Yahoo Finance Data I/O Corporation (NASDAQ:DAIO) Q1 2024 Earnings Call Transcript
Data I/O Corporation (NASDAQ:DAIO) Q1 2024 Earnings Call Transcript April 25, 2024
Data I/O Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the Data I/O First 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 Jordan Darrow, Investor Relations. Please go ahead.
Jordan Darrow: Thank you, operator, and welcome to the Data I/O Corporation first quarter 2024 financial results conference call. With me today are the company's President and CEO, Anthony Ambrose; and Chief Financial Officer, Gerry Ng. Before we begin, I'd like to remind you that statements made in this conference call concerning future revenues, 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 to 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 Anthony Ambrose, President and CEO of Data I/O.
Anthony Ambrose: Thank you very much, Jordan. I'll begin my formal remarks by addressing our first quarter 2024 financial and operational performance, and then I'll turn over the call to Gerry Ng for a more detailed look at the numbers. We had very strong bookings at $8.1 million in the first quarter, closing deals in a strong sales funnel that we previously discussed in February's call. This is the highest bookings level in eleven quarters. We won five new customer locations in Q1 including a major programming center win in EMEA for a new site. Orders were back-end loaded and we closed with revenue at $6.1 million. We have a very strong backlog in place and we continue to expect a back-end loaded year as most of this backlog will be recognized as revenue in the second half of 2024.
Geographical rotation is also happening in our business. The Americas region has been very strong for us the past couple of years, and we're seeing a digestion of some of the CapEx wins from the past two years. Perhaps it's due to a change in demand for EVs in North America, or perhaps it's just the fact that it's been so strong for the past two years. At the present time, we're seeing EMEA pick up some of the slack as they've been stronger than they have been in the past couple of years, both in bookings and future opportunities. Asia continues to be strong as expected to remain strong for the rest of the year. We continue to see some interesting deals in SentriX and our units program continue to grow through our partners. However, the sales cycle remains long due to the complexity of the design and programming requirements for those applications.
When I talk to investors and others, I get a lot of questions about AI and how it impacts our business. And one of the emerging growth areas for AI is a so called edge AI. This is different from what you read about in ChatGPT, and some of the other things is edge AI, the deployment of artificial intelligence algorithms directly on devices or hardware at the edge of the network. And we're seeing significant adoption in several industries. And these include many of the industries that Data I/O has been talking about as our key markets for a number of years. And some of them include ADAS or Advanced Driver Assist Systems, otherwise known as active safety or autonomous driving; a second area is IoT and smart devices; the third would be healthcare monitoring and wearables; fourth would be smart factory automation, which we've also talked about; and fifth would be retail analytics.
As you know, we're a very big player in ADAS and a key supplier to the Tier 1s and OEMs in the automotive industry. And again, we've been discussing that for some time. We've also talked about how industrial IoT is our second largest market behind automotive, and that's also positively impacted by edge AI. So what is edge AI? It's all about bringing intelligence right to the edge, in the case of ADAS, right to your car. What this means is you get the data processing locally, instead of having to send data to the cloud. This enables real-time decision making, which obviously is very important for ADAS and autonomous driving. What this means for us is that the edge AI ensures that the processing power remains localized, and it requires the code and the decision making apparatus of code to be in the car, which means it has to get programmed there.
And that's going to get programmed in flash memory, most likely large NAND memory like eMMC or UFS that we've been talking about again on many of these calls. What this means for Data I/O is that edge AI coming to cars and ADAS means there's more programming demand due to faster growth of the ADAS systems, the larger code sizes, and the complexity of the device. During Q1, we won several systems for ADAS and continue to have a strong automotive funnel which includes ADAS electrification, instrument clusters, etcetera. In IoT devices and smart home systems, Edge AI is revolutionizing the Internet of Things landscape by embedding AI algorithms directly into IoT devices. Again, Edge AI enables local data processing, reducing latency and enhancing privacy.
From smart thermostats to security cameras, Edge AI empowers IoT devices to make intelligent decisions without constantly relying upon cloud services. Again, for Data I/O, this drives increased data programming demand as well as the need for security to remain strong – to maintain strong identity rather for these IoT devices. So again, as we talk about AI, I think Edge AI has some very interesting applications for Data I/O programming demand, both in the data area and the security area. And finally, I'd like to talk about our 500th PSV System order, which we announced earlier this month in conjunction with the Apex trade show. This milestone is a testament to Data I/O's continued innovation, investment in leadership in the programming technology for automotive, industrial, and consumer markets and confirms the PSV family as the most successful automated programming system in the industry.
Not only myself, but our team take great pride in this achievement and believe it sets the tone for our future with additional software innovation, security capabilities, enhancements to this platform in pursuit of a more balanced profile from not only system sales but also recurring revenues. And finally, to summarize from our last call, we talked about the focus being on continued disciplined growth as we target automotive, industrial, and programming center markets worldwide. We continue to have investor outreach and our marketing initiatives include not only these calls but also our fireside chats where we have an opportunity to go into a little bit more detail on a specific topic. Last month, we launched an interview in which I was hosted by equity research analyst, Dave Marsh of Singular Research on the topic of onshoring and near-shoring.
Our next fireside chat will be released later this month or early next month and will be hosted by investment manager and influencer, Avi Fisher of Long Cast Advisors. The topic will be smart factory industrial applications. And imagine we'll talk a little bit more about Edge AI as well. Before I turn it over to Gerry for his commentary and review on our 2024 outlook, I'd like to remind our shareholders of record that as of March 18, we'll be holding our Annual Meeting on May 16 at our headquarters in Redmond, Washington. You should have already received all your materials around the 10-K and proxy and voting information, and we look forward to receiving your vote and attendance at the meeting. With that, I'll pass it over to Gerry.
Gerry Ng: Thank you, Anthony, and good day to everyone. I look forward to outlining and elaborating on our recent financial performance in more detail. And my comments today will focus on key points of interest for the first quarter of 2024 and our perspectives looking forward. Data I/O’s financial condition remains strong at the end of Q1 with $12 million in cash, slightly down $342,000 from the beginning of the quarter, which reflects the anticipated higher first quarter expenditures for public company costs, including audit, regulatory filings and NASDAQ fees, and annual incentive compensation disbursements. Our cash and working capital at $18.1 million had a comparable decrease from $18.4 million on December 31. Cash benefited from strong customer collections with accounts receivable at $4.8 million.
Days sales outstanding or DSO was at 59 days and past due receivable balances greater than 30 days remained very low at less than $30,000 at the end of Q1. Inventory at $6.4 million increased from $5.9 million from the beginning of the quarter on lower Q1 sales volume. The company continues to have no debt. Moving to the income statement. First quarter revenue at $6.1 million was down 16% compared to $7.2 million from the prior year period, reflecting lower backlog coming into the period plus timing of shipments from our new bookings. On a more favorable note, first quarter bookings were $8.1 million, up 41% from the prior year on strong opportunity conversion in Europe and Asia. As a result, our backlog increased $1.7 million in Q1 to $4.5 million as of March 31, 2024.
Gross margin for Q1 was 53%, down 5 percentage points from the 2023 prior year. This decline was driven by a combination of lower sales volume, higher mix of distributor channel sales and product mix. These unfavorable impacts were partially offset by ongoing initiatives to reduce material and operational costs, which we continue to realize. Excluding the impact of sales volume fluctuations, we expect gross margin to return to a more normalized mid to high 80% range as outlined in our 2024 outlook. Since I am leading the company’s disciplined growth initiatives, I’d like to address the progress we have made on operating expenses, although we still reported net and adjusted EBITDA losses this quarter due to timing of shipments. Our Q1 operating expenses were under $4.1 million, down $53,000 or 1% from the prior year.
As noted earlier, first quarter expenses are typically higher due to annual payments for public company costs and certain compensation related expenses, which are non-recurring in future quarters this year. We anticipate with continued cost reductions associated with strong operational discipline and processes commencing in the second half of 2023, that our performance will reflect lower spending going forward. Again, reiterating our 2024 outlook, we expect double digit bookings growth, as Anthony highlighted earlier, with system deployments to be weighted more in the second half of the year. As is customary, the timing of orders and subsequent deliveries will be reflected in our revenue recognition. On a full year basis, we expect gross margins to return to a target range as discussed earlier.
And fixed operating expenses to decrease, which will help offset variability from sales volume and compensation related increases this year. Overall, we remain very solid financially with a strong cash position, no debt, and the ability to navigate market opportunities and any challenges that may emerge through the course of the year. That concludes my remarks for the first quarter of 2024. Operator, would you please restart the Q&A process?
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