Data I/O Corp (DAIO) 2024 Q3 法說會逐字稿

Good afternoon and welcome to the Data I/O third quarter, 2024 financial results conference call.

All participants will be in a listen-only mode.

After today's presentation, there will be an opportunity to ask questions.

Please note this event is being recorded.

I would now like to turn the conference over to Mr Jordan Darrow investor relations.

Please go-ahead sir.

Thank you, operator, and welcome to the Data I/O Corporation third quarter, 2024 financial results conference call with me today are the company's President and CEO Bill Wentworth and Chief Financial Officer and Vice President Gerry Ng.

Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position markets, economic conditions, 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.

These factors include uncertainties as the impact on global and geopolitical events, international trade regulations, order levels 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 forward-looking statements.

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

Thank you very much Jordan.

It is an honour to be presiding over this call, which is my first with Data I/O was appointed to serve on the company's board of directors.

Last year we announced and manage CEO transition plan in August of, of this of this year as President effective September first and CEO 1st of October, we'll address our recent financial performance for the third quarter ending September 30th later on this call.

It may be helpful in discussing my background experiences that are very extremely relevant to the future direction of Data I/O, I've had 30 years of experience with data programming since a very young age of '16 that began when I worked for my father's distribution company.

After getting exposure in the technology industry, I founded Source Electronics, an independent regional programming service provider with a partner in 1988.

At Source, I started my career as VP of operations and used data programming solutions extensively through our operations.

As source expanded to become a national independent programming service provider.

The semiconductor industry had significant growth in the late 90s and early two thousands which drove source to expand into international markets.

As CEO of source, we needed financing to expand it to international markets, which led to a strategic investment from hig capital in April of 2001.

As we grew the business in the early 2000, we decided to sell the business to Abnet in 2008, providing a significant investor return fast forward to present day.

I see a big opportunity in an industry that I know very well.

We intend to address the industry's current challenges and I'm very excited to lead Data I/O given the market opportunities and set the stage, the heightened value creation for our customers, business partners and shareholders.

Now let's drill into how we would do this.

Since recently joining the company, our team has thoroughly engaged in discovery assessment and planning of new strategies to drive significant value to our customers in the markets we serve today.

The initial findings are encouraging as we set a new direction to address our existing markets and serve new markets to data as future growth data.

A intends to partner with its customers suppliers and enhance the overall customer experience.

The company will be collaborating with our customers customer base on our vast experience with programming solutions and will develop enhanced business models that could lead to higher margins.

Diversification of revenue streams, extremely important in customer segments will be a very important element.

As a go forward strategy, we've identified customers that could lead to additional domains that will diversify our revenue currently, Data I/O is dominant in the automotive electronics sector.

We will be engaging with the electronic supply chain component suppliers who sell to all markets.

This engagement will naturally diversify our revenue streams.

Leveraging the balance sheet will be able to invest in these strategies to move to should lead to sustained and sustainable growth.

Thanks to the work of Gerry and his finance team since he came on board last year.

And as a board of Directive member, he's been doing a phenomenal job in controlling expenses and really cementing our capabilities around financial controls.

Year-to-date operating expenses are down by more than $1 million. 11% from last year.

Our cash balance at the end of the third quarter is the highest level in '10 quarters.

While revenues and bookings were not where we like them to be.

As I joined the company, we're optimizing on the areas to be well positioned to implement our new growth strategies for the future with that.

I'd like to pass it over to Gerry for a closer look at our recent financial performance, Gerry.

Thank you, Bill and good day to everyone.

I look forward to outlining and elaborating on our recent financial performance.

In more detail, my comments today will focus on key points of interest for the third quarter of 2024 and our perspective looking forward including market focus progress on spending efficiencies and balance sheet management.

Despite the current automotive market headwinds in the Americas and Europe data, I O's financial condition remains solid.

At the end of Q3, we maintain a strong backlog, a healthy balance sheet and a lower operating cost structure which will contribute to improve future financial performance as the markets recover.

And as we implement our future transformative plan as Bill commented on earlier, despite the third quarter and year-to-date revenue shortfalls, cash remained relatively steady at $12.4 million as of September 30th.

Up $1 million from the $11.4 million at the end of Q2, cash benefited from continued strong customer collections and lower operating expenses.

We remain a cash generating business as reflected in our positive adjusted EBITDA of $37,000 in Q3 accounts receivable was $2.6 million as of September 30th with day sales outstanding or DSO improving to 43 days compared to 55 days at the end of Q2 inventory at $6.6 million increased from $5.9 million at the beginning of the year on lower sales year-to-date and in anticipation of higher sales from future backlog reductions from bookings closed earlier in the year.

Overall networking capital at $17.6 million at the end of Q3 was unchanged from the end of Q2 2024.

The company continues to have no debt.

Moving to the income statement.

Third quarter revenue at $5.4 million was down 17% compared with $6.6 million from the prior year period since the beginning of the year.

Automotive electronics uncertainty increased, and customer capacity expansion has slowed resulting in lower system shipments in the Americas and Europe.

Often, this headwind was our Asia channel which grew 29% in Q3 and 26% year-to-date.

While the sales of our systems to the automotive market are below our expectations.

We continue to achieve steady performance from our programming centres, industrial markets and recurring revenue offerings specifically, our consumables software and services grew 6% in Q3 and currently represents 50% of our total year-to-date revenue which provides a steady base of revenue to help offset the present capex softness.

Finally backlog remains strong at $4.7 million as of September 30th down only $700,000 from the start of the quarter with further reductions expected as planned customer deliveries occur in the next two quarters.

Moving on the gross margin we achieved 54% in Q3 which is comparable to our prior quarter, Q2 and prior year, Q3, the lower sales volume has hindered our margins due to relatively fixed manufacturing service costs.

However, material cost reductions, inventory savings, quality improvements and operational streamlining continue to generate favorable and sustainable impacts.

Similarly, I'd like to address the continued progress we have made on operating expenses.

Third quarter, operating expenses were $3.2 million ,down $334,000 or 9% from the prior year and down $1.3 million or 11% on a year-to-date basis.

Core personnel facilities, it and other outside services costs declined through of course, prior organization of critical initiatives and overall efficiency improvements, this lower and more efficient cost structure has allowed the company to partially mitigate the year-to-date revenue shortfall while positioning us to fund critical future market, product and other transformative investments to drive future growth.

The company incurred a net loss of $307,000 for Q3, an improvement of $490,000 from the Q2 net loss of $797,000.

The Q3 loss was due largely to a lower revenue which again was partially offset by lower operating expenses.

Despite the current challenges and its impact on our sales performance, we continue to focus on providing the highest product innovation and quality service and support and new offerings to our customer.

Looking ahead, we expect continued near term market headwinds which will be partially mitigated by continued backlog reductions in the coming quarters as well as of course, leveraging the progress that we've made on managing costs that I have highlighted overall, we remain very solid financially with a strong cash position, no debt and again improved costs and operating structure which enable us to begin implementing our new and reimagined market approach.

This concludes my remarks for the third quarter of 2024.

Before we take questions, we are excited to participate in a few upcoming events.

These include the NASA closing bell ring ceremony scheduled for October 24th in New York and the LD Micro main event conference on October 30th.

We look forward to seeing you there.

Operator.

Could you please start the Q&A process?

Thank you.

We will now begin the question-and-answer session to ask a question.

You may press star then one on your touchtone phone.

If you're using a speakerphone, please pick up your handset before pressing the keys to withdraw your question.

Please press star.

Then two.

And at this time, we'll pause momentarily to assemble our roster.

And the first question will come from David Marsh with singular research.

Please go ahead, sir.

Hi guys.

Thank you for taking the questions and welcome aboard.

Thank you.

So if we could just talk about auto for a minute and maybe just talk a little bit more about the pace of activity that you're seeing.

Whether it be, you know, bidding activity or, or anything else that can give us, you know, kind of a better indication of, you know, maybe what the time frame for recovery and demand in that sector looks like.

Yeah, sure.

Thanks for the question.

It's obviously been a choppy market out there for the last really most of the year.

And, you know, as you know, 's drove a lot of content and expansion in that market as well as even hybrids as cars take on more technology as a content of a vehicle.

You know, we do believe and we do know that they kind of overshot that a little bit that caused the slowness.

It's also, you know, the the infrastructure of EVs obviously slowing down the pace of that adoption as well.

But we have seen some socket module increases in certain areas, which means which is a good sign of some production starting to bleed back in the space.

We don't see any significant pace of growth of increase, but we do expect some time next year to some of that starting to, to enter back into the market as well as new models coming out and it is a significant amount of our business.

But at the same time, it's a market that will continue to grow in the future and it's just paced right now is the best way to describe it I do believe we're at the kind of the bottom of the trough still bumping a little bit.

But, you know, I do believe that some time those troughs definitely start to lead back upward.

And Bill, I think, you know, one of the things that, you know, I, I caught on to in your comments, that actually is pretty encouraging to me.

Was you mentioned of, you know, kind of broader expansion into more and different end markets?

I mean, could you talk about maybe a few that sort of you know, sort of stand out in your mind as maybe low hanging fruit opportunities.

I mean, I know that the company has been good in industrial but beyond that, I don't really know.

Yeah, there's never really been a lot of talk about specific markets highlighted.

And another great question obviously is I've done a lot of discovery work over the last 60 days and being in this industry as well as a independent service provider.

You know, it's, it's, it's about really inserting yourself in the path of the supply chain, right?

I mean, it's great to service on those direct customers, but who can you partner with that can drive, you know, significant more system sales but also other products within our portfolio such as manual and semi manual systems, which also expands your platform as well.

So examples would be things like the global component distribution companies such as the arrows and the ab nets and ems contract manufacturers who already have a diversified customer base.

We just need to adapt some of our business models and how we manage and service that sector, which we're definitely capable of doing.

There's going to be some changes necessary internally to do it as well as we need, we need to do to service those clients, but that automatically diversity of customer base because the s of the ads are really a really good barometer of what's going on in the global supply chains.

So we'll be focusing in on those, you know, those supply chain partners that serve a broader market.

That makes a lot of sense.

Let me jump back in the queue and let some others have a shot.

The next question will come from Michael Cooper Investor.

Please go ahead.

I'm my question is around the executive compensation.

Here's a company that for the last '10 years hasn't made any money for shareholders.

You've been utilizing our capital for all that time, Anthony Ambrose has pulled over $6 million out of the company in terms of stock options and pay last year, he got a raise to $775,000.

So, I'm just wondering, is this company being run for executives or for shareholders?

And what is the new CEO compensation package?

And what are the, the what's the philosophy around aligning executive compensation and performance.

Thank you.

Yeah, this is Gerry Ng and I'll, I'll take that particular call.

There's also obviously most of our threat to your question here, but I'll try to keep it at a high level.

First and foremost, you know, we are managed by the board of directors and as part of the board of directors, we do have a compensation committee that compensation committee obviously looks at executive comp on a recurring and annual basis.

The we, I believe that the committee clearly looks at levels that are market competitive given the level, given the size of the company and so forth.

So I think that's one criteria that, but that is very structured and organized.

Number two part of the comp structure which is again available in our proxy.

It's both a mix of both salary as well as a go to compensation including stock grants and again, very similarly, that is really looked at closely.

A portion of the compensation is tied to obsolete salary.

A portion is tied to the performance of the, of the company and the performance of the business, which in turn is also then tied to the value we generate for shareholders.

So I think all those key concerns and points that you've noted, Michael are things that the board and the comp committee looks at as we establish and again, as we establish compensation for executives.

The next question will come from kris Tuttle with Blue Caterpillar.

Please go ahead.

Hi, thanks for taking my question.

I wonder if you could elaborate a little bit on the transition to a growth strategy.

You know, you're, you've tightened the ship here, did a nice job and went down for a cyclical market.

But what should we be looking for the company to be back on a growth path?

Are there?

Do we need to wait and see some new products announced new marketing initiatives or is this just going to be something that shows up in booking growth?

And you know, maybe, you know, you could venture some rough time

Frame on that Jerry, you want to take the first step and I,

Yeah, yeah, I'll jump in and, and, and Chris, good question.

But I'll give you a, a couple of different frames in my response.

First frame, short term versus long term.

Obviously, we are focused on on what we need to deliver today this month, this quarter and this year.

And so we are, we have clearly active participation initiatives from our sales marketing and the rest of the organization on how we can drive performance.

Now, obviously, those initiatives are going to be a little more focused on our current available products and, and more on how we go to market.

So that's clearly an emphasis.

Again, we need to balance that with obviously the current market dynamics.

At the same time, we clearly have longer term opportunities that Bill and team are looking at that.

We've indicated some are going to be on a product level in terms of how we optimize improve and maybe even emphasize different components of a product line.

Some of it's going to be channel.

Now, our Asian market has done really well this year but our Americas and European market have not.

And so there's some go to market initiatives and opportunities that we can improve upon that may deliver results, not maybe necessarily tomorrow but clearly in the near term.

And then of course, you know, you always get into the discussion around organic versus inorganic.

And so I think everything is on the table in terms of our focus, short term, long term, as well as organic and inorganic product versus go to market activities.

So

And Kris to add to that.

So, I'll go back to kind of my early days in this industry and it's I've been in this space for a very long time and when I started source Data I/O is our supplier.

They were our only supplier.

And the reason why is because one of the things that they did very well back in those days was that their, their brand, their, their manual programming centre's were given out to a lot of engineering labs and development teams.

And that's how we build up the device library and algorithms.

And when you wanted to program apart, the option was the brand was Data I/O And so when I look back at that, you know what, what brought data out to that point of that level of recognition across our industry when I got here and started doing discovery work, I'm like, what's going on in that manual and desktop and semi manual systems?

And what are we doing in that space?

How are we broadening our customer base?

How are we broadening our device support?

And they found a GAAP?

And so, you know, we're looking at that space and we have products in that space so we can push now.

But do they need to be updated?

Sure.

It's been a little while.

So we're looking to, you know, look at some of the product gaps.

They're not huge, but you know, small, they're big enough to, you know that if we, when we fill them, it will expand our device library and expand the brand.

And by doing that and getting in early in those, you know, engineering labs, you're spec in early when they go to production, which will lead to system sales.

So when we talk about small GAAP, it it seems it seems small, but when you actually execute, it becomes a big growth driver as an example.

Thank you, Kris.

Oh

Okay.

Yeah, that's helpful.

Thank you guys.

This concludes our question and answer session.

I would like to turn the conference back over to management for any closing remarks.

Please go ahead.

Thank you very much operator to our listeners and participating in today's event we trust coming away from this call.

He was sharing our excitement and enthusiasm.

The next phase of growth of Data.

IO at this point, I'd like to conclude the call.

Enjoy the rest of your day.

Goodbye and look forward to seeing some of you out in New York City.

Next week,

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