7000 is ideal for quality-conscious automotive customers.

As we begin the year, it looks like Europe and the Americas are off to a good start and Asia still waking up from Chinese New Year. We are monitoring very closely the China PMI and other conditions in the Asian region.

As we previously mentioned in our December filings, we changed some of our executive team in Redmond and Germany. These changes have gone very smoothly with Joel Hatlen picking up our operations in Redmond, in addition to his CFO responsibilities.

Rajeev Gulati, our Chief Technology Officer, is now responsible for all of our software development. And Helmut Pflaum started as our managing director for Data I/O GmbH and is leading our European sales, and that change was effective in early January.

I'd like to call out a couple of other items before I turn it over to Joel. I think our finance team did an excellent job of managing receivables and was able to grow our cash in the fourth quarter despite the low levels of business. Joel will walk you through those specifics shortly.

Looking forward to 2014 we will continue to have further new product and feature introductions and continued focus on cost control. And those two themes have been consistent for the past year and half and we are going to take this forward into 2014.

The actions we took in 2013 to lower our breakeven -- excuse me -- will lower our breakeven to about $4.7 million per quarter of revenue, with a normal product mix, down from about $5.25 million of revenue to breakeven in 2013.

As we have talked about consistently, we have focused our developments on programming technology and automated handling systems for the manufacturing environment. PSV7000 is the first one of new products to focus from this R&D effort.

Finally, I wanted to make sure all of you saw the 8-K concerning our Board. As we found that the meeting at the Board of Directors on February 25, the Board took the decision to reduce our size from six people to five people on the Board of Directors, effective with our next annual meeting of the shareholders in May.

One of our existing directors, Ken Meyer, will not stand for reelection at the annual meeting in 2014. Ken joined our board in 2012 and has served as a chair of the corporate governance and nominating committee. He will continue to do so until his term expires in May.

With the effective date of the annual meeting, Brian Crowley will become chair of the corporate governance and nominating committee. Ken has been an outstanding director for Data I/O and I'd like to thank him personally for all his help and guidance over the past year and a half, and wish him all the best.

With that let me turn it over to Joel to talk more about our numbers.

Thank you, Anthony. Good day to everyone. Revenues for the fourth quarter of 2013 were $3.3 million, down 10.8% compared with $3.7 million in the fourth quarter of 2012. International sales represented 80% of total sales for the fourth quarter compared to 79% in the fourth quarter of 2012.

On a regional basis, revenue declined in Asia 18% and the Americas declined 26%, with Europe increasing 7% compared to the fourth quarter of 2012.

On a product basis the revenue decrease in the fourth quarter 2013 compared to the fourth quarter of 2012 was across all product families but primarily from Data I/O's automated PS family as well as the FlashPAK, which was most impacted by the drop in Asian demand.

Revenue from adapters of consumables were down 6%. Order bookings increased 5.4% to $33.7 million in the fourth quarter of 2013 compared to $3.5 million in the same period in 2012. The variation in revenue percentages versus order percentages relates to the change in backlog and deferred revenue. Backlog at the end of the quarter was $1.9 million, up from $900,000 on December 31, 2012.

For the fourth quarter of 2013, gross margin as a percentage of sales was 44.3% compared to 49% in the fourth quarter of 2012, with the decrease primarily due to decreased sales volume and unfavorable factory variances primarily related to labor overhead.

Operating expenses, excluding the restructuring and impairment charges, in the fourth quarter were $2.6 million. And compared to the fourth quarter 2012 were down $289,000 primarily due to restructuring actions, less amortization and our cost control actions. Equity compensation and expense -- a non-cash item -- in the fourth quarter and year-end 2013 was $116,000 and $423,000 respectively.

The restructure actions that were announced during the quarter have largely been completed at this time. The restructure charge in the fourth quarter of 2013 was $540,000 and the increase compared to the earlier December announcement was due to additional European personnel separation and legal costs.

In accordance with US generally accepted accounting principles, GAAP, net loss in the fourth quarter of 2013 was $1.6 million or $0.21 per share compared with a net loss of $3.4 million or $0.43 per share in the fourth quarter of 2012. For the year ended December 31, 2013 net sales were $18.7 million, up 9.6% compared with $17.1 million in 2012. International sales were 87.5% of total revenue compared to 83.4% in 2012.

For the year 2013, bookings were $19.5 million, up 14.5% compared to $17.1 million in 2012. These increases were due to our strength in our wireless and consumer business, particularly during the first half of the year.

For the year 2013, gross margin as a percentage of sales was 50.8% compared to 50.6% in 2012. The increase was primarily due to sales volume, offset in part by mix changes, customer discounts, and unfavorable factory variances.

For the year 2013, operating expenses excluding the restructuring and impairment charges were $11 million, and compared to 2012 were down $2 million, with the decrease primarily due to restructuring actions, no CEO separation and search charges, which were $475,000 in 2012, less amortization, and again, our cost control actions. For the year 2013 the net loss was $2.6 million or $0.33 per share compared to a net loss of $6.4 million or $0.80 per share for 2012.

Earnings before interest, taxes, depreciation, and amortization -- EBITDA -- was a loss of $1.5 million in the fourth quarter of 2013 compared to an EBITDA loss of $768,000 in the fourth quarter of 2012.

For the year 2013 EBITDA was a loss of $2.1 million compared to an EBITDA loss of $3.4 million in the year 2012. We have net operating losses, NOLs, in carryforward worldwide of approximately $20 million as well as other credit carryforwards in the United States that are available to offset future US and German income, and we will continue to analyze and manage taxes to take advantage of these tax attributes.

The Company's cash position was $10.4 million at December 31, 2013 with $2.1 million in the United States, and the balance in our foreign subsidiaries. Cash was preserved during the quarter by good receivables collections and inventory purchasing management.

The Company remains debt-free and has 7,786,053 shares outstanding at December 31, 2013. At this point I will turn the discussion back to Anthony.

Thank you very much, Joel. At this point I'd like to turn it over to the operator and open it up to questions from the bridge.

(Operator Instructions) Dave Kanen, Aegis Capital.

Hi. First question is in regards to operating expenses. With the restructuring you said breakeven is $4.7 million. So that, to me, implies like $2.4 million. Am I in the ballpark?

$2.6 million is probably the average for the year. Q1 always has a little bit more, and a little bit less in the later quarters. But about $2.6 million would be our average.

I see. Okay. And then, Joel, can you tell me what were adapter sales and other recurring revenues such as service -- I'm sorry; maintenance, software contracts, etc.?

Yes. So from an adapter standpoint, our adapter sales during the quarter were $236,000 (sic) during the quarter -- or, I'm sorry; I got the wrong number. I was looking at the wrong piece. It's $1,215,000.

Okay. And then how about maintenance?

We don't break that out, but it was pretty similar to what we had last quarter. Our change in deferred revenue was almost nothing.

Okay. And then in the prepared remarks you referenced orders improving in December and then in the first two months of the quarter. Are they at a level -- are they running at a level where you can break even or are we still below that?

Dave, this is Anthony, I'll take that one. They are much stronger than they were at this time in the corresponding period in Q4. Having said that, we need to have a good March. March is usually the biggest month in the quarter.

So I don't want to make a comment about whether we are going to be profitable or not in Q1. It's in the realm of possibility, but we have to have a good March.

Okay. And where is the strength coming from? Which products and how much participation is the new PSV7000 in that?

The strength is coming from automated handlers. And that includes the PSV7000. If you look at it, Dave, the strength in automotive and industrial is pretty well targeted with where the PSV7000 is. It's just simply a great product for that market segment.

We're very pleased with our sales funnel -- the sales activity, the discussions with customers. We had a very strong Productronica event in November in Germany, and I think that helped build a lot of momentum in the funnel that we are seeing right now.

It takes a while to sell an automated handler to an automotive customer and that's okay. They are very demanding, very detail-oriented and we like our chances when we get into those conversations. So we just have to continue to monetize the funnel and do our job.

Okay. And then a final question before I step back into the queue, in prepared remarks you referenced during the year your goals or outlined your objectives, and one of them was new products. What can you tell me on that front? Should we expect additional products in the first half of this year?

You know, I try not to announce new products to get too specific on the earnings call. Clearly we are focusing on building and continuing to invest in automated handler technology and new programming technology. And we are going to continue to do that and we will make announcements and refinements when the product is ready. So, stay tuned to this channel.

(Operator Instructions) Dave Kanen, Aegis Capital.

Okay. The customer in automotive that placed the order on the PSV7000, was that a new customer or an existing one?

It's a customer that we have done business with before, Dave.

I see. Okay. In your pipeline how much of that would you say is related to PSV7000? And what does it looks like in terms of new customers; anything incremental?

Well, when I look at the pipeline, I think it gives us some opportunities to go back to some people who have not purchased Data I/O in a long time. I think they see that the PSV7000 gives them, as we like to say, the velocity, versatility, and value that they really haven't seen from us before.

And so we are clearly talking to some people who have not purchased from Data I/O before. At the same time we're talking to people that have been good long-term customers that need a capacity addition or need some new technology specifically for small parts. And I think in some cases they have been waiting for the PSV7000, because they can see that it is something that is going to fit their needs not only now but for years to come.

So our funnel is really a mix of new customers, existing customers that want to upgrade, and customers maybe that have purchased Data I/O a long time ago, had moved away and we're looking to have them come back to Data I/O for their next purchase.

Okay. Thank you.

[Joe Leifer], Private Investor.

Good afternoon. In your prepared remarks or in the statement that was released, you said that you are on track with your multiyear plan that was announced last year. I've looked over the website. I can't find the multiyear plan that was announced. So is it possible for you to restate it?

Sure. Well, we talked about it in the earnings calls, our releases, the product releases and our various investor presentations starting in May. It's basically what we have decided to do is we need to rebuild the product line around our core functionality and the core business of programming.

Our reputation is excellent in the industry but our products -- in some cases we're getting long in the tooth. We have started to do that. And at the same time, we have to do that with maintaining an eye on cost control, specifically reducing our breakeven, but also making sure we develop these products and maintain an ability to become profitable and grow the Company. So that's really the plan.

We've talked about it, I think, pretty consistently on the call and also on the earnings -- or rather the investor presentations. But that's really what that focus is; rebuild the product line, bring out new and exciting products, gain market share, and keep our costs under control.

And does this multiyear plan have a length? Where do we stand at this point?

We are about a year, year and a half into the plan. I think we are going to continue through it at least through this year.

Okay. So it looks like we are at least halfway through it, then.

That's correct.

Okay. Great. Thank you very much.

(Operator Instructions). We have no further questions in queue.

Okay. If there are no further questions, I'd like to thank everyone for joining the call and I think the operator will have some remarks on replayability and other housekeeping items. Thanks very much.

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