Data I/O Corp (DAIO) 2023 Q2 法說會逐字稿

Good afternoon, and welcome to the Data I/O Second Quarter 2023 Financial Results Conference Call. (Operator Instructions) Please note this event is being recorded.

下午好，歡迎參加 Data I/O 2023 年第二季財務業績電話會議。 （操作員說明）請注意此事件正在被記錄。

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

我現在想將會議交給投資者關係部的喬丹·達羅 (Jordan Darrow)。請繼續，先生。

Thank you, operator, and welcome to the Data I/O Corporation's Second Quarter 2023 Financial Results Conference Call. With me today are the company's President and CEO, Anthony Ambrose; and Joel Hatlen, Chief Operating Officer and Chief Financial Officer; as well as Gerry Ng, Vice President of Finance.

謝謝您，營運商，歡迎參加 Data I/O Corporation 2023 年第二季財務業績電話會議。今天與我在一起的有公司總裁兼執行長 Anthony Ambrose；營運長兼財務長喬爾‧哈特倫 (Joel Hatlen)；以及財務副總裁 Gerry Ng。

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, silicon chip shortages, supply chain expectations, estimated impact of tax and other regulatory 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.

在我們開始之前，我想提醒您，本次電話會議中有關 COVID-19、未來收入、營運業績、財務狀況、市場、經濟狀況、晶片短缺、供應鏈預期、稅收估計影響的聲明以及其他監管改革、產品發布、新的行業合作夥伴關係以及任何其他可能被解釋為對未來業績或事件的預測的陳述均為前瞻性陳述，其中涉及已知和未知的風險、不確定性和其他因素，可能導致實際結果與此類聲明所明示或暗示的內容有重大差異。

These factors include uncertainties as to the impact from COVID-19, including the 2022 outbreaks in China, Russian war with Ukraine, including any related international trade restrictions, along with continued reopening and recovery efforts within the relevant global 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 on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, 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.

這些因素包括COVID-19 影響的不確定性，包括2022 年中國爆發的疫情、俄羅斯與烏克蘭的戰爭，包括任何相關的國際貿易限制，以及相關全球供應鏈和我們的客戶群中持續的重新開放和恢復工作、公司的訂單水平以及汽車和半導體行業的整體活動水平、根據產品交付和安裝時間記錄收入的能力、新產品的市場接受度、經濟狀況和市場需求的變化、零件短缺、競爭對手的定價和其他活動以及其他風險，包括公司不時向美國證券交易委員會提交的10-K 和10-Q 表格文件、新聞稿和其他通訊中所述的風險。不應過度依賴前瞻性陳述的準確性和完整性。 Data I/O 沒有義務更新任何這些前瞻性陳述。

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

現在我想將電話轉給 Data I/O 總裁兼執行長 Anthony Ambrose。

Thank you very much, Jordan. I'll begin my formal remarks by addressing our 2023 second quarter financial and operational performance, and then I'll turn the call over to Joel Hatlen for a more detailed look at our numbers. With us today on today's earnings call for the first time is Gerry Ng, who joined the company as our Vice President of Finance on July 1. Effective August 16, 2023, he'll become our CFO, succeeding Joel Hatlen, who, as we previously disclosed, is retiring after 30-plus years with the company. Until that time, Joel will be handling the full second quarter reporting cycle and driving a smooth transition, including serving in an advisory capacity after the end of the second quarter reporting cycle.

非常感謝你，喬丹。我將首先介紹我們 2023 年第二季的財務和營運業績，然後將電話轉給 Joel Hatlen，以更詳細地了解我們的數據。 Gerry Ng 首次參加今天的財報電話會議，他於7 月1 日加入公司擔任財務副總裁。自2023 年8 月16 日起，他將接替Joel Hatlen 成為我們的首席財務官，Joel Hatlen 是我們的首席財務長。此前曾透露，他將在公司工作 30 多年後退休。在此之前，喬爾將負責處理整個第二季報告週期並推動平穩過渡，包括在第二季報告週期結束後擔任顧問。

On a personal note, I'd like to thank Joel for his many years of service to the company and its shareholders, and to acknowledge his professionalism expertise and unparalleled character. He's played a pivotal role in defining who we are today and setting us up on our future course. Our staff, customers, partners and shareholders hold him in the highest regard. And on behalf of everyone, we'll be wishing him well in retirement. As for our incoming CFO, Gerry Ng, he's really hit the ground running, and we look forward to his contributions moving forward.

就我個人而言，我要感謝喬爾多年來為公司及其股東提供的服務，並承認他的專業知識和無與倫比的個性。他在定義我們今天是誰以及為我們未來的道路奠定基礎方面發揮了關鍵作用。我們的員工、客戶、合作夥伴和股東都對他致以最高的敬意。我們代表所有人祝福他退休後一切順利。至於我們即將上任的財務長 Gerry Ng，他確實很能幹，我們期待他繼續做出貢獻。

With that, Gerry, would you like to introduce yourself?

那麼，格里，你想自我介紹一下嗎？

Thank you, Anthony, for the introduction. I am very pleased to be joining Data I/O team and contributing to the company's continued growth and operational success. The finance team has been tremendously supportive, which I believe is a testament to the tone set by management, and we have a comprehensive plan to ensure a seamless transition. I look forward to speaking with all of you in the future.

謝謝安東尼的介紹。我很高興加入 Data I/O 團隊並為公司的持續發展和營運成功做出貢獻。財務團隊給予了極大的支持，我相信這證明了管理層的基調，我們有一個全面的計劃來確保無縫過渡。我期待著將來與大家交談。

With that, I'll pass it back to Anthony.

這樣，我會把它傳回給安東尼。

Thanks very much, Gerry. Now let's take a look at our numbers here. The second quarter was very strong, which builds on the momentum from our first quarter. Similarly, we maintain our long-term outlook that benefits from secular growth catalysts in automotive, industrial automation, and Internet of Things. I'll start with our SentriX platform where we continue to see strong and increasing recurring revenues. Numbers were strong in Q2 as customers are going into production or increasing production levels as demand for security-enabled IoT devices continue. We also got a repeat order on our SentriX platform in the quarter.

非常感謝，格里。現在讓我們看看我們的數字。第二季度非常強勁，這是建立在第一季勢頭的基礎上的。同樣，我們維持長期前景，受益於汽車、工業自動化和物聯網領域的長期成長催化劑。我將從我們的 SentriX 平台開始，我們繼續看到強勁且不斷增長的經常性收入。隨著對安全物聯網設備的需求持續成長，客戶開始投入生產或提高生產水平，第二季的數位強勁。本季我們的 SentriX 平台上也收到了重複訂單。

We're also benefiting from solid demand in the industrial sector. This market is being driven by robotics, factory automation advancements and increased demand for security. We also see strength in automotive electronics, which is the market where we generate the majority of our revenues. And it's clear, we're fully benefiting from demand for automotive electronics. This is a long-term continuing growth opportunity where analysts forecast semiconductor growth at 10% to 15% compounded annual growth rate through at least the end of the decade.

我們也受益於工業領域的強勁需求。該市場是由機器人技術、工廠自動化進步和安全需求增加所推動的。我們也看到了汽車電子領域的優勢，這是我們產生大部分收入的市場。很明顯，我們充分受益於汽車電子產品的需求。這是一個長期持續成長的機會，分析師預測至少到本世紀末半導體複合年增長率將達到 10% 至 15%。

The midpoint of that growth are about 12% a year. This triples the size of our market. On top of this, we believe everything will need to be secured as IoT grows, creating SentriX opportunities for us in both markets. Our business model delivered strong operating leverage of about 40% to the bottom line for every dollar of revenue. For the markets we serve, we're the definitive leader and continue to strengthen our position at the top through new customer wins and investments in our products.

該增長的中位數約為每年 12%。這使我們的市場規模擴大了三倍。除此之外，我們相信隨著物聯網的發展，一切都需要受到保護，從而為我們在這兩個市場創造 SentriX 機會。我們的業務模式為每一美元的收入帶來了約 40% 的利潤的強大營運槓桿。對於我們服務的市場，我們是絕對的領導者，並透過贏得新客戶和對我們產品的投資，繼續鞏固我們的領先地位。

Let's take a look at some of the key numbers contributing to our 2Q results. Bookings were $7.6 million, growing by about 32% from the first quarter and 19% from the second quarter of last year. We added 5 new customers in the second quarter, which now brings us to 15 new customers in the first half alone. This is on top of at least 20 new customers in each of the last 2 years. Wins in Q2 include a global OEM leader for electronic vehicles. We're benefiting from very strong demand, excellent products and an improved supply chain for the automotive industry.

讓我們來看看影響我們第二季業績的一些關鍵數字。預訂量為 760 萬美元，比第一季成長約 32%，比去年第二季成長 19%。我們在第二季增加了 5 個新客戶，現在光是上半年就增加了 15 個新客戶。這還不包括過去 2 年每年至少 20 個新客戶。第二季的勝利包括一家全球電動車 OEM 領導者。我們受益於汽車產業強勁的需求、優質的產品和改進的供應鏈。

Our financial performance for the past 4 quarters shows the progressive factory recovery from supply chain and COVID-related challenges in the prior years. Q2 is an easy comparison to 1 year ago when we were locked down in China for much of the quarter. You'll recall that we estimated this shifted between about $1 million to $1.5 million of revenue from Q2 to Q3 of last year. Even including that adjustment, we're up substantially year-over-year in revenue, bookings and gross margin.

我們過去 4 個季度的財務表現表明，工廠從前幾年的供應鏈和新冠疫情相關挑戰中逐步恢復過來。第二季度與一年前很容易進行比較，當時我們在中國該季度的大部分時間都處於封鎖狀態。您可能還記得，我們​​估計去年第二季到第三季的營收變化約為 100 萬美元至 150 萬美元。即使包括這項調整，我們的收入、預訂量和毛利率也比去年同期大幅增長。

Regionally, we're continuing to see strong reshoring effects to North America. We also saw strength in EMEA, as indicated in our first quarter call. China has been slow in the first half, and we're expecting better results in the second half there. It's important to reiterate that demand for Data I/O products and services in automotive electronics is driven primarily by the semiconductor content per vehicle and the associated long-term growth. Having said this, strong unit momentum for vehicle growth in North America complements the secular growth in semiconductor consumption for autos and is contributing to our strength.

從地區來看，我們持續看到北美地區的回流效應強勁。正如我們在第一季電話會議中所表明的那樣，我們也看到了歐洲、中東和非洲地區的實力。中國上半年進展緩慢，我們預計下半年會有更好的結果。需要重申的是，汽車電子領域對數據 I/O 產品和服務的需求主要由每輛車的半導體含量以及相關的長期成長所推動。話雖如此，北美汽車強勁的單位成長勢頭補充了汽車半導體消費的長期成長，並為我們的實力做出了貢獻。

Third-party sources confirm strong automotive silicon demand and strong OEM demand overall within the automotive market. We've heard interesting results from Ford today. We also saw an interesting report published by The Wall Street Journal a couple of weeks ago, where it estimated that new car sales were up 13% during the first half of the year, exceeding industry forecasts. Strong unit growth has been complementing double-digit secular growth in silicon consumption per car, and this combined creates a very encouraging environment for our business as over 63% of Data I/O sales are in the automotive electronics industry.

第三方消息來源證實了汽車市場整體強勁的汽車晶片需求和 OEM 需求。今天我們聽到了福特的有趣結果。我們也看到幾週前《華爾街日報》發表的一篇有趣的報告，其中估計今年上半年新車銷量成長了13%，超出了產業預測。強勁的銷量成長補充了每輛車矽消耗量兩位數的長期成長，這為我們的業務創造了一個非常鼓舞人心的環境，因為超過 63% 的數據 I/O 銷售額來自汽車電子行業。

In addition to Ford, many automotive OEMs reported strong demand in the quarter. Toyota North America unit was up 7%, GM was up nearly 19%, including strong EV growth, Mercedes said its battery electric car sales more than doubled in Q2, and all of these companies reported an improved silicon supply chain. In looking at other key players in our world, Teradyne, a semiconductor test equipment provider, yesterday reported strong sales to automotive customers in their Q2 results. STMicro reported strong Q2 results, again, highlighting the growth driven by automotive and industrial markets. While the automotive and industrial markets are strong, we're paying particular attention to EV developments as there are a significant growth catalyst for us all. Higher demand is based on consumer sentiment, regulatory stimulus and the new models being added almost daily by automotive manufacturers to their portfolios.

除福特外，許多汽車原始設備製造商均報告本季需求強勁。豐田北美部門成長了7%，通用汽車成長了近19%，其中電動車成長強勁，梅賽德斯表示其電池電動車銷量在第二季度增長了一倍多，所有這些公司都報告了矽供應鏈的改善。在審視世界上的其他主要參與者時，半導體測試設備提供商泰瑞達 (Teradyne) 昨天在第二季度業績中報告了對汽車客戶的強勁銷售。意法半導體再次公佈了強勁的第二季業績，凸顯了汽車和工業市場推動的成長。雖然汽車和工業市場強勁，但我們特別關注電動車的發展，因為這對我們所有人來說都是重要的成長催化劑。更高的需求是基於消費者情緒、監管刺激以及汽車製造商幾乎每天都在其產品組合中添加新車型。

In addition to EV, we're also seeing some changes under the hood, so to speak, in automotive electronics. We're seeing the early days of the software-defined vehicle and includes a fundamental structure change to more compute power in fewer domains within the automotive electronics market. This gives us a great opportunity as the programming leader to continue to expand our business in this area as all of these changes require programming at increased speeds with greater and greater amounts of code and data. Data I/O is the gold standard for flash programming to address this demand in the auto industry and the smart vehicle architecture with domain controllers is an exciting growth opportunity for us all.

除了電動車之外，我們還看到了汽車電子領域的一些變化。我們看到了軟體定義汽車的早期階段，其中包括在汽車電子市場的更少領域中實現更多運算能力的根本結構變化。這為我們作為程式設計領導者提供了一個很好的機會，可以繼續擴展我們在該領域的業務，因為所有這些變更都需要使用越來越多的程式碼和資料以更快的速度進行程式設計。數據 I/O 是快閃記憶體編程的黃金標準，可以滿足汽車行業的這一需求，而帶有網域控制器的智慧汽車架構對我們所有人來說都是一個令人興奮的成長機會。

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

這樣，我會將其交給 Joel Hatlen，以便更詳細地查看這些數字。

Thank you, Anthony, and good day to everyone. I'll start with the balance sheet and then move to the income statement. However, in my commentary today, and to set the stage for Gerry in the third quarter, we'll focus on specific points of interest and allow you to review our press release for earnings for the comprehensive review of the second quarter financials. Data I/O's financial condition remains strong in the second quarter with $11.9 million in cash, still up $400,000 from $11.5 million December 31. Cash and working capital at $18 million were approximately the same as on March 31. Receivables and inventory both declined from the end of the first quarter, while inventory had been elevated in 2022 to address potential shortage risks. We no longer see the same exposure, so we are managing operations to reduce inventory levels going forward during 2023. Days sales outstanding, or DSO, a receivables collection measure, was at 42 days as of June 30, 2023. This is better than our target range.

謝謝你，安東尼，祝大家有美好的一天。我將從資產負債表開始，然後轉到損益表。然而，在我今天的評論中，為了為第三季度的格里奠定基礎，我們將重點關注特定的興趣點，並允許您查看我們的收益新聞稿，以全面審查第二季度的財務狀況。 Data I/O 第二季的財務狀況依然強勁，現金為1,190 萬美元，比12 月31 日的1,150 萬美元增加了40 萬美元。現金和營運資本為1,800 萬美元，與3 月31 日大致相同。應收帳款和庫存均較3 月31 日下降。2022 年第一季末庫存有所增加，以應對潛在的短缺風險。我們不再看到同樣的風險，因此我們正在管理營運以降低2023 年的庫存水準。截至2023 年6 月30 日，應收帳款催收衡量指標應收帳款週轉天數(DSO) 為42 天。這比我們的要好目標範圍。

As Anthony mentioned, our bookings for the quarter were quite strong and were at the highest quarterly level in 2 years. For the first half of 2023, bookings were $13.3 million, up from $12.6 million in the first half of 2022. Our backlog on June 30, 2023, was $3.8 million, up from $3.2 million on March 31, 2023. As we have noted in the release, a larger share of the backlog is scheduled for Q4 delivery than is typical. Automotive electronic orders represented 63% of year-to-date bookings and continues to be our primary addressable market. For comparison, 61% of our bookings were derived from the automotive sector during the year 2022. On a geographic basis, international sales represented approximately 86.3% of revenue for the second quarter of 2023 compared to 89.2% for the second quarter of 2022.

正如安東尼所提到的，我們本季的預訂量相當強勁，達到了兩年來的最高季度水準。 2023 年上半年，預訂量為1,330 萬美元，高於2022 年上半年的1,260 萬美元。截至2023 年6 月30 日，我們的積壓訂單為380 萬美元，高於2023 年3 月31 日的320萬美元。正如我們在發布後，預計第四季度交付的積壓份額將比通常情況更大。汽車電子訂單佔今年迄今訂單的 63%，並且仍然是我們的主要目標市場。相較之下，2022 年我們 61% 的預訂來自汽車產業。從地理角度來看，國際銷售約佔 2023 年第二季營收的 86.3%，而 2022 年第二季為 89.2%。

Gross margins at 59.1% in the second quarter of 2023 were up from 57.8% in the second quarter of 2022, with margins improved by higher sales volumes on relatively fixed costs, product mix, including a recognition of previously deferred rental income as a purchasing credit, and our channel mix, offset in part by less favorable factory variances. For our channel mix, with direct sales from the Americas and parts of Europe being stronger in the second quarter of 2023 and where we can account for selling commissions in our operating expenses, we show a higher level of gross margin as a percentage of sales.

2023 年第二季的毛利率為59.1%，高於2022 年第二季的57.8%，由於相對固定的成本、產品組合（包括將先前遞延的租金收入確認為購買信貸）銷售增加，利潤率有所提高以及我們的渠道組合，部分被不太有利的工廠差異所抵消。對於我們的通路組合，由於美洲和歐洲部分地區的直接銷售在 2023 年第二季更加強勁，並且我們可以在營運費用中考慮銷售佣金，因此我們的毛利率佔銷售額的百分比更高。

Some of the other factors came into play in our second quarter, which impacted expenses compared to our first quarter run rate, these include about $80,000 in additional R&D expenses as compared to prior quarter as we incurred spending on outside services in support of our product lines. Selling expenses in SG&A were about $60,000 higher due to a higher mix of direct sales as discussed earlier. We had additional onetime IT project and support spend as well as a hiring resulting in $110,000 of additional SG&A. We had a noncash expense of $60,000 for annual stock-based compensation true-up relating to original grant estimates of forfeitures.

其他一些因素在第二季度發揮了作用，與第一季的運行率相比，這些因素影響了支出，其中包括與上一季相比約80,000 美元的額外研發費用，因為我們正在支持我們的產品線的外部服務上產生了支出。如前所述，由於直接銷售的比例較高，SG&A 的銷售費用增加了約 60,000 美元。我們有額外的一次性 IT 項目和支援支出以及招聘，從而產生了 110,000 美元的額外 SG&A。我們有 60,000 美元的非現金費用用於與最初的沒收補助金估計相關的年度股票薪酬調整。

Other factors in the second quarter, which were significant relative to the second quarter of 2022. Our second quarter net interest income was up $47,000 compared to the second quarter of 2022 due to higher interest rates applied to our higher invested cash balances. Incentive compensation was $100,000 compared to none in the 2022 period due to that period's loss. Income tax on the profits of foreign subsidiaries, which are not shielded by our U.S. corporate NOLs, resulted in second quarter income tax expense of $109,000 versus $35,000 in the first quarter and $61,000 in the second quarter of 2022. Currency gains based on the falling U.S. dollar of about $196,000 in the second quarter of 2023 as compared with a loss of $74,000 in the first quarter of 2023. And on a strengthening U.S. dollar, $130,000 in the second quarter of 2022. Expenses ran a little hotter in the second quarter, and we have an eye on it.

第二季的其他因素與2022 年第二季相比非常重要。與2022 年第二季相比，我們第二季的淨利息收入增加了47,000 美元，原因是我們較高的投資現金餘額採用了更高的利率。由於 2022 年期間的損失，激勵補償為 100,000 美元，而 2022 年期間則沒有。對外國子公司的利潤徵收所得稅（不受美國公司 NOL 保護），導致第二季所得稅費用為 109,000 美元，而 2022 年第一季為 35,000 美元，第二季為 61,000 美元。2023 年第二季的支出約為196,000 美元，而2023 年第一季的損失為74,000 美元。由於美元走強，2022 年第二季度的支出為130,000 美元。第二季度的支出有點熱，我們正在關注它。

Adjusted EBITDA earnings of $869,000 in the second quarter of 2023 compares with adjusted EBITDA earnings of $502,000 in the first quarter of 2023 and negative adjusted EBITDA of $65,000 in the second quarter of 2022. So the year-over-year differential was over $930,000. We had 918,875 shares outstanding on June 30, 2023. NOLs on June 30, 2023 stood at over $22 million. Overall, we remain very strong financially and continue to have no debt.

2023 年第二季調整後 EBITDA 收益為 869,000 美元，而 2023 年第一季調整後 EBITDA 收益為 502,000 美元，2022 年第二季調整後 EBITDA 為負數 65,000 美元。因此，年比差異超過 930,000 美元。截至 2023 年 6 月 30 日，我們有 918,875 股已發行股票。截至 2023 年 6 月 30 日，NOL 價值超過 2,200 萬美元。總體而言，我們的財務狀況仍然非常強勁，並且仍然沒有債務。

Looking forward, with the high level of activity in our sales funnel and fundamental growth catalysts, as Anthony discussed in his remarks, we continue to plan for double-digit revenue growth in 2023. Gross margins are expected to continue to be in a range of mid- to high 50s throughout the year. Operating expenses for the year are now expected to be modestly elevated given some of the inputs from the second quarter, along with higher sales commissions, incentive compensation and the impact of currency changes.

展望未來，正如安東尼在演講中所討論的那樣，隨著我們銷售渠道的高活躍度和基本增長催化劑的推動，我們繼續計劃在 2023 年實現兩位數的收入增長。預計毛利率將繼續在全年在50 多歲左右。鑑於第二季的一些投入，以及更高的銷售佣金、激勵性薪酬和貨幣變化的影響，今年的營運費用預計將小幅上升。

That concludes my remarks for the second quarter of 2023. But before we open up the call for questions, I'd like to comment on my retirement. I am very happy that we've appointed Gerry Ng to replace me, and I'm confident that he and the team will go forward to great success. While I look forward to spending more time with family, I must say that I truly enjoy the people and the passion shared by the Data I/O team for the past 32 years. We absolutely changed the face of programming first in the early 2000s with the mobile phone industry and more recently and into the future for the automotive electronics and the IoT security markets. It has been both challenging and rewarding as we endeavor to create value for customers and shareholders alike. I am grateful for the experiences and with this, all of you, including you, the members of our community, I thank you and wish you all well.

我對 2023 年第二季的演講就到此結束。但在我們開始提問之前，我想對我的退休發表評論。我很高興我們任命 Gerry Ng 來接替我，我相信他和團隊將取得巨大的成功。雖然我期待著有更多的時間與家人在一起，但我必須說，我真的很喜歡 Data I/O 團隊在過去 32 年裡所分享的人員和熱情。我們首先在 2000 年代初期的行動電話產業徹底改變了程式設計的面貌，最近又進入了汽車電子和物聯網安全市場的未來。當我們努力為客戶和股東創造價值時，這既充滿挑戰又充滿回報。我很感激這些經歷，在此，我向你們所有人，包括你們，我們社區的成員，表示感謝，並祝福你們一切順利。

With that said, operator, will you please start the Q&A process.

話雖如此，接線員，請您開始問答流程。

(Operator Instructions) Our first question will come from Kevin Garrigan with WestPark Capital.

（操作員說明）我們的第一個問題將來自 WestPark Capital 的 Kevin Garrigan。

Congrats on the strong results. Gerry, congrats on joining the Data I/O team and all the best on retirement, Joel. Yes, absolutely. Just to start off, Anthony, I think in the past, you had noted that SentriX had about 20 customers. Can you kind of give us a sense of that number today? And the 5 new customer wins, does that include any new SentriX customers?

祝賀取得強勁的成果。 Gerry，恭喜您加入 Data I/O 團隊，祝您退休一切順利，Joel。是的，一點沒錯。首先，安東尼，我想您過去曾注意到 SentriX 有大約 20 個客戶。今天可以跟我們介紹一下這個數字嗎？贏得的 5 位新客戶中是否包含新的 SentriX 客戶？

Yes, Kevin, thanks very much for the comments. On the SentriX, I mentioned earlier that we got actually a repeat order in the quarter. So there's that to add to it. And I also focus on the fact that the units that we're seeing through some of our partners are up pretty sharply. So those are the encouraging things on SentriX for the quarter. I also want to comment just to sort of clarify Joel's comments. We talked about the double-digit growth in margins and expenses. I just want to make sure it was clear. He's referring to the full year with those comments.

是的，凱文，非常感謝您的評論。關於 SentriX，我之前提到過，我們實際上在本季度收到了重複訂單。所以有一點要補充。我還關注這樣一個事實，即我們透過一些合作夥伴看到的單位數量增長得相當快。這些都是 SentriX 本季令人鼓舞的事。我也想發表評論只是為了澄清喬爾的評論。我們談到了利潤和費用的兩位數成長。我只是想確保它清楚。他的這些評論指的是全年。

Okay. Got it. Got it. That makes sense. And then the global vehicle OEM that you guys want as a customer, how long were you engaged with that customer before they decided to actually become a customer? And what would you say was kind of the draw?

好的。知道了。知道了。這就說得通了。然後，你們想要作為客戶的全球汽車原始設備製造商，在他們決定真正成為客戶之前，你們與該客戶接觸了多久？你認為什麼是吸引人的地方？

Well, we've been engaged with the OEM customer that we referred to for quite some time. And I think the reason that we won the business with them is the reason we win the business with the Tier 1s with EMS companies going into automotive. We're the global leader in automotive. We understand the needs of the automotive industry from not only high-quality programming systems, but the ability to deploy those systems through a resilient supply chain to 5 continents around the world, the ability to service those systems, the ability to add new components to the systems, the ability to respond if there's an issue because it's very costly for automotive supply chain to have any kind of issue that lingers for any length of time. So the same reasons why we have 18 of the top 20 Tier 1s are the reason we were able to add this automotive OEM. We don't have permission to use their name, but you would certainly know who they are to our list of customers.

嗯，我們已經與我們提到的 OEM 客戶接觸了一段時間了。我認為我們贏得他們的業務的原因是我們贏得了進入汽車領域的一級 EMS 公司的業務。我們是汽車領域的全球領導者。我們了解汽車產業的需求，不僅在於高品質的程式系統，還在於透過彈性供應鏈將這些系統部署到全球五大洲的能力、為這些系統提供服務的能力以及向汽車添加新組件的能力。系統以及出現問題時做出回應的能力，因為汽車供應鏈如果出現任何類型的問題，無論持續多久，都會付出高昂的代價。因此，我們能夠在排名前 20 的一級供應商中佔據 18 家的原因與我們能夠添加這家汽車 OEM 的原因相同。我們無權使用他們的名字，但您肯定會在我們的客戶名單中知道他們是誰。

Okay. Yes. No, that makes total sense. One for Gerry, if I can, and then I'll hop back in the queue. And Gerry, congratulations again on joining the team. Just what were the top 2 or 3 things that attracted you to Data I/O?

好的。是的。不，這完全有道理。如果可以的話，給格里送一份，然後我會跳回隊列。 Gerry，再次恭喜您加入團隊。數據 I/O 最吸引您的 2 或 3 件事是什麼？

Yes. First and foremost, as Anthony indicated, Data I/O is the industry leader in this particular market. And with the high growth potential of the automotive industry, it was an easy decision for me to join the team and continue to contribute to its growth and operational excellence.

是的。首先，正如 Anthony 所指出的，Data I/O 是這個特定市場的產業領導者。鑑於汽車行業的高成長潛力，我很容易就決定加入團隊並繼續為其成長和卓越營運做出貢獻。

Our next question will come from David Marsh with Singular Research.

我們的下一個問題將來自 Singular Research 的 David Marsh。

Guys. Congratulations on the quarter and just echo the previous caller's comments. Gerry, welcome and Joel congratulations. So I wanted to start, Anthony, the commentary in your prepared remarks as well as the press release just talking about China and first half being a slower recovery, but it sounds like your expectations for the second half are for demand to pick up over there. Could you put a little bit more color and perhaps like some numbers around that in terms of maybe percentage of revenue or just anything of that nature that would just help us understand kind of exactly how slow it has been in the first half and then kind of how much you're kind of expecting it to pick up in the second half?

夥計們。恭喜這個季度，只是回應先前來電者的評論。格里，歡迎，喬爾祝賀。安東尼，我想開始您準備好的演講中的評論以及新聞稿，只是談論中國和上半年復甦較慢，但聽起來您對下半年的期望是那裡的需求回升。您能否提供更多的顏色，也許喜歡一些圍繞收入百分比的數字，或者任何類似性質的數字，這將有助於我們了解上半年的進展到底有多慢，然後是您對下半年的情況有多少期待？

Sure. David, I probably won't go into the level of detail you want on the call. But I think what we saw was what you've probably heard from a number of other companies or sort of an expectation, okay, Q1 is going to be tough, and then it will sort of snap back. I don't really -- haven't seen it snap back. Now having said that, we expect -- Q2 is better than Q1. We expect Q3 to be better than Q2. But I think they'll be more steady and measured as opposed to sort of a V-shaped recovery. Having said that, China is the world's largest automotive market. It's the world's largest market for electric vehicle sales when they think about 3 out of every 5 electric vehicles getting sold in China. So it's a huge contributor. And from our standpoint, just think of what the numbers could look like when China is firing on all cylinders, if you can use that analogy for an EV car, which we expect will happen over time.

當然。大衛，我可能不會在電話會議中詳細介紹您想要的細節。但我認為我們看到的是你可能從其他一些公司那裡聽到的或某種預期，好吧，第一季將會很艱難，然後它會有所回升。我真的沒有看到它反彈回來。話雖如此，我們預計第二季會比第一季好。我們預計第三季將優於第二季。但我認為它們會更加穩定和謹慎，而不是 V 形復甦。話雖如此，中國是全球最大的汽車市場。中國是全球最大的電動車銷售市場，每 5 輛電動車中有 3 輛在中國銷售。所以它是一個巨大的貢獻者。從我們的角度來看，如果你可以用電動車的類比的話，想一想當中國全力以赴時，數字會是什麼樣子，我們預計隨著時間的推移，這種情況將會發生。

Yes, that's pretty helpful. I certainly -- I appreciate you can't get too granular. And then just the other question I had is gross margins in the first half really kind of knocking it out of the park up, above 59% in both quarters. I'm guessing that, that's somewhat driven by mix. I was hoping maybe you could comment a little bit on that. And I noticed a very subtle change in your guidance for the full year, where you had previously been guiding mid-50s for the full year, now mid- to upper-50s. Should we start thinking in that direction that the rest of the year could, in fact, look like the first half towards the upper-50s. And if you could just give us some clarity around how -- what drives that gross margin?

是的，這很有幫助。我當然——我很欣賞你不能說太細。我的另一個問題是，上半年的毛利率確實大幅上漲，兩季都超過 59%。我猜想，這在某種程度上是由混合驅動的。我希望你能對此發表一些評論。我注意到您對全年的指導發生了非常微妙的變化，之前您對全年的指導是 50 多歲，現在是 50 多歲。我們是否應該開始朝這個方向思考，今年剩餘時間實際上可能會像上半年一樣走向 50 年代以上。如果您能給我們一些關於如何推動毛利率的澄清嗎？

Yes. I think, David, we basically saw that our guidance has stayed in the mid- to upper-50s and that's really what it's been all year long. But we have benefited from a number of situations this year where the mix of both customers and channels have been relatively favorable for gross margins. By that, I discussed how Americas and parts of Europe that are -- that we sell to directly contribute a better gross margin having a little bit more operating expenses for selling commissions instead of distributor discounts. So that's a margin benefit. We had some product mix, in particular, a deferred revenue from a lease purchase option that we recognized during the quarter that helped. And I'd say the last piece was really related to just pure sales volume as opposed to a year ago, where the sales volume relative to fixed factory costs were another benefit in the comparison.

是的。我認為，大衛，我們基本上看到我們的指導一直保持在 50 多歲左右，這確實是全年的情況。但我們從今年的一些情況中受益，客戶和通路的組合對毛利率相對有利。藉此，我討論了我們在美洲和歐洲部分地區的銷售如何直接貢獻更好的毛利率，並透過銷售佣金而不是分銷商折扣而獲得更多的營運費用。這就是邊際收益。我們有一些產品組合，特別是我們在本季度認識到的租賃購買選項的遞延收入，這有所幫助。我想說，最後一塊確實與純銷量有關，而不是一年前，一年前，相對於固定工廠成本的銷售是比較中的另一個好處。

Our next question will come from Matt Winthrop with Equitable.

我們的下一個問題將來自 Equitable 的 Matt Winthrop。

Fantastic. I was curious, and maybe (inaudible) listen to your comments, Data I/O sale to the marketplace regarding automotive, is it more on volume output or when a car line introduces a new vehicle, Ford has a new electric vehicle, Tesla has a new -- is a new vehicle or a new introduction to the marketplace more favorable to you than more volume of just sales?

極好的。我很好奇，也許（聽不清楚）聽聽你的評論，關於汽車的數據I/O 銷售到市場，更多的是產量輸出還是當汽車生產線推出新車時，福特有一款新的電動汽車，特斯拉有新車－新車或新產品進入市場是否比增加銷售量更有利？

That's a really good question, and let me answer it this way. The overriding factor is that a model that you introduced this year is going to have more silicon in it than last year's model, which has more silicon in it than the prior year model, okay? So every time the auto companies refresh their product line, the car is going to have more silicon in it, and that will mean there's more total demand for programming. So it's this long-term secular growth of 10% to 15% a year that McKinsey has published, a lot of the automotive semiconductor companies have published, that's their target for the silicon growth.

這是一個非常好的問題，讓我這樣回答。最重要的因素是，你們今年推出的型號將比去年的型號含有更多的矽，去年的型號比去年的型號含有更多的矽，好嗎？因此，每次汽車公司更新產品線時，汽車中都會有更多的矽，這意味著對程式設計的總需求會增加。因此，麥肯錫已經公佈了每年 10% 到 15% 的長期長期成長，許多汽車半導體公司也已經公佈了他們的矽成長目標。

And that's really the fundamental driver for the growth in our business. We're extremely well positioned inside the automotive electronics industry, with the numbers I mentioned earlier, on 18 of the top 20 Tier 1s, increasingly automotive EMS companies, and we're going to be focusing more on some of the OEMs going forward, as they get more focused on their own silicon. So it's really just that simple, there's more stuff, there's more silicon going into the car. And every month, there's another model out there that's replacing a model and the new model has more silicon and more programming, and we get a piece of that, most likely.

這確實是我們業務成長的根本動力。我們在汽車電子行業中處於非常有利的地位，根據我之前提到的數字，前 20 名一級供應商中有 18 家是汽車 EMS 公司，我們將更多地關注未來的一些 OEM，隨著他們更關注自己的晶片。所以事情真的就這麼簡單，車子裡有更多的東西、更多的矽。每個月，都會有另一個模型正在取代一個模型，而新模型有更多的晶片和更多的編程，我們很可能會從中分一杯羹。

That's a good thing. And that's why I asked you a good question. I'm going to sort of back up on this in the SentriX world because you and I have talked about this. I noticed in your prepared remarks, you didn't mention AI at all. You didn't mention anything regarding that. But I know that there is a connection there. Is there anything that you can add any color that what's going on is going to benefit you guys indirectly or directly.

這是好事。這就是為什麼我問你一個好問題。我將在 SentriX 世界中支持這一點，因為你和我已經討論過這一點。我注意到你在準備好的發言中根本沒有提到人工智慧。你沒有提到任何與此相關的事情。但我知道這裡面有聯繫。有沒有什麼可以添加任何色彩，讓正在發生的事情間接或直接使你們受益。

Sure. I'm probably the only person in the whole world in the last quarter that didn't mention AI on their earnings call. But we have -- the way we play with AI is if you -- and I think I might have said this in prior calls, in order to do a good job with AI, you have to have a solid training base and especially in machine learning environments that the data structures that you use to train the AI to get the algorithms developed have to be well understood and have to be known and basically cannot be tampered with. So there's an element of security that comes in with AI that is even more important than in other factors.

當然。我可能是上個季度全世界唯一一個在財報電話會議上沒有提到人工智慧的人。但我們——我們使用人工智慧的方式是，如果你——我想我可能在之前的電話中說過，為了做好人工智慧的工作，你必須有堅實的培訓基礎，尤其是在機器方面在在學習環境中，用於訓練人工智慧以開發演算法的資料結構必須被很好地理解，並且必須是已知的，基本上不能被篡改。因此，人工智慧帶來的安全因素比其他因素更為重要。

We have had AI customers in that space that are using SentriX to secure their own systems to make sure that they're protected, not only on the algorithms, but the data streams coming in and out of the machines. So as the world does more and more AI, I think they're going to become more acutely aware of security because in a regular world, if you have bad data, it's garbage in, garbage out, in an AI world, if you have bad data coming in and you train the machine improperly, it could be catastrophic.

我們在該領域的人工智慧客戶正在使用 SentriX 來保護自己的系統，以確保他們不僅在演算法上受到保護，而且在進出機器的資料流上也受到保護。因此，隨著世界越來越多地使用人工智慧，我認為他們將會更敏銳地意識到安全性，因為在正常的世界中，如果你有壞數據，它就是垃圾輸入，垃圾輸出，在人工在智慧世界中，如果你有錯誤的資料傳入並且您對機器的訓練不當，這可能是災難性的。

(Operator Instructions) Our next question will come from [Chris Bakowski], a private investor.

（操作員說明）我們的下一個問題將來自私人投資者 [Chris Bakowski]。

Congratulations on great results. I want to ask about China. It seems that even though the Chinese economy is well publicized to be in sort of a slowdown, the electric car sales are doing quite well. So how are they programming those cars? Are they using kind of like other legacy programmers?

祝賀取得優異成績。我想問一下中國的情況。儘管人們普遍認為中國經濟正在放緩，但電動車的銷售情況似乎相當不錯。那麼他們是如何對這些汽車進行程式設計的呢？他們的使用方式是否像其他傳統程式設計師一樣？

Well, I think what we've seen in China is we have a tremendous presence in China in the automotive industry through Tier 1s, and in some cases, OEMs. So I think the -- we're pretty happy with our penetration in China, and we think that as that market continues to grow, we'll participate in it. I think you recall, we said last quarter that there was some shifting going on in some models. There were new emission standards coming into effect in July, and we think that had some impact in specifically the manufacturing process, dealers wanted to get some of the older cars off of their lots because they would not be able to sell them once the new emission standards came in.

嗯，我認為我們在中國看到的是，我們透過一級供應商（有時甚至是原始設備製造商）在中國汽車行業擁有巨大的影響力。所以我認為——我們對我們在中國的滲透感到非常滿意，我們認為隨著這個市場的持續增長，我們將參與其中。我想你還記得，我們​​上個季度說過，某些模型正在發生一些變化。新的排放標準將於 7 月生效，我們認為這對製造過程產生了一些影響，經銷商希望將一些舊車從他們的停車場中撤出，因為一旦新的排放標準出台，他們將無法出售它們標準進來了。

Okay. So probably maybe they're just not selling the new models as much, all right. And you do expect China to improve in the near future?

好的。所以也許他們只是沒有那麼多新型號的銷量，好吧。您確實預計中國在不久的將來會有所改善嗎？

Yes. We believe China will be better in the second half than the first half.

是的。我們相信中國下半年會比上半年更好。

All right. And in general, I want to ask whether you view yourselves mostly dependent on the number of memory chips in cars or the overall memory in cars. In other words, as software in cars gets more complex and they need more gigabytes of flash to store it. Would that help you?

好的。總的來說，我想問您是否認為自己主要取決於汽車中儲存晶片的數量或汽車中的整體記憶體。換句話說，隨著汽車中的軟體變得越來越複雜，它們需要更多千兆位元組的快閃記憶體來儲存它。這對你有幫助嗎？

Yes, Chris, I think you've hit on a good point there. We've talked about the overall semiconductor content. When I say that, I usually refer to the dollar value. I can probably also refer to the bits to be programmed. We've seen -- there are a number of markets that we play in, in automotive electronics. Infotainment probably has seen the biggest increase in total bits that we can easily see. And you're seeing there more and more 30, 40, 60 gigabytes of data, not only as the size goes up, but the transition of technologies from eMMC to UFS. That's an obvious one. You'll continue to see big memory chips, especially in the software-defined architectures or domain controller architectures. But there's still a lot of microcontroller demand, especially as companies add more and more active safety elements to cars. So it's a combination of both increased memory footprint, more bits, more total systems as well as additional security.

是的，克里斯，我認為你說得很好。我們已經討論了整體半導體內容。當我這麼說時，我通常指的是美元價值。我或許還可以參考要編程的位子。我們已經看到——我們涉足許多汽車電子市場。我們可以很容易地看到，資訊娛樂系統的總位數可能出現了最大的成長。您會看到越來越多的 30、40、60 GB 數據，不僅隨著大小的增加，而且隨著技術從 eMMC 到 UFS 的轉變。這是顯而易見的。您將繼續看到大型記憶體晶片，尤其是在軟體定義架構或網域控制器架構中。但對微控制器的需求仍然很大，特別是當公司在汽車上添加越來越多的主動安全元件時。因此，它是增加記憶體佔用、更多位數、更多整體系統以及額外安全性的結合。

There are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

沒有其他問題了。我們的問答環節到此結束。我想將會議轉交管理層發表閉幕詞。

Well, thank you very much, operator. I'd like to thank everyone for joining the call today. And again, thank you, Joel, and welcome aboard, Gerry. With that, this call is now closed.

嗯，非常感謝你，接線生。我要感謝大家今天加入電話會議。再次感謝你，喬爾，歡迎加入，格里。至此，本次通話現已結束。

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

會議現已結束。感謝您參加今天的演講。您現在可以斷開連線。