Q3 2020 Data I/O Corp Earnings Call
Good afternoon, and welcome to data Corporation 2020 Financial results conference call with only mode children need assistance. Please specialist by press the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press the star then one on your telephone keypad to withdraw your question, please press star. Please note this event carded I would now like to turn the conference over to mister Jordan. Please. Go ahead.
thank you and welcome to
The data Corporation third quarter 2020 Financial results conference call with me today are Anthony Ambrose president and CEO of Ohio Corporation and Joel Heartland Chief Operating Officer and chief executive officer of data 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 condition a 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 and down along with continued reopening in recovery efforts within the supply chain and among our customer base level of orders ability to record revenues based on a timing of product deliveries and installations market accessories.
New products changes in economic conditions and market demand pricing and other activities like competitors and other risks including those described from time to time in the company's filings on forms 10-K and 10-q with a Securities and Exchange Commission, press releases and other Communications the accuracy and completeness of forward-looking statements should not be unduly relied upon data was under no duty to update any of these forward-looking statements. And now where we'd like to turn over the call to Anthony Ambrose president and CEO of debt I owe.
Well, thank you very much Jordan. I'll begin my formal remarks in a moment, including our 2023 performance recent developments and I'll turn it over to Joel. But once again, I'd like to express our appreciation for the health of our staff our customers our partners and their families and a grateful for the sacrifices made by Healthcare professionals and First Responders around the world global team has been truly remarkable and I personally must commend each and every one of them for a job well done.
Before we go into details. I'd first like to welcome our newest board member Sally wash Lo Sali joined the board of directors effective October 28th of this year as a consultant former CEO for Cedar Electronics. She brings experience to the board as an operating leader in the security and automotive electronics markets from 2015 to 2017. She was the chief executive officer of Cedar Electronics Corporation, the supplier radar detectors GPS systems dash cameras and other electronic products and let the integration of the Cobra an escort Electronics businesses. She currently serves on the board of directors of co-star Technologies, which is an OTC market company.
And she'll serve on the nominating and governance committee as well as a compensation committee here at data Sally replaces J D Delafield who resigned we'd like to thank JD for service on the board and wish him well in his future endeavors.
Now on to third quarter results, we supported reported very strong growth sequentially from the second quarter in revenues and bookings and year-over-year sales increased 56% off from last year and 26% sequentially from Q2. Our turn around and financial performance in third-quarter is bolstered by what appears to be a bottoming out of our primary addressable market and automotive electronics in the second quarter. We're seeing the earliest and most significant resumption in China and parts of Asia in that business. Amiya America is an age when the Asia still have impediments to a full recovery including COVID-19 as well as a cyclical downturn. We're keeping a close eye on the so-called second wave and Amiya and other countries. We're looking forward to see how Q4 unfolds in those regions.
Data iOS award-winning support installed base and automotive and performance or value we're key factors in our ability to capture some key customer wins in the third quarter among them was a significant multi-system back for USS and other programming requirements at a large multinational tier-one electronics supplier. We also had good order flow throughout the quarter above our internal forecasts off the end of the third quarter. We deployed our 320th PSV family system automotive electronics customers represented about 60% of third-quarter bookings up from 50% a second.
It seems that our commitment to Leading the industry with consistently investing in Technical Innovations. Particularly during cyclical downturns is delivering intended results with these recent wins wage restraint to the recovering automotive electronics sector.
On the R&D front most notable was our continued advancements made for a Centrist platform.
You may have heard me talking about simplifying scale for Centrex as our 2020 strategy.
Yesterday was highlighted in a press release it showcased what we did in Q3 when we released our next Generation Centric system and tools the Next Generation Centric system simplifies and and the provisioning and deployment of robust and Automotive Security Solutions and enables an Outsource as a service business model for our customers.
Centris product Creator is a powerful software suite that enables us to securely quickly and easily defined the security deployment for their products and securely deliver their product definitions off secrets and other certificates and keys to Centrix enabled production facilities remotely.
The new Centrex product Creator tool supports to deployment models in cooperation with our leading embedded silicon Partners Centrex go and Centrex custom Centrex Coast streamliners OT security deployment and provisioning using pre-configured use cases and a simplified developer experience Centrix goes supports the most common use cases for creating and managing device identities secure wage Cloud onboarding device authentication and other use cases Centrex custom fully supports custom provisioning definitions. Both models enabled product security definition collaboration between OEM silicon suppliers and programming Partners, too easily defined provision and deploy robust device Security Solutions.
September 30th our cash position remains strong in about thirteen million dollars down about three hundred K from the end of the second quarter largely due in part to a one-time tax expense of a quarter million dollars paid to China in order to repatriate over two million dollars in cash from that country to the US cash repatriation will provide additional flexibility and she took us quarterly currency fluctuations. Joel hat will go into more detail about that in his remarks. And with that. I'll turn it over to Joel. Go ahead. You'll thank you Anthony and good day to everyone else net sales in the third quarter of 2020 with 5.9 million as compared with three point eight million in the prior year. And four point seven million in the second quarter of June twenty third quarter bookings were 5.6 million as compared with four point three million in the third quarter of 2019 and 5 a.m.
in the second quarter of $20
With with first-quarter 20/20 bookings of 4.3 million. We have seen sequential growth during the first three quarters of the year.
International sales represented approximately 92.5% of total net sales for the third quarter of 2020 compared with 39.8 in the 2019. Total Capital Equipment Sales were 65% of revenues adapters 21% and software Services 14% of revenues for the third quarter of 2020 compared with 41% 35% and 24% respectively off for the third quarter of 2019. Twenty twenty third quarter bookings composition included 60% from the automotive sector 24 per month from the iot and Industrial controls and other sectors and 16% from programming sensors gross. Margin as a percentage of sales in the third quarter of birth.
20 was 55% as compared with 52.6% in the third quarter of 2019 and 52.4% in the second quarter of 2020 for the third quarter of 2020 gross margin was primarily impacted by fixed costs being spread over a higher Revenue amount compared with prior periods and a favorable Channel and revenue mix has compared to the second quarter of 2020 operating expenses were $335,000 higher than in the prior year. R&D was $60,000 higher than the third quarter of 2019 and relates to continued advancements in our Technology Solutions as Anthony discussed in his remarks sg&a of 1.8 million was $275,000 higher than in Q3 of nineteen with yep.
Primary increases relating to higher stock-based compensation contractor costs and business level variable expenses such as higher sales commissions related to change mix and volume partially offsetting. These were certain reductions in work hours pay cuts various government assistance programs taken in response to COVID-19 office which impacted a portion of our Q3 20 results as this flowed into the. From actions taken during the second quarter.
Also do the COVID-19 limitations we continue to reduce travel trade show and other promotional activities in accordance with generally accepted accounting principles gaap. Get income in the third quarter of 2020 was a loss of $707,000 or $0.09 per share compared with a net loss of eight hundred and forty four thousand or ten cents per share in the third quarter of 2019 foreign currency transaction loss was kept $271,000 in the third quarter twenty as compared with a game of 226,000 in the prior year.
do the repeat
Of cash from China to the United States. We were required to pay a dividend withholding tax in China of 240,000 bringing the company's Consolidated income tax for the period month to $340,000 as compared with 55,000 in the third quarter of 2019. September 30th, 2028 was 2.8 million unchanged from the June 30th, 2020 and up from 2.3 million at March 31st. And one point seven million at September 3rd of 2019 had 1.2 million in deferred revenue at the end of the third quarter of 2020, which was down from 1.4 million, June 13th, 2020.
Our days sales outstanding Aur DSO in receivables collection measure at September 30th was below our Target measure at 58 days off as receivables increased one point four million from the end of the second quarter as revenues increased sequentially by 1.2 million from the second quarter wage. That's working capital at the end of the third quarter was 18.3 million as compared with eighteen million at June 30th of 2020 and 18.5 million at December 31st. 2019 did as Financial condition remains strong with cash of $13 million at September 30th of 2026. Our cash position is down from thirteen point three million at June 30th and thirteen point nine million at the beginning of the year from a financial perspective. We entered into a job.
Places in a position of strength and remain healthy, we believe that we continue to benefit from data being the largest company or industry sector and with a highly resilient business model supported by the strongest financial position, including the large cash balance and no debt.
As previously disclosed early in the second quarter. We implemented cash conservation and expense management initiatives. Most of these actions continued during the third quarter of a minimal amount of costs increasing as business and travel began to resume. We have not and still do not expect to accept funding from the SBA PPP plan a red States or in any subsequent stimulus bills at the beginning of the fourth quarter. We issued shares to directors to pay two quarters of deferred compensation package and restored the executive and board level compensation, which had been cut to 20% since the start of the second quarter as part of our cash confirmation conservation and expect management. Finally. We had shares outstanding of 8395600 at September 30th of 2020 that concludes my remarks and I'll turn this off.
Go back to the operator to begin.
In the Q&A segment operator, would you please start the Q&A process?
Now begin the question-and-answer session to ask a question. You may further than one on your telephone keypad. If you are using a speakerphone, please speak up your handset before pressing.
To reach our your question, please. Press them to at this time. We will close momentarily to assemble our roster.
Our first question comes from Jason with Lake Street.
Hey guys. Thanks for taking my questions. I know there's a lot of moving Parts with the macro. But just curious if you could comment on how you're feeling about your overall visibility in it. I guess more specifically how does visibility here today compared to how it was three months ago.
Well, that's like saying if you're stuck at the bottom of the pool in the dark and you come up and you have a flashlight you're better off. So yeah, we're better off clearly than we were three months ago with what appears to be happening. Jason is you know in Asia. I think we have a little bit better visibility, you know business been pretty good. They're pretty predictable. I won't say things are back to normal, but they're they're reasonably close. Um, you know, I think I was feeling better about Europe until a couple of weeks ago. Now, you know, they're having a huge spike in cases, you know, hopefully that uh life is pretty quickly. We'll just have to see I think the Common Thread throughout everything is the automotive electronics Industry which had shut down for a decent portion of cube 2Pac came back in Q3 and it's getting closer to full production in Q4 that that's pretty clear and I think you've heard that from maybe some of the other companies that reported today in the automotive electronics segment. So, yep.
So that's our primary factor on visibility and then on the Centric side, you know, obviously with a new tools announcement. We're also starting to see some more interesting deal flow in terms of you know, the quantity of potential deals. I'm sorry the quantity of units associated with each potential deal.
Okay, that's helpful. And then in regards to the multi-system order, when can you just provide some color on is this an existing customer and how should we think about the delivery timeline?
Yeah, it's an existing customer and they had to scale out. We've had a good relationship relationship with them for a while. You know, it was a good good win for us. We you know, we had to compete effectively in order to win it and we did you know, think about it hitting in Q4 predominantly. Some of them might be in q1, but um, you know that that's pretty typical on these types of orders.
Okay, and the last one for me and I'll jump back into Q. I think you mentioned 16% of bookings were related to programing centers. Can you just provide an update or how you're thinking about that market coming back online?
I think the you know, there's no.
I think the capacity that they have generally adequate capacity. You know, we do we do a decent business with programming centers.
Whether or not they need capacity or not just from you know, the consumables and service and support.
There there's some that probably will be buying some equipment others that are probably okay for a while. I don't see that mix moving substantially One Direction or another over a sustained period of time, you know, you could always get something to happen in a quarter that can move the needle one way or the other but you know it sort of feels like that's going to be steady for a while.
Okay. Thanks a lot guys.
Our next question comes from Jeff Peterson with us in Capitol Heights Anthony in protecting my question. I'd like to ask about the how should we take about Centrex first you talk about the simplifying scale. Can you find what that means relative to the system available for the past year?
Yeah, sure. So we've been talking about that as our strategy for pretty much the balance of 2020 and I would encourage you to read you know, the the announcement that we made yesterday. I think that has a lot of the details in it, but we realized from our early work and Centrex and our Jen one platform. Is that the
Product was was great. It was highly secure customers could could make it work. But it we found that the customers that were drawn to the the product really wanted to have a simpler years experience a better user experience one that was a lot easier for them to implement a model where where they had to, you know work with perhaps a certificate Authority or or do things simple like get on board to a cloud and you know, what we decided to do was make the whole tools experience much simpler not only for the customer the End customer but our programming Center Partners and potential Partners in in certificate authorities and other other places so that you know things that you would need to have to have a successful job creating could be easily managed in one place that had a common look and feel and was much easier to use and that was the biggest thing we've done with our Centrex tools.
On simplify on scale what we've done is as you know, we we have about 320 PSV systems around the world and it's always been our intent, you know long-term not make those become opportunities to upgrade the Centrix at the right time and you know with our with our second generation architecture that becomes a lot easier for us to talk to both financially and logistically.
Okay. Thanks. Very helpful regarding your announcement earlier this week. Did you develop this internal?
Yeah, the what we've done is all the tools are are common tools flow that's built around our existing integration of our existing data programming to life flow and internally developed a security tool flow. So the the that part of the product is been internally developed. We've been working hard on that for a while and you know, while while the world was paying attention to KO good we had a lot of our developers busy getting this thing done.
Great helpful. Thank you. One last question is thank you for talking about your security and how it is involved with the Partnerships you've entered into in. Are there any key wins? You can discuss that demonstrate the key players who are adopting your technology.
Yes, I think that the key thing is I'd refer you to the announcement. We made last quarter where Cyprus now and Infineon company announced their support for direct action on cloud version of their pisac 64 microcontroller and that's obviously supported on Centrix and you know what we're seeing again, if if you look at the big changes in some of our partners, what they're trying to do is is also pick up on the simplify Mantra. If you look at the nxp website, for example, you can see how they've broken up with their secure elements into a model that where the customer can get predefined use cases done. They can go full custom. They can also go direct to a cloud on board and I think you're going to see announcements of you know further announcements in this regard from the leading secure element and secure microcontroller companies again, we're trying to make it all much easier for them.
Customer to just do what they want quickly easily and with you know minimum of design in time.
Thanks, and that's helpful.
That's all the questions. Thank you.
Operator would you please take the next call?
Our next question comes from Mister George from Penn KH management.
Thank you operator. Hi Anthony Jones. How are you? How you doing? Good. Thank you. God follow up on on the chair one photo the multi-system deal. This was an existing customer, but previously only use your tools. Who do they use computer tools and if it's kind of a win from a unique perspective for you guys.
Well George, it's uh, you know, they they haven't a previous customer. We think on pre-programming. They've been largely working with data I owe, you know, I can't say it's a hundred percent type of thing. But no, it was clear situation where they had a decision to make and they decided that you know as they added capacity here. It was best to work with data going forward and you know, we're very grateful to have been subjected. You know, this is one of those cases where you know, we talked about it, you know, I hope we're not getting boring on the subject. But you know, even when times are tough people need to buy office equipment to support new technology and they're willing to do that. And and if you don't have the new technology, then you're not considered. If you do have the new technology then you're in the running and you know, then you get to talk about all the great things you can do for them. So that was the case here. And as I said, we're very happy to have that in Q3.
And and the the competitor that the people you were competing with with a domestic providers, or was it an international provider?
I think they were more of an upset provider than any of the other two George. Okay. Okay, great. And then just a quick question on the mark on the whole seems to have been sort of rather slow to to adopt that kind of technology. Is it that the market is it the job market is really not quite well secure at this time or have they sort of adopted a different way to to secure their devices and the data that's nose-dived.
I think George, you know, if you look at it, obviously we were hoping that Centrex would have ramped faster than it has and you know, we've done our own looking at this problem and and realize you know part of it was us Thursday. We need to make our tools easier to use which we've done and just announced part of it was our semi Partners, you know, they had in some cases delayed their own products and part of it was the market that you know, didn't know how bout to get security in maybe didn't didn't know the best way to do. It wasn't sure they needed it and I think you know all three there's been proven on all three fronts from and said, you know again steady progress which were faster. We're doing our part. We're starting to see the semi companies doing their part not only with you know, getting their product into the market but getting they're positioned in a way that that makes them easier to use and also taking care of some of the things that we've talked about getting direct to Cloud onboarding doing things off.
Again, make it very easy for customers to do certain things that they want to do as part of iot security. So it's a combination of all three and you know, we took that gives us better results going forward.
Okay, great. Thank you very much. Appreciate.
Thank you, George.
Again to ask a question please. Press is pardon one.
Our next one comes from mr. Todd from engage management.
Hi, thanks. Thanks for taking my question. You talked about, you know, the bottoming out in the second quarter of the automotive electronics, and I just wonder if you had a few more specifics on what you'd seen in the industry and data. IO specifically that may support should be ongoing rebound.
Yeah, Todd. Thanks very much for the question, you know as we mentioned earlier, I think Joel indicated we were we're about 50% of Less business in Q2 was automotive and 60% of more business than three was Automotive. So we clearly saw it in the bookings. We also saw it in terms of our
Customers factories actually being opened in 2/3 a number of the mid closed anywhere between two and six weeks and Q2 for either COVID-19 reasons wage demand related reasons. And you know, they largely came back some of the more operating at less than full capacity, but they were largely back answering the phone answering emails things like that and not buying consumables. So, you know, those are the big indicators on our side and then I think you got some, you know confirming indicators from some of the big boys. I mentioned nxp activists on Route TJ with their earnings and you know all over positive on automotive electronics.
Great, what what might have recovered look like based on prior business Cycles again acknowledging we have the code of fresh Light in the swimming pool. I like that. But how long do you have to talk for me and going forward on what that would probably might look like in the automotive.
Yeah, as I just caution you we don't give forward guidance and because it's just real hard for us to do a good job there. But you know the what we look at going forward is back to the if you step back whether you look at Gartner group or some of the other industry forecasters, we look at the semiconductor companies in their own prognostications that they seem to believe that Electronics is a big growth area, um in a secular manner over the next, you know, five to ten years and we can talk about the reasons why the the advances in electrification autonomous driving infotainment connectivity Mobility Etc et cetera. So, you know, we believe that the system automotive electronics is is the place to be home. Now from our standpoint is that business grows and we can grow our support in automotive. I'd encourage you to look and see what happened the last time we had a big upside down.
led by Automotive
So very strong operating leverage as a company close to forty cents of every new Revenue dollar ended up coming down to the operating income line. And you know as we go forward doing that with some intelligence around tariff management tax planning to use our nols and things like that. I think we'll be able to do pretty well in the bottom line.
Great. Thanks. And one last thing relative to last business cycle. I think one of the one of the things we have right now is you know autonomous driving seems to be coming on I just wondered is that if you do that as a catalyst going forward and any other catalysts in particular that might make it a little bit different than the last month cycle in addition to our autonomous driving. In fact, the whole Advanced Driver assist system Marketplace or the ada-es marketplace the infotainment Marketplace and also as I mentioned electrification not just full of ease and hybrids, but you know 48 volt systems in in internal combustion engines. It's a it's a dead. That's why I think the analysts are pretty excited about the long-term future of semiconductor content in cars.
Great. Thank you very much.
Thank you.
Our next question comes from Mister Hubbard Anderson with Benbrook.
Good afternoon, Anthony a squatter. How you doing?
Good. Thank you rainy day here in Connecticut. But we're moving ahead. I have a two-part question. The first part is summarized. I owe a relative to the competition both in automotive and the Centrix area and then I have a specific Centrex question. But let's let's just talk about the competition where they are. Sure. So Bob, I'll just mention that you know, we we don't have the luxury of having a lot of public information out on our competitors from what we understand is from our own internal analysis. It's pretty clear though that we're by Far and Away the largest supplier in our industry about double the size believe of the next largest competitor.
And we're also the only really truly global company that gives us a really good selling point with the automotive electronics companies. All of whom are Global all of whom need to have a consistency of product support and understanding and frankly, they like doing business with companies that have money in the bank took so it's hard to give you a precise market share for automotive pre-programming. But again, we're the largest in the industry and you know, if we're at 60% in automotive electronics and off and we're at least double the size of our nearest competitor. If you do the math that means our Automotive business is bigger than anyone else is total business.
So that that's how we feel about the automotive sector on Centrix. We have a truly unique value proposition and architecture tools system configuration with some tricks. We also have relationships that are very strong with the semiconductor companies and our and our technology is patent-protected. So, you know, we just did not see anyone out there with something that's exactly like Centrix, you know as with everything in programming their substitute ways to do things, you know, you can provision at the wafer-level you can provision at the end of the life you can provision over the air but we believe our approach offers the best combination of security flexibility and value and that's why we like it off.
Okay, that's good. And my second question relates to your your Centrix announcement yesterday explained that he can homage you said you have 320 psd's so somebody comes along and says Anthony I'd like to like to upgrade it and install so many new Centrex offerings off. What what approximately would would somebody pay to upgrade their PSV?
Well, Bob, I wish I could tell you that but that's that's a pretty good trade secret and I'm pretty sure my competitors like to listen to this call. But let me tell you though that you know, we could have offered that two years ago to anyone it would have been you know significant in terms of a cash outlay on our output on our part rather to provide a full system to a customer. What we can do now is substantially reduce whatever Capital outlay we might need to make to upgrade a system to allow a customer to use same as a service.
on an existing PSV system
So we've eliminated a barrier to deployment.
Now we still got to go out and win the business because people aren't going to want to upgrade unless they have a reason to but I think you know when we are able to do that will have a much easier time supporting that demand ramp off.
So if I understand you correctly, it's it's not an outright purchase. It's a kind of a used charger a rental or something like that. Yeah, it's it's a pay per use fee. That's exactly correct.
So do you think of your mobile phone right if you you know, if you want to buy a brand new iPhone, you know, you got to pay for it. Maybe you got to pay monthly installments if you want to buy a feature phone the the network operator would give you the phone and and you get paid back they get paid back in minutes.
Right. Okay. Thank you.
Thank you, Bob. Take care of yourself.
Yep.
Please conclude our question-and-answer session. I would like to turn the conference to the company.
Thank you very much operator. I'd like to thank everyone for joining the call and appreciate the good questions at this point. Our Q3 earnings call is now closed.
Hey girlfriend has now conclude. Thank you for attending today's presentation you may know to connect.
Dead dead dead dead.
Yep. Yep.
Yep.
Yep.
Dead dead dead dead.
Dead dead dead.
Suck suck suck suck.
Dead dead dead dead dead.
Thursday Thursday Thursday
Yep.
birthday cake birthday cake
Thursday Thursday Thursday
Dead dead dead dead dead.
Thursday Thursday, Thursday Thursday
Dead dead dead.
Thursday Thursday, Thursday Thursday
Dead dead dead dead.
Thursday Thursday
Thursday Thursday Thursday
Yep. Yep.
Dead dead dead dead.
Suck suck suck suck.
Thursday
yep. Yep.
Yep. Yep.
Dead dead dead.
bath bath, bath bath
Yep. Yep. Yep. Yep. Yep.
Dead dead dead dead.
Thursday
dead dead dead.
Dead dead dead dead.
Thursday Thursday, Thursday Thursday
dead dead
Dead dead dead.
Thursday Thursday
Yep.
Suck suck suck suck suck.
bath bath, bath bath
Dead dead dead dead.
Dead dead dead dead dead.
6 a.m.
home
suck suck suck suck suck.
um
Dead dead dead dead dead.
Suck suck suck.
Dead dead dead dead dead.
off
bath bath, bath bath
Dead dead dead dead.
Dead dead dead dead dead.
Thursday
dead dead dead dead dead.
Mhm.
bap bap bap bap