Data I/O Corp (DAIO) 2021 Q1 法說會逐字稿

Good day, and welcome to the Data I/O Corporation First Quarter 2021 Financial Results.

(Operator Instructions) Please note that this event is being recorded.

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

Please go ahead.

Thank you, and welcome to the Data I/O Corporation First Quarter 2021 Financial Results Conference Call.

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

Before we begin, I'd like to remind you that statements made in this conference call concerning COVID-19, future revenues, results from operations, financial position, markets, economic conditions, estimated impact of tax reform, product releases, new industry partnerships and any other statements 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 impact from the COVID-19 pandemic, along with continued reopening and recovery efforts within the supply chain and among our customer base, levels of orders for the company and the activity level of the automotive and semiconductor industry overall, 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, our 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.

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

Well, thank you very much, Jordan.

I'll begin my formal remarks by addressing our 2021 first quarter financial and operational performance.

And then I'll turn it over to Joel for a more detailed discussion of the numbers.

2021 first quarter was our strongest revenue quarter in 2 years and continues the upward trend in automotive and industrial electronics demand that we're seeing since the bottom in Q2 a year ago.

We're coming out of the COVID-19 recession very well and seeing a surge in business in March and April of this year.

We believe the positive growth themes that we discussed recently in our year-end conference call are accelerating.

While there are very well documented short-term supply disruptions caused by sharp increases in automotive electronics demand, supply chain interruptions in the semiconductor supply chain and other factors, the long-term secular growth for automotive electronics remains intact, with industry analysts and customers projecting a compounded annual growth rate of 10% to 15% for the next decade.

Clearly, additional capacity is going to be needed throughout the supply chain to support this demand, and we're seeing that as key semiconductor companies continue to announce record spending in the tens of billions of dollars for wafer fab and back-end capacity.

Data I/O is also answering this call with our most advanced technology supporting all growth areas in automotive, including electrification, infotainment, advanced driver assist systems, security and connectivity.

And this is across flash memory products, microcontrollers and security devices as well.

We're very excited about the business performance in the quarter.

During Q1, we won 6 new customers in Asia across all markets.

This illustrates our global strength and the desire of customers to partner with the market leader during these challenging times.

We also substantially added to our sales pipeline in Q1 with new prospects and repeat customers alike.

This is in both our traditional business and the SentriX business as well.

Overall, we see Asia Pacific and Americas regions leading the recovery with the Europe, Middle East and Africa region following about 1 to 2 quarters behind.

During the overall downturn in the past couple of years, Data I/O has remained committed to our strategy of investing in our key technologies and our platforms.

R&D continues to be a critical and sustainable competitive advantage for the company.

In addition to that, COVID-19 disruption also shows the value of a resilient supply chain.

And Data I/O is the only programming supplier in our industry with 2 manufacturing locations.

Recent fires in a semiconductor fab and environmental-induced issues in Texas illustrate the need for a resilient supply chain, and our automotive customers clearly value that capability.

Regarding SentriX, we had a very nice quarter in Q1 as well.

We won our very first SentriX automotive electronics customer through a partner in Q1.

We also deployed our first field upgrade of a PSV7000 system upgraded to a SentriX system for multinational customer's Asia factory.

We're also seeing increased customer activity from both partners and direct engagements on SentriX.

As we look ahead, we become even more encouraged by the global economic recovery and the demand from our key vertical markets.

With strong operating leverage, Data I/O remains very well positioned to deliver disproportionate improvement in profitability, cash flow, as we continue our cyclical recovery within the framework of a long-term, strong, growing market.

With that, I'll turn it over to Joel Hatlen.

Joel?

Thank you, Anthony, and good day to everyone.

Net sales in the first quarter of 2021 were $6 million, the highest level of revenue in 8 quarters and up 26% as compared with $4.8 million in the first quarter of 2020.

The increase in the prior -- from the prior period primarily reflects higher overall demand for equipment.

Revenue growth also benefited from higher adapter sales associated with the increased usage and growing installed base of machines throughout the world.

Recurring and consumable revenues, which includes adapter sales, represented $2.7 million or 44% of total revenues for the first quarter of 2021 as opposed to $2.2 million or 46% of the lower first quarter of 2020 total.

Adapter sales for the first quarter of 2021 were the highest quarterly sales since the second quarter of 2017.

First quarter 2021 bookings were $5.4 million, up 26% from $4.3 million in the first quarter of the prior year.

Backlog at March 31, 2021 was $3 million, down from $3.9 million at the end of December 2020, but up 30% from $2.3 million at the end of the first quarter of 2020.

We go into the second quarter with a higher-than-typical backlog, a strong sales funnel additions in March and a strong start in April orders.

On a geographic basis, international sales represented approximately 95% of net sales for the first quarter of 2021 compared with 94% in the 2020 period.

Gross margin as a percentage of sales in the first quarter of 2021 was 55.5% as compared with 58.2% in the prior year period.

The difference is due primarily to less favorable variances as well as channel and product mix.

The gross margin percentage guidance continues to be in the mid- to upper 50s.

Operating expenses were $3.7 million in the first quarter of 2021.

First quarter operating expenses are generally higher than any other quarters of the year due to the inclusion of seasonal costs, such as the majority of audit and public company-related costs for the year.

This seasonal amount in the first quarter of 2021 was approximately $250,000.

Within operating expenses, selling, general and administrative expense in the first quarter of 2021 increased by approximately $251,000 from the prior year period primarily due to higher sales commissions associated with the higher demand for programming equipment.

R&D expenses remained stable at approximately $1.6 million in each quarter.

That is the first quarter of this year and last year as well as the fourth quarter of 2020.

We are focused on maintaining, if not extending our technological lead in the automated programming and security deployment markets.

In accordance with generally accepted accounting principles, GAAP, net loss in the first quarter of 2021 was $333,000 or $0.04 per share.

This is our smallest net loss since the second quarter of 2019 and reflects our continued efforts to control expenses as our revenues climb back.

Moving on to the balance sheet.

Days sales outstanding, or DSO, a receivables collection measure, at March 31 was below our target measure at 49 days, even as receivables increased from the end of the fourth quarter, as our sales grew 22% on a sequential basis.

Net working capital at March 31, 2021 remained consistent at $18.1 million from the end of the fourth quarter.

Inventory of $5.1 million at March 31, 2021 was approximately $138,000 lower than at December.

Data I/O's financial condition remains strong with cash of $13.6 million at March 31, 2021.

This financial strength has allowed us to continue to invest in our business during the downturn and now finance the resumption of growth.

And we continue to have no debt.

Finally, we had shares outstanding of 8,421,599 as of March 31, 2021.

That concludes my remarks.

I will turn the call back to the operator to begin the Q&A segment.

Operator, would you please start the Q&A process?

(Operator Instructions) And our first question today will come from Jaeson Schmidt with Lake Street.

Anthony, just want to follow up on your comments in -- on the surge in business starting in March and April.

Was that pretty broad-based or was it concentrated amongst a few customers?

Good question, Jaeson.

As I indicated in my remarks, I think we're seeing most of our strength in Asia and the Americas.

As I mentioned, we had a number of new customers and new locations.

And I'd say it's a combination of some new customers, some repeat customers, a couple of multiple system orders in there as well, but pretty broad-based.

Okay.

And within that, are you seeing sort of signs of life from the programming centers?

A little bit.

I think -- remember, the programming centers have a fairly broad capacity, and they support a number of customers, including smaller customers.

I think it's pretty clear that smaller customers are taking it on the chin right now for many of the supply chain issues.

Obviously, some of the big ones have as well.

But bigger companies tend to throw their weight around more when there's a supply shortage.

So I think our programming center revenue has been pretty flat at about 14% for a while.

And I think that's pretty consistent.

Also, a lot of our programming center revenue tends to come from Europe on balance.

Okay.

No, that's helpful.

And then just last one for me.

It sounds like there was some nice traction with SentriX.

The automotive customer, I know you mentioned you won that design through a partner, but how long were they evaluating this system?

As you're probably aware, Jaeson, the security sale is a longer sale than a normal data programming sale for a couple of reasons.

Number one, the technology is newer.

Number two, obviously, with security and secrets and keys and certificates, people are very concerned about who gets to know about that whole process.

And also, we have to explain it to them and show it to them.

So it is a longer sales cycle.

Having said that, the more customers talk to Data I/O the more you see the lightbulb going off that SentriX is a great solution for a number of customers in the market.

It gives them the volume flexibility.

They can work through a partner, a programming center.

We've had some customers say, "You mean now I can just upgrade my PSV7000 and add the security capability as I need it?" And of course, we say, "Yes, that's exactly what you can do." So it's a longer sales cycle.

As we've talked earlier, we're trying continuously to make it simpler and easier, and that's our goal going forward.

And our next question will come from [Jeff Peterson with Austin Capital].

With the supply chain shortages, including the wafer fab limitations, what does this mean for equipment makers, like Data I/O?

And where do you fit into this?

And what should we expect the impact to be?

Well, Jeff, thanks for the question.

The -- there's a lot that's been said about it.

Clearly, a number of our end customers, automotive nameplates and electronics companies have been impacted by the shortage.

I think there were some remarks made earlier this week by a major U.S.-based automotive company, indicating that it's costing them billions of dollars.

We might be seeing it, but we really haven't seen it in the bookings or the backlog.

We do see some customers coming to us for, I'll call it, accelerated support so they can qualify alternate silicon.

So if they're facing a shortage of component A, they'll come to us seeking programming support for component B, so they can have an alternate supply arrangement.

That's probably the biggest single impact.

As I said, big customers are probably faring better overall.

We have seen some of the smaller customers getting roughed up a bit with the supply chain and that's just what happens when these things occur.

That's helpful.

Along the lines of the chip shortages issue, are you driving benefits in the form of sale of consumable items, such as adapters?

What we are seeing in adapters, again, we mentioned last quarter and it continued this quarter, one of the early indications of coming out of a recession is customers using the equipment they already have at a higher level of utilization.

And that's typically reflected in some of the consumable purchase trends, and that's what we're seeing.

Okay.

Great.

Can you discuss the 6 wins in Asia, including whether they are new or existing customers through which channels, where were the sales booked and any other information you can share?

Including in this, do you believe that these sales are the result of Asia, ex India, emerging from COVID with economic development resuming there?

Yes.

Let me start with that.

Clearly, there are some regions of the world that have been less impacted or have come out of the COVID-induced recession faster.

And I think China is clearly one of those areas.

We had a number of wins in China, but we also had a number of wins outside of China in Asia amongst those new wins.

They were fairly broadly dispersed.

I think most of them were automotive.

We had some industrial, some programming centers in there as well.

So again, very broad, and I think it reflects a number of trends.

When customers are selecting a new partner for programming, they look at us, obviously, they look at our competitors.

And in Asia, we do extremely well even though most of our competition is domiciled in the Asia Pacific region.

So again, the customers that value the quality, the resilient supply chain, the global capability, value Data I/O.

That's helpful.

And what's the status of your proxy with respect to the advisory firm recommendations?

So we just got our proxy advisory recommendations, I think, this week.

And right now, it looks like there's a sort of a split recommendation.

We're trying to figure out why that is.

As many of you know, after we prepare and file our proxy statements reviewed and opinions are rendered by proxy advisory firms, Glass Lewis and ISS.

On Tuesday, we figured out that ISS was recommending support for the Board, but not recommending support for our stock plan extension.

We dug in and determined that we think they might have missed something on an incorrect assumption about the plan, and we're working with them.

We'll see where that goes.

Glass Lewis, on the other hand, did not have any issues with either the Board recommendations or the stock plan, we believe, at this time.

So as I said, we'll dig in, and we'll figure out what's going on, and we'll update you accordingly.

And our next question will come from Dave Kanen with Kanen Wealth Management.

First one is -- so first question is in regards to which end markets showed the most strength in terms of orders?

I think we indicated, Joel, was about 56% of the orders were automotive, and I think 30% industrial.

So David, it was pretty consistent with our overall mix.

So I think, again, it's reasonably strong by end market across the board.

Again, with a strong regional component.

I think Asia is clearly ahead of Europe, for example.

Okay.

And then what percent of your revenue was SentriX?

We don't disclose SentriX separately.

It's in the software services and SentriX.

Joel, what was the number for that for the quarter?

It was 31% of our business.

I'm sorry, 13% of our business.

13%.

13%.

Okay.

So 13% was SentriX or 13% was maintenance contracts and the software service?

The latter.

It's inclusive.

I see.

So it's really -- at this point, SentriX is a de minimis percent of your overall revenue.

Just to take a step back and then look at our expense structure, playing devil's advocate for a moment.

As a public company, we have to ask what's the ROI on investments that we're making.

So OpEx has been elevated.

If I go back to several years ago, you were sub-$3 million a quarter in total OpEx, even at times during recessions, even below $2.5 million.

So my question is, how much of your SG&A total OpEx relates to the SentriX initiative?

And does it make sense potentially to cut some of the fat?

So I'll take the question sort of one at a time.

When you look at the overall expense, remember, security is where the market is going for the microcontroller industry.

It's not a distinct category.

It's not something out there that's different than what we do.

If you look at all of the major semiconductor product line announcements for microcontroller families, they all have a security component.

So to be ahead in security is to be ahead where the 30 billion unit microcontroller market is going.

And so that's just a strategic play that we have to have.

Now within that, of course, we evaluate how much we spend from time to time.

We had to elevate the spending a bit to get our second-generation architecture out for the benefits that we described.

And frankly, we're seeing some of the fruits of that in Q1.

So if you're saying, are we keeping an eye on things and making sure we're spending the right amount and it's evaluated?

Absolutely.

Okay.

I mean, is there an opportunity to get back to the $3 million quarterly run rate in operating expenses without sacrificing your future?

Short answer is probably no.

I don't see that.

I see.

Okay.

And so when do you expect -- I mean, it's encouraging that you guys saw things turn up in March and April.

When do you expect to be GAAP EPS profitable?

As soon as possible is always the goal.

We don't give forward guidance.

I mean it's always challenging without guidance, but that's something we clearly pay a lot of attention to and are working hard to get there as soon as possible.

And our next question will come from Orin Hirschman with AIGH Investment Partners.

So a couple of quick questions.

One is, if I look at the sequential -- you made a lot of comments in terms of surge in orders.

If I actually look at the sequential booking, I believe they're actually down slightly, if I remember correctly.

Can you just kind of put that all together with the commentary or maybe anything like that?

Sure.

In Q1, we always have to deal with the Chinese New Year, which if most of the businesses in Asia, it tends to take away about 2 weeks of the quarter.

And then you also -- very few people buy anything the first week back from the calendar New Year.

So Q1 tends to be, for all intents and purposes, a tougher quarter to get orders done because not everyone is home all 13 weeks of the quarter.

And coming out of Chinese New Year, we have a great sales funnel.

It's always a challenge to understand how much of it will actually close in March.

And we saw very good closures in March and then also it continued in April.

We don't usually talk about the April bookings, but we anticipated your point and wanted to make sure people understood that we see good bookings momentum in the company.

Okay.

I mean, can we assume that, that means bookings should be up sequentially for June?

If nothing other than normal seasonality, what's going on in the macro level?

Yes.

Again, I don't want to get into the forward guidance.

But Joel, do you want to comment on that?

Yes.

No, I just think that with the backlog we have, the strength of the sales funnel and I'll say, the early sales that have taken place so far in April, I think we should be looking at a better quarter.

Well, there you go.

If Joel said so, let it be done.

How fast can you turn around orders, let's say, you received at the beginning of the quarter?

Meaning, can April quarter still ship -- an April order still be shipped in the June quarter?

What's the time line?

Yes, absolutely.

We quote a standard lead time that's in the 6 to 8 weeks neighborhood.

We try and do better than that.

We -- I think we've done a very good job trying to stay ahead of these component shortages.

There's no doubt you can turn April orders, at least some of them into revenue for the current quarter.

As you get later in the quarter, they tend to probably flow into the subsequent quarter.

As just a general rule, our backlog generally represents about 1 month worth of sales.

So that, that means each quarter, we have to hustle for the other 2 months.

Right.

Got it.

SentriX.

So you've been working on this for a long, long time.

And it seems like there's a little bit of break in the logjam right now.

Can you give us more, let's say, the automotive win, what are they using it for?

They're using it from microcontrollers?

Why did they go with you?

What were there other options?

How long have you been doing tests with them?

Give us a little bit more color.

Yes.

So we don't have the ability to use a customer name.

But I think most people would understand who it is.

The specific application, we're working with them on a TPM, Trusted Platform Module application for a very secure component.

And the reason they come with us is, as we announced in Q4, support for the Infineon.

The nice thing about TPMs is it's a pretty established market.

They're well-known products.

People have been working with them for a long time.

And again, with SentriX, you get the ability to have your unique cryptographic and security information provisioned into the chip where you want it in the supply chain.

So you don't have to do it too soon.

You don't have to -- you can do it exactly where you want it.

And I think the customer valued, number one, our relationship with the chip supplier; and number two, our, frankly, detailed understanding of the TPM and how to work with it.

No.

Typically, there is some -- there's the equipment sale plus some tiny royalty on a per chip basis.

Is that the case here as well?

Yes.

Remember, with SentriX, we have programming center partners that can provision the devices.

We've talked about the general business model, including a pay-per-use component.

For things like upgrades or equipment in the field or new system purchases by OEMs, there may be additional revenue sources.

But in general, yes, that's the model.

Okay.

Meaning there's no reason why you shouldn't get some type of, albeit my new royalty for this particular customer, but there will be a per-chip type of royalty.

Yes.

Again, we've indicated in the past, in particular on SentriX, there's a per-part component to the revenue stream.

Okay.

Is the automotive customer here then sells the auto OEM or it's a design house or an ODM for the OEM?

What type of programming centers for the auto customer or...

We've been working with the partner and also the end customer directly, which is pretty typical for SentriX.

We still have to work with the customer directly because they just need to know, and we need to help them out on how to work with the crypto information and things like that.

But is the actual -- the programming is going to be done by one of the automotive OEM or it's going to be done by one of their partners?

We work this deal through a partner.

Okay.

Okay.

Now the second one was the field upgrade to SentriX for a customer in Asia.

Can you say what industry?

And same exact question, is there a per-part aspect to it as well?

It's a programming center customer.

They had a 7000.

We did an upgrade, turned it around in a day, they're extremely happy.

And was it for a specific customer demand or there's no end customer yet for their use of it to the SentriX aspect of it -- the security aspect of it?

I think it would be fair to say the customer wanted the deployment in Asia because they had customer demand.

Okay.

Did you work with the end customer at the end of the chain, like you normally do?

Or is that just passed?

I remember it.

Yes.

We said this was a programming center customer.

Okay.

Fine.

So I'm saying their customer at the very end of the chain for the programming center or whoever that is that they're programming it for, did you work with that customer at the end of the chain?

Yes.

Okay.

And then the last thing that we -- it is still a pay-for-use situation for us.

Okay.

Great.

That's very nice.

I mean, keeping in mind it's tiny today, but what's next?

You indicated -- and then I'll let other people ask, indicated that there's more interest in SentriX in the tax and then your comments.

I mean is it finally beginning to gain steam through all these efforts in the last 2, 3 years?

Well, I think we're very encouraged by the interest in the product line in Q1, it was substantially above what we saw coming out of last year.

But I think it's more -- a couple of things.

We've been very consistent on SentriX that we needed to simplify and scale SentriX, okay?

There's no doubt we were early but at the end of the day, we continue to learn, continue to simplify, continue to make it easier, and that's a virtuous cycle for acquiring new customers and getting them into the market.

Okay?

It's a marathon, not a sprint, and we still believe that.

And I'll reiterate my earlier comment.

The microcontroller industry is going to a secure microcontroller industry.

That's where all the business will be.

It might be 5 years out, it might be 10 years out, it might be sooner than that.

But that's where all of the business in microcontrollers will be eventually.

The other part that I want to indicate is we're starting to have what I'll call more strategic conversations with customers.

Everyone was hunkered down last year with COVID, but we're starting to have a lot more meaningful conversations on how we can help customers across a broad range of our technologies, which would include us doing things for them that may be unique and Data I/O becoming more integrated into their overall supply chain in a much more broader and strategic way.

So I'm encouraged by that overall.

These things take time, obviously, to develop.

But this to me is, again, one of the indicators that we're coming out of the COVID freeze.

People want to talk about what they can do to become an even greater company and how Data I/O can help them out.

Okay.

Actually, just 2 quick -- very quick follow-ups.

One is the automotive customer for that SentriX, the first automotive customer, is it domestic, Europe, Asia?

And then one other quick question like that.

It's North America-based.

Okay.

And final quick question.

In terms of the secular trends within auto, is there something new going on that's really causing the tailwind to the auto business for you, for example, ADAS or something where you're being used more than in the past because it makes sense on that specific new application?

Anything more...

Yes.

More than I think as we've indicated in some of the earlier calls, we've had a strong position in infotainment for a while.

That continues to be strong with the second generation, third generation of products.

I think electrification is probably the new interesting thing in terms of demand picking up.

Everybody is talking about electrification.

Advance driver assist is obviously still very big.

Connectivity, security and everything in automotive is pointing towards a massive increase in semiconductor content.

We've been talking about that for a couple of years.

And I think the shock of COVID and then the automotive industry going down, canceling orders, struggling to get supply chain back, it just highlights how important semiconductors are to automobiles.

And it's not a short-term thing.

It's a very long-term secular trend.

We're also getting the benefit of a cyclical rebound right now, but we're bullish over the long term.

Is there any one auto application that's new that's a driver here?

Again, if I had to pick one, I'd say electrification, but I don't want to pick one.

I want to pick them all.

(Operator Instructions) Our next question will come from Avi Fisher with Long Cast Advisers.

Anthony, one aspect of "chipageddon" is that -- it reflects kind of diversions away from auto.

Chips -- automakers canceled all long lead items and the chips went elsewhere.

And I'm curious, can you talk about your ability to pivot to nonauto markets?

Or are we really going to be tied here and going forward to auto?

Well, I think you raised a good point, Avi.

The -- look, chips are increasingly used in everything.

We program chips for e-cigarettes.

The Marlboro Man has gone digital.

Okay?

It's just -- they're used in everything.

Now a lot of our business is automotive because that's been a vertical that we're familiar with.

They know Data I/O.

They have certain demands that fit our business very well, global quality, support network, et cetera, et cetera.

But our industrial market has been growing pretty nicely as well.

A lot of the SentriX opportunities continue to be in what you would call Internet of Things, which are not just automotive, but smart meters, smart buildings, smart cities, things like that.

So yes, semiconductor chips are growing, and they're growing by leaps and bounds and everything.

But I think the -- it gets a lot of attention in automotive because that's something now that has been -- the trend has been going on for years, and I think a lot of people are just realizing it.

And because automotive is a very significant industry in and of itself.

Well, I guess, I mean, if I read the transcripts out of Infineon or NXP, it seems like they're guiding in the automotive sector, a 20% growth over 2019, not even over 2020.

So I guess I'm curious about your ability to grow.

Are your growth rates at all tied to their growth rates?

Or -- and kind of related to that, I observe that your recurring revenue component is really driving the growth in sales and that equipment sales have been kind of flat over the last few quarters.

So I'm trying to get a sense of your ability to sell new units and at what rate relative to the chipmakers?

Yes.

So I think, Joel, we grew, what, 26% in Q1?

Yes.

So yes, what we said was we thought the automotive industry would be a good proxy for our growth, and we stand by that.

Also, Avi, we indicated, I think, earlier on this call that the adapter growth happens in advance of the systems growth, right?

People use the capital they already have deployed at a higher level of utilization first.

And then when they hit their limit, they order new stuff.

And that's a pretty typical pattern coming out of a downturn.

And are we seeing that?

I mean, are you seeing that through at least the first month of April?

I mean we clearly saw it in Q1, and I think the orders in April are strong for both adapters and capital.

Do you still break out...

So I don't have all the percentages at my fingertips.

So just this.

Right.

Do you still break out the automated programming systems from the equipment sales?

We break out capital adapters and software and services.

And I think, Joel, we also break out automated and manual, right?

We do break that out internally.

We stopped because the manual piece has gotten to be too small a deal to actually be of concern.

There you go.

So the bulk of it on equipment sale is now primarily in automated programming itself?

That's correct.

Okay.

And then I just -- I'm going to ask the same question a few others ask, but in a different way.

Regarding the R&D.

I wonder if you can break out some of the R&D is sustaining, and some of it is investment related.

And I wonder if you can just sort of give a sense of how much of the R&D is sustaining and how much is for the growth?

And if you can elaborate, that you've changed the way you're selling SentriX.

Have you changed your expectations in terms of returns on that investment?

So on the engineering side, we internally track a number of different buckets, if you will, on R&D, as you described.

We don't disclose those internally.

They can move around a little bit, but the overall spend has been pretty flat.

And I think within the buckets, it's been reasonably flat as well.

And then on SentriX, again, our goals are pretty clear.

By simplifying and scaling, we'll get more customers, that will grow the revenue.

And that's the plan.

I guess the last time you set out expectations, you didn't quite need them, so you're holding your cards a little closer this time?

No, it's just -- I don't know how many different ways to say it.

We have updated the technology.

We've learned a lot about how to market and sell to customers to make it easy for them, to make it easy for our partners.

We now have an ability to take an installed base.

So when a customer has a security need, and they maybe have 1 part, we can say, yes, as opposed to saying it's going to be really expensive to upgrade.

So again, I think we just get smarter every quarter.

I know everyone wants us to get smarter faster, including ourselves.

But that's just the plan.

And this will conclude our question-and-answer session.

I'd like to turn the conference back over to Anthony Ambrose for any closing remarks.

Well, great.

Thank you very much, operator.

I'd like to thank everyone for participating today.

And before we close the call, just remind everyone, we will be at the Needham Conference.

I believe that's May 18, and then also our Annual Shareholders Meeting will be on May 20.

So thank you very much, everyone, and have a good evening.

This closes the call.

Ladies and gentlemen, the conference has now concluded.

Thank you for attending today's presentation.

And at this time, you may disconnect your lines.