Q3 2023 Data I/O Corp Earnings Call
Okay.
Good afternoon, everyone and welcome to the data I O. The third quarter 2023 financial results Conference call.
Speaker 1: transcript
Speaker 1: Good afternoon everyone and welcome to the data I of third quarter 2023 financial results conference call
Speaker 1: transcript
Speaker 1: All participants will be in a listen only mode after today's presentation. There will be an opportunity to ask questions. We also note today's event.
All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions.
Also note todays event is being recorded.
At this time I'd like to turn the floor over to Jordan Darrow Investor Relations. Please go ahead.
Speaker 1: transcript
Speaker 1: At this time, I'd like to turn the floor over to Jordan Dero. Investor relations, please go ahead.
Speaker 2: transcript
Speaker 2: Thank you, Operator, and welcome to the data IO Corporation third quarter, 2023 financial results conference.
Thank you operator, and welcome to the data I O Corporation third quarter 2023 financial results Conference call with me today are the company's President and CEO, Anthony Ambrose and Chief Financial Officer, Jerry Yang.
Speaker 2: transcript
Speaker 2: with me today are the companies president and CEO Anthony Ambrose and chief financial officer Jerry.
Speaker 2: transcript
Speaker 2: 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 an impact of tax and other regulatory reform.
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.
Speaker 2: transcript
Speaker 2: 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.
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.
Speaker 2: transcript
Speaker 2: involved known and unknown risks, uncertainties, and other factors which may cause actual results to different materially from those expressed or implied by such states.
Speaker 2: transcript
Speaker 2: These factors include uncertainties as to the impact from global NGO political events, international trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall.
These factors include uncertainties as to the impact from 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.
Speaker 2: transcript
Speaker 2: Abilities to report revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, parts shortages, pricing, and other activities by competitors.
<unk> 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.
Speaker 2: transcript
Speaker 2: and all the risks including those described from time to time in the company's following on forms 10K and thank you with the security of the exchange commission. Press releases.
Press releases and other communications.
Speaker 2: transcript
Speaker 2: The accuracy and completeness of forward-looking statements should not be unduly relied upon. Data IOs under no due due to update any of these forward-looking.
The accuracy and completeness of forward looking statements should not be unduly relied upon data I was under no duty to update any of these forward looking statements and now I would like to turn over the call to Anthony Ambrose President and CEO Dan <unk>.
Speaker 2: transcript
Speaker 2: And now I would like to turn over the call to Anthony Ambrose, president and CEO of DataI.
Speaker 3: transcript
Speaker 3: Thank you very much Jordan. I'd like to begin my formal remarks by addressing our 2023 third quarter financial and operational performance. Then I'll turn it over to Jerry Ang for a more detailed look at the numbers.
Well. Thank you very much Jordan I'd like to begin my formal remarks by addressing our 2023 third quarter financial and operational performance and then I'll.
I'll turn it over to Jerry <unk> for a more detailed look at the numbers.
We have a strong year over year revenue growth of 25% through the first three quarters of the year and more recent challenging business conditions in Q3.
Speaker 3: transcript
Speaker 3: We have a strong year over year revenue growth of 25% through the first three quarters of the year and more recent challenging business conditions in Q3.
Speaker 3: transcript
Speaker 3: As I mentioned in the release, the third quarter was mixed. We won some very exciting deals and saw strength in adapter bookings, but system bookings were soft as customers deferred capital purchasing decisions into the fourth quarter.
As I mentioned in the release the third quarter was mixed.
One some very exciting deals and saw strengthen adapter bookings, but system bookings were soft as customers deferred capital purchasing decisions into the fourth quarter.
Speaker 3: transcript
Speaker 3: We also saw customers move delivery dates from Q3 to early Q4, which we did not normally see.
We also saw customers moved delivery dates from Q3 to early Q4, which you did not normally see.
Speaker 3: transcript
Speaker 3: For whatever reason, whether it be the strike in North America, interest rates, people coming back for vacation, it appeared that customers wanted to take another look at their capital purchase decisions, and did so by pushing from September into Q4.
For whatever reason, whether it be the strike in North America interest rates are people coming back from vacation. It appeared that customers wanted to take another look at their capital purchase decisions.
Did so by pushing from September into Q4.
Speaker 3: transcript
Speaker 3: Now what's interesting is Q4 is starting out extremely well as we booked five systems already in October . Several of these systems originally were planned for Q3 bookings. Actually had the bookings occur in October .
Now what's interesting is Q4 is starting out extremely well as we booked five systems already in October several of these systems. Originally were planned for Q3 bookings actually had the bookings occur in October.
Speaker 3: transcript
Speaker 3: I was also happy this morning to see the news that Ford and the UAW have reached a tentative agreement likely ending their strike. This will remove some uncertainty in North American market.
I was also happy this morning to see the news at Ford and the UAW have reached a tentative agreement likely ending their strike. This will remove some uncertainty in north American market.
When we look at Q4, given all the puts and takes we have a strong sales funnel that supports a much stronger bookings than we saw in Q3 and operations that support stronger revenue than we saw in Q3 provided we get the orders in time to ship this year.
Speaker 3: transcript
Speaker 3: When we look at Q4 given all the puts and takes, we have a strong sales funnel that supports a much stronger bookings than we saw in Q3, and operations that support stronger revenue than we saw in Q3, provided we get the orders in time to ship this year.
Despite the short term gyrations of driving forces in long term growth thesis for data Io remain intact.
Speaker 3: transcript
Speaker 3: Despite the short-term gyrations, the driving forces and long-term growth thesis for data IOT remain intact.
Speaker 3: transcript
Speaker 3: Advanced semiconductors and microcontrollers are finding their way into more products and impacting virtually every business in a measurable ways. Programming is becoming more complex and the amount of code is continuously increasing.
Advanced semiconductors, and Microcontrollers are finding their way into more products and impacting virtually every business in immeasurable ways programming is becoming more complex and the amount of code is continuously increasing.
Speaker 3: transcript
Speaker 3: Our plan is to grow revenues in growing markets, including automotive and industrial, continue to drive more revenue from consumables, software, and service, and deliver 40% operating leverage on that revenue growth.
Our plan is to grow revenues and growing markets, including automotive and industrial continue to drive more revenue from consumables software and service and deliver 40% operating leverage on that revenue growth.
Speaker 3: transcript
Speaker 3: Automotive represented about 63% of the bookings in the third quarter consistent with our year-to-date numbers.
Automotive represented about 63% of the bookings in the third quarter consistent with our year to date numbers.
Speaker 3: transcript
Speaker 3: Within automotive, we continuously strength in EVs globally.
Within automotive, we continue to see strength in Evs globally.
Speaker 3: transcript
Speaker 3: And we like EVs, not just because they're electric vehicles, but because the platforms are newer. And they tend to have more electronics for cars. They have comprehensive IVI, ADAS, and other features.
And we like E vs not just because their electric vehicles, but because the platforms are newer and they tend to have more electronics for cars. They have comprehensive I V I, a dash and other features.
Speaker 3: transcript
Speaker 3: With this, content in EVs is estimated to be about two to three times that of semiconductor content in other vehicles, and the programming requirements continue to require, continue to grow in these EVs.
With this content and E vs is estimated to be about two to three times that of a semiconductor content and other vehicles and the programming requirements continue to require.
Continue to grow in these evs.
Speaker 3: transcript
Speaker 3: Regionally, we continue to see strength in North America. We have seen softness in Amia. China is recovering from a soft first half, recovering slowly and steadily, which we believe will continue based on our channel checks.
Regionally, we continue to see strength in North America, we have seen softness in EMEA.
Heine is recovering from a soft first half are recovering slowly and steadily which we believe will continue based on our channel checks.
Speaker 3: transcript
Speaker 3: In the third quarter, we added four new customers, which now brings us to 19 for the first nine months of the year compared to 20 of all last year and the prior year.
In the third quarter, we added four new customers, which now brings us to <unk> 19 for the first nine months of the year compared to 20 of all of last year and the prior year.
Within those four new wins, we had two new E factories internationally.
Speaker 3: transcript
Speaker 3: Within those four new wins, we had two new e-fee factories internationally.
Speaker 3: transcript
Speaker 3: And one of the new customers in the third quarter represents a major win for us on Centrix.
And one of the new customers in the third quarter represents a major win for us on centrex.
Speaker 3: transcript
Speaker 3: We're excited to move further into expanding the Centrix market by winning our first major solar energy customer on our Centrix security deployment platform.
We're excited to move further into expanding the centric market by winning our first major solar energy customer on our centric security deployment platform.
Speaker 3: transcript
Speaker 3: This continues to make progress for Centrix as a leading technology platform, now including AI, EV, data center utilities, industrial, and now solar markets.
This continues to make progress for <unk> as a leading technology platform now, including a I E V datacenter utilities industrial and now solar markets.
Speaker 3: transcript
Speaker 3: That's a nice bridge here as we go from solar to sustainability and ESG.
That's a nice bridge here as we go from solar to sustainability and ESG.
Speaker 3: transcript
Speaker 3: Green power, ESG, and climate disclosures are becoming increasingly important for public companies like Data.io.
Green power ESG and climate disclosures are becoming increasingly important for public companies like data I O.
For us we see three basic requirements for our environmental strategies.
Speaker 3: transcript
Speaker 3: For us, we see three basic requirements for our environmental strategies. First, as a leading supplier to the automotive industry, we must comply with purchasing requirements set forth by our largest customers.
First as a leading supplier to the automotive industry, we must comply with purchasing requirements set forth by our largest customers.
Speaker 3: transcript
Speaker 3: Many of our large EMEA-based Tier 1 automotive customers and many industrial customers have put forth their own ESG plans, calling for a significant reduction in greenhouse gas emissions from their suppliers.
Many of our large EMEA based tier one automotive customers and many industrial customers have put forth their own ESG plans, calling for a significant reduction in greenhouse gas emissions from their suppliers.
Second as a public reporting company, we must comply with appropriate rules and regulations set forth by the SEC and NASDAQ.
Speaker 3: transcript
Speaker 3: Second, as a public reporting company, we must comply with appropriate rules and regulations set forth by the SEC and NASDAQ.
Speaker 3: transcript
Speaker 3: There are new disclosures required for companies starting next year.
There are new disclosures required for companies starting next year.
Speaker 3: transcript
Speaker 3: As a smaller reporting company, these will become effective for us starting next year and continue to increase in disclosure requirements over the next several years.
As a smaller reporting company. These will become effective for us starting next year and continue to increase in disclosure requirements over the next several years.
And finally as a good corporate citizen and we need to look at smart ways to be more environmentally friendly consistent with a good use of cash.
Speaker 3: transcript
Speaker 3: And finally, as a good corporate citizen, we need to look at smart ways to be more environmentally friendly, consistent with a good use of cash. The importance of ESG and how it impacts our business operations will be the first subject in our next Fireside Chat series. The session will be entitled Sustainability Strategies for the Auto Industry and will be released and available for viewing later this month.
Yes.
The importance of ESG and how it impacts our business operations will be the first subject in our next fireside chat series.
<unk> session will be entitled sustainability strategies for the auto industry and won't be released and available for viewing later this month.
Yeah.
Speaker 3: transcript
Speaker 3: In that session, you'll hear how we've made outstanding progress in our scope one and scope two emissions, well ahead of regulatory and supply chain requirements, and in the programming industry and sustainability.
In that session, you'll hear how we've made outstanding progress in our scope, one and scope two emissions well ahead of regulatory and supply chain requirements.
The programming industry and sustainability.
In the months that followed we plan to release five additional fireside chat sessions covering global perspectives on critical topics in emerging market trends from automotive to semiconductor growth opportunities.
Speaker 3: transcript
Speaker 3: In the months that follow, we plan to release five additional fireside chat sessions covering global perspectives on critical topics and emerging market trends from automotive to semiconductor growth opportunities.
In addition to the Fireside chats, we've expanded our investor communications content and channels with new technology discussions on Linkedin.
Speaker 3: transcript
Speaker 3: In addition to the Fireside Chats, we've expanded our investor communications content and channels with new technology discussions on LinkedIn.
Speaker 3: transcript
Speaker 3: And we also recently joined the WeBull Corporate Connect service platform to enhance our communications with tech savvy retail investors.
And we also recently joined the Wiebold corporate connect service platform to enhance our communications with tech savvy retail investors.
Speaker 3: transcript
Speaker 3: Webull will provide us direct exposure to the second largest app-based investment and trading platform.
We bill will provide us direct exposure the second largest app based investment and trading platform.
As you can tell we're excited for the future growth of data I O and look forward to sharing our progress in perspective with you and also with these new channels.
Speaker 3: transcript
Speaker 3: As you can tell, we're excited for the future growth of Data.io and look forward to sharing our progress and perspective with you and also with these new channels.
Speaker 3: transcript
Speaker 3: This will include some fresh ideas from Jerry that goes well beyond our operational spending discipline that he demonstrated in the third quarter. He's focused on our ability to drive margins, improve cash flow, and invest in future growth.
This will include some fresh ideas from Jerry that goes well beyond our operational spending discipline that he demonstrated in the third quarter.
He's focused on our ability to drive margins improve cash flow and invest in future growth.
Speaker 3: transcript
Speaker 3: With that, I'll turn the call over to Jerry for a little bit more detail on the numbers. Jerry? Thank you, Anthony, and good day to everyone.
With that I'll turn the call over to Jerry.
A little bit more detail on the numbers Jerry.
Thank you Anthony and good day to everyone.
Speaker 1: transcript
Speaker 1: I look forward to my first and future earnings update, having taken over as CFO on August 16.
I look forward to my first and future earnings update haven't taken over as CFO on August 16th.
Speaker 4: transcript
Speaker 4: I will start with the balance sheet and then move to the income statement. My commentary today will focus on specific points of interest and allow you to review the earnings release for a more detailed understanding of our two, three financials.
I will start with the balance sheet, and then move to the income statement.
My commentary today will focus on specific points of interest and allow you to review the earnings release for a more detailed understanding of our Q3 financials.
Dana I always financial condition remains strong at the end of Q3.
Speaker 4: transcript
Speaker 4: Data IOT financial condition remains strong at the end of Q3. Well, 11.9.
Well, it's $11 9 million in cash.
Speaker 4: transcript
Speaker 4: up $357,000 from $11.5 million at the beginning of the year.
Up $357000.
From $11 5 million.
At the beginning of the year.
Speaker 4: transcript
Speaker 4: Cash and working capital at 18 million had a comparable increase of 520,000 from 17.6 million at the beginning of the year.
Cash and working capital at 18 million had a comparable increase of 520000 from $17 6 million at the beginning up here.
We even both at $4 9 million increased 175000 from the previous quarter.
Speaker 4: transcript
Speaker 4: Receivables at $4.9 million increased $175,000 from the previous quarter.
Speaker 4: transcript
Speaker 4: They failed outstanding or DSO was at 39 days at the end of Q3. Pass.
Days sales outstanding or DSO was at 59 days at the end of Q3.
Past due receivable balances.
Speaker 4: transcript
Speaker 4: greater than 30 days remain very low at less than $30,000 on September 30th.
Greater than 30 days remain very low.
And $30000 on September 30th.
Speaker 4: transcript
Speaker 4: Payables at $1.1 million decreased by $468,000 from the previous quarter.
Payables at 1.1 million decreased by 468000 from the previous quarter.
Speaker 4: transcript
Speaker 4: Moving on to the inventory, we finished at 6.4 million, a decline of 476,000 from the previous quarter.
Moving on to inventory.
We finished at $6 4 million.
A decline of 476000 from the previous quarter.
Speaker 4: transcript
Speaker 4: Inventory had been intentionally elevated in 2020 to address potential shortage risks.
Inventory had been intentional the elevated in 'twenty 'twenty to address potential shortage risk.
Speaker 4: transcript
Speaker 4: Earlier this year, we went to a more neutral supply chain strategy.
Earlier this year, we went to a more neutral supply chain strategy.
Improving supply chain conditions.
Speaker 4: transcript
Speaker 4: This position is a material for end of life products.
Dispositions are material for end of life products.
Speaker 4: transcript
Speaker 4: and our Lean Operational Initiative contributed to our overall reduction.
And our lean operational initiatives contributed to our overall reduction.
Optimizing inventory levels remain a top priority, while balancing anticipated customer demands going forward.
Speaker 4: transcript
Speaker 4: Optimizing inventory levels remain a cop priority while balancing anticipated customer demands going forward.
Moving to the income statement.
Speaker 4: transcript
Speaker 4: Revenue at $6.6 million declined $651,000 from the prior year on lower bookings performance.
Revenue at $6 6 million declined 651000 from the prior year.
On Lora bookings performance in the current quarter.
And strong shipping recovery in Q3 of the prior year due to the supply chain disruption that occurred in the first half of the prior year.
Speaker 4: transcript
Speaker 4: and strong ship and recovery in Q3 of the prior year due to the supply chain disruption that occurred in the first half of the prior year.
Revenue through the first nine months of this year was $21 2 million.
Speaker 4: transcript
Speaker 4: Revenue through the first nine months of this year was 21.2 million up.
Up $4 2 million or a 25% increase from the prior period.
Speaker 4: transcript
Speaker 4: 4.2 million or a 25% increase from the prior period. Our Q3 ending backlog was 2.5 million down from 3.8 million from the previous quarter.
Our Q3, ending backlog was $2 5 million down from $3 8 million from the previous quarter.
Speaker 4: transcript
Speaker 4: As Anthony Iniquitous, Automobile Electronic continues to be our primary addressable market at 63% of your day booking.
As Anthony indicated automotive electronic continues to be our primary addressable market.
63% of year to date bookings.
Gross margin.
Speaker 4: transcript
Speaker 4: At 34% in Q3, with down from 59% in Q2, do primarily to lower sales volume, lower inventory levels, and related absorption, a relatively fixed cost for our manufacturing and service operation.
54% in Q3 was down from 59% in Q2.
Due primarily to lower sales volume.
Lower inventory levels and related absorption a relatively fixed cost for our manufacturing and service operations.
Speaker 4: transcript
Speaker 4: Good news is, direct material and other variable costs decline in line with revenue
Good news is direct material and other variable costs declined in line with revenue change.
Yeah.
Speaker 4: transcript
Speaker 4: Operational expenses at 3.6 million increase 5% from the prior year.
Operational expenses at $3 6 million increased 5% from the prior year.
Speaker 4: transcript
Speaker 4: with R&D representing the majority of the increase, while G&A remains...
With R&D, representing the majority of the increase while G&A remain relatively flat.
Great strides were made in reducing our Q3 cost.
Speaker 4: transcript
Speaker 4: Rate strides were made in reducing our Q3 cost.
Speaker 4: transcript
Speaker 4: with a decline of 626,000 from the prior quarter.
With a decline of 626000 from the prior quarter.
Speaker 4: transcript
Speaker 4: A critical review of spinning was performed, non-critical costs reduced or eliminated, and of course operational efficiency increased.
A critical review of spending must perform noncritical cost reduced or eliminated.
And of course operational efficiencies increase.
Speaker 4: transcript
Speaker 4: Excluding costs related to sales volume changes, we expect to maintain this strong operational operational discipline Q4 and 2024.
Excluding costs related to sales volume changes, we expect to maintain this strong operational discipline Q.
Q4 and 2024.
Currency transaction.
Speaker 4: transcript
Speaker 4: Currently transaction impact was minimal in Q3 was $15,000 loss compared to a $370,000 gain in the prior year from, of course, a strengthening dollar.
Impact was minimal in Q3.
With $15000 loss compared to a $307000 gain in the prior year.
Of course, a strengthening dollar.
Net loss of 53000 in Q3 compared to a net income of 847000 for Q3 of 2022 was due largely to the change in revenue.
Speaker 4: transcript
Speaker 4: Net loss of 53,000 in Q3 compared to a net income of 847,000 for Q3 of 2022 would do largely to the changing revenue and lower FX gain from the prior year.
And lower FX gain from the prior year.
Speaker 4: transcript
Speaker 4: Net income remains positive, however, at $342,000 through nine months compared to a net loss of 1.6 million for the similar periods in 2022.
Net income remains positive however at $342000 through nine months compared to a net loss of $1 6 million for the similar period in 2022.
Adjusted EBITDA was 400000 in Q3.
Speaker 4: transcript
Speaker 4: Adjusted Ipada was 40000 in Q3.
Speaker 4: transcript
Speaker 4: and increased to 1.8 million through nine months of this year.
An increase to 1.8 million through nine months of this year.
Speaker 4: transcript
Speaker 4: This represents a year-over-year improvement of 1.3 million.
This represents a year over year improvement of $1 3 million.
Speaker 4: transcript
Speaker 4: Overall, we remain very strong financially with no debt and a good position to navigate market dynamics. We'll return to profitability.
Overall, we remain very strong financially with no debt.
In a good position to navigate market dynamics.
Well have returned to profitability on a consolidated basis.
Speaker 4: transcript
Speaker 4: We will be able to take advantage of our NOLs, which stood at 15 million on September 30.
We won't be able to take advantage of our Nols, which stood at 15 million on.
On September 30th.
Speaker 4: transcript
Speaker 4: I am excited to be part of the data IOTM and look forward to working and partnering with Anthony and our global team to continue improving our operational and financial performance.
I am excited to be part of the data I O team and look forward to working and partnering with Anthony and our global teams to continue improving our operational and financial performance.
This concludes my remarks for the third quarter of 2023.
Speaker 4: transcript
Speaker 4: This concludes my remarks for the third quarter of 2023. Operator, would you please.
Operator would.
Would you please start the Q&A process.
Yeah.
Speaker 1: transcript
Speaker 1: Ladies and gentlemen, we'll now begin the question and answer session. To ask a question, you may press star and then one on your touchtone telephones. You are using a speaker phone. We do ask you please pick up your handset before pressing the keys. So, withdraw your question.
Ladies and gentlemen, we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone telephone.
You are using a speaker phone, we do ask that you. Please pickup your handset before pressing the keys.
To withdraw your question you May press Star two.
We do also ask you please limit yourself to one question and a single follow up.
Speaker 1: transcript
Speaker 1: We do also ask that you please limit yourselves to one question and a single follow up. If you do have additional questions, you may re-enter the question.
If you do have additional questions you may reenter the question queue.
Speaker 1: transcript
Speaker 1: Once again that is star and then one to join the question queue. We'll pause momentarily.
Once again that is star and then one rejoin the question queue.
We will pause momentarily to assemble the roster.
Our first question today comes from Kevin Garrigan from West Park Capital. Please go ahead with your question.
Speaker 1: transcript
Speaker 1: Our first question today comes from Kevin Garigan from West Park Capital. Please go ahead with your question.
Speaker 5: transcript
Speaker 5: Yeah, good, hey, good afternoon everybody. And thanks for letting me ask a question. Hey, on the EV front and congrats on the new EV factory customers, you know, not saying that you'll supply every EV factory out there, but is it a safe assumption that you'd supply kind of one system perfactory or, you know, there are possibility that multiple factories would use one system such as like a programming center or something like that.
Yeah, Good Hey, Hey, good afternoon, everybody and thanks for letting me ask a question.
Hey on the on the EV front and congrats on the new EV factory customers I'm, not saying that Youll supply every evening factory out there, but is it a safe assumption that you'd supply kind of one one system per factory or you know is there a possibility that multiple factories would use one systems such as <unk>.
Ah Ah programming center or something like that.
Yeah, So Kevin good to hear from you in general I would say on average we supply more than one system per factory in the automotive space.
Speaker 3: transcript
Speaker 3: Yes, Kevin, good to hear from you. In general, I would say on average, we supply more than one system perfactory in the automotive space.
Speaker 3: transcript
Speaker 3: And that's just based on an analysis. I mean, it ranges from, we have a number of customers of one factory or one system per factory. I've been in places that have 10 systems in a factory. So the average is certainly going to be more than one.
And that's just based on an analysis I mean, it ranges from we have a number of customers one factory or one system per factory I'd been in places that have you know 10 systems in a factory.
So the average is certainly going to be more than one.
<unk>.
Speaker 3: transcript
Speaker 3: For us, we see the growth in automotive coming from
For us, we we see the growth in automotive to coming from.
Speaker 3: transcript
Speaker 3: Again, the focus on new factory acquisition, as customers expand in certain areas of the world, we want to be their choice as they put programming capacity in place in those new factories. We think that's a good
Again, the focus on new factory acquisition as customers expand in certain areas of the world are.
We want to be their choice as they put programming capacity in place in those new factories.
We think that's a good.
Yeah.
Speaker 3: transcript
Speaker 3: A good predictor of what their future demand will be in that factory. And then of course people that have been with us for years are placing additional capacity orders. As again, they have more and more electronics going into their cars and they need to add capacity. So it's really combinational.
A good predictor.
Predictor of what their future demand will be in that factory and then of course people that had been with us for years are placing additional capacity orders.
Again, they have more and more electronics going into their cars and they need to add capacity. So it's really a combination of both.
Speaker 5: transcript
Speaker 5: Okay. Got it. Got it. That makes sense. And then are you getting a lot of prior customers that already have a PSV system that are asking to add Centrix capabilities?
Okay got it got it that makes sense and then or are you getting a lot of a lot of prior customers that already have a PSB system that are asking to add centrex capabilities.
The customers.
Speaker 3: transcript
Speaker 3: The short answer there is most of our Centrix demand today continues to come from people that have the system already. That includes our programming center partners and a handful of non-programming center customers.
The short answer there is most of our centrex demand today continues to come from people that have the system already.
That includes our programming center partners and a handful of non programming center customers.
Okay Perfect and then just one last quick question.
Speaker 5: transcript
Speaker 5: Okay, perfect. And then just 1 last quick question. So, you know, looking at your, your customer additions, you had started out the year, adding 10 customers in Q1, and then that number has kind of come down as we've gone through the year. But, you know, you're still. Still on on pace to surpass your 2022 customer additions are.
So looking at your your customer additions you had started out the year, adding 10 customers in Q1, and then that number has kind of come down have you gone through the year, but youre still still on pace to surpass your 2022 customer additions are.
Speaker 5: transcript
Speaker 5: what is kind of keeping some potential customers on the sidelines?
What are what is kind of keeping some potential customers on the sidelines.
Well I think the you know that.
Speaker 3: transcript
Speaker 3: I think the numbers on any quarter are going to have some lumpiness to it, that's the nature of our business. That's why we give you the date on the quarter and then also try and provide some context with the year-to-date numbers as well. For us in Q3, we probably would have had more new customers if people had bought more systems.
The numbers in any quarter are going to have some lumpiness to it that's just the nature of our business. That's why we gave you the data on the quarter and then also try and provide some context with a year to date numbers as well.
For us in Q3 that we probably would have had more new customers. If people had bought more systems.
Speaker 3: transcript
Speaker 3: As I mentioned, it seemed like people just didn't want to place any orders towards the end of the quarter. And then once the quarter flipped over, it's like the spigot turned back on.
As I mentioned it seemed like people just didn't want to place any orders.
Towards the end of the quarter and then once the quarter flipped over it it's like the spigot turned back on.
Speaker 3: transcript
Speaker 3: I don't know whether they didn't want to have it on their books. I don't know whether it was, you know, the uncertainty created by the factors I described earlier, strikes, other stuff as well, interest rates. But, you know, at the end of the day, we believe that there'll be more capacity demand because there's more silicon going into cars and it needs to get programmed. It's not really any more complicated than that.
I don't know what they didn't want to have it on their books I don't know whether it was you know the uncertainty created by the factors I described earlier strikes.
The other stuff as well interest rates, but you know at the end of the day, we believe that there'll be more capacity demand because theres more silicon going into cars and it needs to get programmed.
It's not really any more complicated than that.
Yeah.
Okay perfect. Thank you very much.
Thanks, Kevin.
Our next question comes from David Maris from singular Research. Please go ahead with your question.
Speaker 1: transcript
Speaker 1: Our next question comes from David Marsh from Singular Research. Please go ahead with your question.
Hey, guys. Thanks for taking my questions.
Speaker 6: transcript
I guess I'm, just trying to Anthony I'm, just trying to read the tea leaves here a little bit on your comments on China.
It sounds like there is some.
Speaker 7: transcript
Speaker 6: some sort of recovery taking place, but it doesn't sound like it's a robust and fast-paced recovery. I was just hoping that you could provide us a little bit more granularity there and just help us understand. But David, I think tea leaves is probably an approach.
Some sort of recovery, taking place, but it doesn't sound like it's a robust and fast paced recovery.
Operator: Good afternoon, everyone, and welcome to the Data I-O-3rd quarter 2023 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. We also note today's event is being recorded.
We're hoping that you could provide us a little bit more granularity there and just help us.
But David I think tea leaves is probably inappropriate.
Metaphor further for the future of forecasting there I think you nailed it that's exactly what I'm trying to say we've had continuous improvement throughout the year, but it's at a level of business that's lower than last year, we still haven't gotten to that level.
Speaker 3: transcript
Speaker 3: metaphor for the future forecasting there. I think you nailed it. That's exactly what I'm trying to say. We've had continuous improvement throughout the year, but it's at a level of business that's lower than last year. We still haven't gotten to that level. I think it'll, you know, you can continue to see more recovery there and consistent with the fact that, you know, China produces and consumes an awful lot of cars and 30% of them are EV.
Jordan Darrow: At this time, I'd like to turn the floor over to Jordan Darrow, investor relations. Please go ahead. Thank you, operator, and welcome to the Data I-O-3rd quarter 2023 financial results conference call.
I think it will you know you could continue to see more recovery, there and consistent with the fact that China produces and consumes an awful lot of cars and 30% of them are evs.
Jordan Darrow: With me today are the companies president and CEO Anthony Ambrose and Chief Financial Officer Jerry 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 through different material from those expressed or implied by such statements.
Okay.
Speaker 8: transcript
Speaker 7: Right, right. That's, yeah, it's helpful. I guess it's just, it'd be really.
Right right. That's yeah. That's helpful. I guess, it's just.
It would be really.
Speaker 3: transcript
Speaker 3: It would be really helpful to get a better sense of what that pace is going to look like going forward. But I guess it's really very difficult to predict. Yeah, I think there's a lot of third-party information there. I mean, you can sort of pick the forecast you want. A lot of people are nervous about the property market in China. A lot of people are nervous about, you know, are people continuing to still build there? We just had a trade show there, very well attended.
It would be really helpful that you have a better sense of what that pace is going to look like going forward, but I guess, it's really very difficult to predict.
Yes, I think Theres a lot of third party information there I mean, you can sort of pick the forecast you want a lot of people are nervous about the property market in China, a lot of people are nervous about.
Jordan Darrow: These factors include uncertainties as to the impact from global and geopolitical events, international trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, abilities to report revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions, and market demand, parts shortages, pricing, and other activities by competitors, and other risks, including those described from time to time in the company's filings on Forms 10K, and thank you, which is a security and exchange commission, press releases, and other communications.
Are people continuing to still build there.
We just had a trade show there very well attended.
Speaker 3: transcript
Speaker 3: um... probably the best attendance in three or four years and uh...
Probably the best attendance in three or four years and.
Speaker 3: transcript
Speaker 3: You know, as I said, I would expect a continuous, steady improvement. I don't think you're going to get a massive sudden uptick, but I think it'll be better as we go forward.
As I said I I would expect.
Continuous steady improvement I don't think you're going to get a massive sudden uptick but.
But I think it'll be better as we go forward.
Got it got it that's really helpful. And then just as my follow up.
Speaker 8: transcript
Speaker 7: That's really helpful. And then just as my follow up, I guess.
I guess one of the things that.
Speaker 8: transcript
Speaker 7: It took me a bit by surprise and I think you addressed it a little bit, but I just kind of wanted to pull the thread on it. Backlog is down from 3.8 at the end of Q2 to 2.5 at the end of Q3, but based on your commentary, it actually sounds like bookings have picked up.
Jordan Darrow: The accuracy and completeness of forward-looking statements should not be unduly relied upon, data I.O.
It took me a bit by surprise and I think you addressed it a little bit but I was just kind of wanted to pull the thread on it your backlog was down from three eight at the end of Q2, two and a half at the end of Q3, but.
Anthony Ambrose: is under no due to any of these forward-looking statements, and now I would like to turn over the call to Anthony Ambrose, President and CEO of Data I.O. Thank you very much, Jordan. I'd like to begin my formal remarks by addressing our 20-23-3rd-quarter financial and operational performance, and then I'll turn it over to Jerry Eng for a more detailed look at the numbers. We have a strong year-over-year revenue growth of 25% through the first three quarters of the year, and more recent challenging business conditions in Q3.
Based on your commentary it actually sounds like bookings.
Bookings have picked up.
Speaker 8: transcript
Speaker 7: as we've entered the new quarter. So just, you know, with all of that information, I mean, you know, I'm reading into your commentary that Q4 could be sequentially better, but I just was wondering if you might just help us.
As we've entered the new quarter.
So just you know with all of that information I mean, it yeah, I'm I'm reading into your commentary that Q4 could be sequentially better, but I guess I was wondering if you might just help us.
Speaker 3: transcript
Speaker 3: You know, with the information that you have today, just kind of get a better understanding around that. Yeah, I think the, you know, the tough thing for us is we don't give the quarterly guidance, but as I indicated in my remarks, I certainly think the bookings will be better Q4 and Q3. And the revenue, given our sales funnel, we still have in the funnel that have not yet booked.
You know with the information that you have today.
Anthony Ambrose: As I mentioned in the release, the third quarter was mixed. We won some very exciting deals and saw a strength in adapter bookings, but system bookings were soft as customers deferred capital-purchasing decisions into the fourth quarter. We also saw customers move delivery dates from Q3 to early Q4, which we did not normally see. For whatever reason, whether it be the strike in North America, interest rates, people coming back for vacation, it appeared that customers wanted to take another look at their capital-purchase decisions, and did so by pushing from September into Q4.
Kind of get a better understanding around that yeah, I think the you know the.
The tough thing for US is we don't give the quarterly guidance, but as I indicated in my remarks, I certainly think the bookings will be better in Q4 and Q3.
And the and the revenue given our sales funnel, we still have in the funnel that have not yet booked.
Speaker 3: transcript
Speaker 3: You know, we have an opportunity to have a strong revenue quarter as well, provided the timing is such that we can book and ship some of those systems. So, you know, the funnel looks good. We just have to deliver on it, and, you know, we're off to a good start.
You know we have an opportunity to have a strong revenue quarter as well provided the timing is such that we can book and ship some of those systems. So you know the funnel looks good we just have to deliver on it and.
You know we're off to a good start.
Anthony Ambrose: Now, what's interesting is Q4 is starting out extremely well. As we booked five systems already in October, several of these systems originally were planned for Q3 bookings actually had the bookings occur in October. I was also happy this morning to see the news that Ford and the UAW have reached a tentative agreement, likely ending their strike. This will remove some uncertainty in North American market. When we look at Q4, given all the puts and takes, we have a strong sales funnel that supports a much stronger bookings than we saw in Q3, and operations that support stronger revenue than we saw in Q3, provided we get the orders and time to ship this year.
Great. That's helpful. Thanks, a bunch I'll get back in queue.
Thanks, a lot Dave.
Speaker 1: transcript
Speaker 1: Our next question comes from David Cannon from Cannon Wealth Management. Please go ahead with your question.
Our next question comes from David Cannon from Cannon wealth management. Please go ahead with your question.
Speaker 6: transcript
Speaker 6: Hi, thanks for taking my questions. I've got a few, so if it's okay to bend the rules a little bit, I'd appreciate that. The first one is in regards to, you said, five system orders so far in the quarter. What are ASPs on systems?
Hi, Thanks for taking my questions I have.
Got a few so if it's okay to bend the rules a little bit I'd appreciate that.
The first one is in regards to you said five system order so far in the quarter water a S p's on systems.
Speaker 3: transcript
Speaker 3: not going to get into that, Dave. They're consistent and typical with prior quarters. Nothing strange either way.
Not going to get into that Dave are there they are consistent and typical with prior quarters nothing strange either way.
Anthony Ambrose: Despite the short-term gyrations, the driving forces and long-term growth thesis for data I or remain intact, advanced semiconductors and microcontrollers are finding their way into more products and impacting virtually every business in a measurable ways. Programming is becoming more complex and the amount of code is continuously increasing. Our plan is to grow revenues in growing markets, including automotive and industrial, continue to drive more revenue from consumables, software and service, and deliver 40% operating leverage on that revenue growth.
Speaker 8: transcript
Speaker 7: OK. And for the quarter, what were adapter sales?
Okay.
For the for the quarter what were adapt ourselves.
Speaker 3: transcript
Speaker 3: The exact number we'll put in the queue, but I know the pings were up pretty well quarter on quarter. Jerry, do we have the exact adapter numbers? Jerry will take a look at that and we'll let you know. What's the next question?
The exact number will put in the queue, but I know that things were up.
Pretty well quarter on quarter trade do we have the exact adapter numbers Jerry I'll take a look at that and we'll let you know what's the next question.
Speaker 5: transcript
Speaker 5: Okay. On operating expenses, you know, we're up your over year revenues are down, your over year gross margins are down. It seems like.
Okay.
And operating expenses were up year over year revenues are down year over year gross margins were down it seems like.
Anthony Ambrose: Automotive represented about 63% of the bookings in the third quarter consistent with our year-to-date numbers. Within automotive, we continue to see strength in EVs globally, and we like EVs not just because they're electric vehicles but because the platforms are newer, and they tend to have more electronics per car as they have comprehensive IVI, ADAS, and other features. With this content in EVs is estimated to be about two to three times that of semiconductor content and other vehicles, and the programming requirements continue to require, continue to grow in these EVs.
Speaker 5: transcript
Speaker 5: an unsustainable posture going forward. Can you talk about opportunities to trim costs and to be more efficient so that when we do report good revenues, we can get some leverage to the bottom line and if possible, quantify that. I'm assuming this is in the works, but if not, I would be quite disappointed.
And unsustainable posture going forward can you can you talk about opportunities to trim costs and to be more efficient. So that when we do report could revenues, we can get some leverage to the bottom line and if possible quantify that I'm. Assuming this is in the works, but if not.
You know I would be quite disappointed.
Speaker 3: transcript
Speaker 3: You know, I think, you know, Jerry's clearly got some ideas on spending and he started implementing those in Q3. I'll let him talk about that in a moment, but I just want to clarify some things. The revenue is actually up 25% year over year through the first nine months. So yeah, spending is up. Frankly, spending is up more than we would like it
Yeah, I think Jerry is clearly got some ideas on spending and he started implementing those in Q3 I'll, let him talk about that in a moment, but I just wanted to clarify some things on the revenue is actually up 25% a year over year through the first nine months. So yeah spending is up frankly spending is up more than we would like it to be up.
Anthony Ambrose: Regionally, we continue to see strength in North America. We have seen softness in AMIA, China is recovering from a soft first half, recovering slowly and steadily, which we believe will continue based on our channel checks. In the third quarter, we added four new customers, which now brings us to 19 for the first nine months of the year, compared to 20 of all last year and the prior year. Within those four new wins, we had two new EV factories internationally, and one of the new customers in the third quarter represents a major win for us on Centrics.
Speaker 3: transcript
Speaker 3: And the focus on spending control is something that Jerry is clearly digging into and has already, you know, got that started in Q3. But, you know, the whole concept is we want to, we're delivering on our operating leverage of about 40 percent, pretty close to that, but we clearly want to do better. And I think your comments are how can we continue to get more efficient and deliver even better operating leverage to the bottom line.
And the focus on spending control is something that Jerry is clearly.
Digging into it is already.
Got that started in Q3, but you know the the whole concept is we want it we're delivering on our operating leverage of about 40%.
Pretty close to that but we clearly want to do better.
And I think your comments are how can we continue to get more efficient and deliver even better operating leverage to the bottom line.
Anthony Ambrose: We're excited to move further into expanding the Centrics market by winning our first major solar energy customer on our Centric Security Deployment Platform. This continues to make progress for Centrics as a leading technology platform, now including AI, EV, data center utilities, industrial, and now solar markets. That's an ice bridge here as we go from solar to sustainability and ESG. Green Power, ESG, and climate disclosures are becoming increasingly important for public companies like Data I.L.
That'll be better.
Speaker 3: transcript
Speaker 3: So I think Jerry, what was our revenue on the adapters in Q3? 1.8 million. 1.8 million.
So I think.
Jerry what was our revenue on the adapters in Q3 1.8 million $1 8 million.
Speaker 6: transcript
Speaker 8: Okay, and then, you know, last question, this seems like an inconsequential item, but it makes me question the seriousness and stewardship that you're approaching the business at the current time.
Okay, and then last question.
This seems like an inconsequential item, but it makes me question, the seriousness and stewardship youre approaching the business at the current time.
Speaker 9: transcript
Speaker 8: Inter-sync on the quarter was $41,000. Now this may seem trivial, but what it tells me, if I annualize that on average, you're getting about 1.4%.
Interest income for the quarter.
Order was $41000 now this may seem trivial, but what what it tells me if I annualize that on average you're getting about 1.4% a three month T. Bill is at 5.36 months T. Bill is it you know almost five six you can get a multitude of money markets.
Anthony Ambrose: For us, we see three basic requirements for our environmental strategies. First, as a leading supplier to the automotive industry, we must comply with purchasing requirements set forth by our largest customers. Many of our large and mea-based Tier I automotive customers and many industrial customers have put forth their own ESG plans, calling for a significant reduction in greenhouse gas emissions from their suppliers. Second, as a public reporting company, we must comply with appropriate rules and regulations set forth by the SEC and NASDAQ.
Speaker 9: transcript
Speaker 8: Three-month T-bill is at 5.3, a six-month T-bill is at.
Speaker 9: transcript
Speaker 8: you know, almost 5.6, you can get a multitude of money markets paying 5.25%.
Paying 5.25%.
Speaker 9: transcript
Speaker 8: Why is that and going forward, is that something you're going to pay attention to? Because on an annualized basis, we're talking about giving away, you know, according to my math, like $400,000. Am I wrong? If so, please correct me, but, you know, if you can give an explanation and what we're doing going forward.
Why is that and and and going forward is that something youre going to pay attention to it because on an annualized basis, where we're talking about giving away you know according to my math like $400000 or am I wrong. If so please correct me, but you know if you can give an explanation.
Anthony Ambrose: There are new disclosures required for companies starting next year. As a smaller reporting company, these will become effective for us starting next year and continue to increase in disclosure requirements over the next several years. And finally, as a good corporate citizen we need to look at smart ways to be more environmentally friendly, consistent with the good use of cash.
What we're doing going forward.
Speaker 4: transcript
Speaker 4: Yeah David, I can highlight that. As you know, we do have a fairly strong cash position. However, we do have operational needs, both in the US, in our Shanghai manufacturing facility and in Germany.
Yes, David I can I can highlight that as you know we do have a fairly strong cash position. However, we do have operation operational needs. Both in the U S in our Shanghai manufacturing facility and in Germany.
Anthony Ambrose: The importance of ESG and how it impacts our business operations will be the first subject in our next fireside chat series. The session will be entitled Sustainability Strategies for the Auto Industry and will be released and available for viewing later this month. In that session we hear how we have made outstanding progress in our scope 1 and scope 2 emissions well ahead of regulatory and supply chain requirements and are in the programming industry and sustainability.
Speaker 4: transcript
Speaker 4: We do have a very active method of deploying unneeded cash to maximize the interest earnings.
We do have a very active method of deploying a needed cash.
To maximize the interests are earnings.
Speaker 3: transcript
Speaker 3: But it's not clearly the case where we deploy everything 100 percent. We are obviously looking at that and balancing operational needs as well as the earnings opportunity. So Jerry We're clearly looking at that, but also my understanding is that you know if you look outside the US the interest rates available on cash deposits May not be the same as the current high rates that we enjoy in the US. Correct. So on a blended basis we probably can't get 5%
But it's not a case, where we deploy everything 100% Oh, we are obviously looking at that and balancing operational needs as well as the earnings opportunity. So Jerry we're clearly looking at that but also my understanding is that you know if you look outside the U S. The interest rates available on cash deposits may not be the same as the current hi Ray.
Anthony Ambrose: In the months that follow we plan to release five additional fireside chat sessions covering global perspectives on critical topics and emerging market trends from automotive to semiconductor growth opportunities. In addition to the fireside chats we've expanded our investor communications content and channels with new technology discussions on LinkedIn. And we also recently joined the WeBull Corporate Connect Service platform to enhance our communications with tech savvy retail investors. WeBull will provide its direct exposure to the second largest app based investment and trading platform.
It's that we enjoy in the U S right correct. So on a blended basis, we probably can't get 5%, but I think to Dave's point, we're certainly looking at it and.
Speaker 3: transcript
Speaker 3: But I think to Dave's point, we're certainly looking at it.
Speaker 4: transcript
Speaker 4: Yeah, and we are currently using, you know, nightly sweeps. We are also deploying some of our money into short-term investments. So we are obviously looking at it and then I'm continuing to maximize the opportunity where we can.
Yes, and we are currently using nightly sweeps. We are also deploying some of our money into short term investments. So we are obviously looking at it and continuing to maximize the opportunity a weekend.
Speaker 9: transcript
Speaker 8: How much of the $11.9 million is in the U.S.?
How much of the $11 9 million as in the U S.
Anthony Ambrose: As you can tell we're excited for the future growth of data IO and look forward to sharing our progress and perspective with you and also with these new channels. This will include some fresh ideas from Jerry that goes well beyond our operational spending discipline that he demonstrated in the third quarter. He's focused on our ability to drive margins and improve cash flow and invest in future growth.
Approximately half.
Speaker 9: transcript
Speaker 8: Yeah. So even on that, we're not maximizing it. I mean, you can put your money in a money market and get five and a quarter percent. I'm sure it's better than 1.4 percent in Europe and in China. I mean, across the globe, you know, there have been numerous interest rate hikes.
Yeah, so even on that we're not maximizing that I mean, you can put your money in the money market and get 5.25%.
I'm sure, it's better than one 4%.
In Europe.
And in China, I mean across the globe.
Jerry Ng: With that I'll turn the call over to Jerry for a little bit more detail on the numbers Jerry. Thank you Anthony and good day to everyone. I look forward to my first and future earnings update having taken over at CFO on August 16.
There have been numerous interest rate hikes.
Speaker 9: transcript
Speaker 8: So just pointing it out, it would make me feel better if you guys were maximizing that and also taking a look at every line item on the expense sheet.
So just.
Just pointing it out it would make me feel better if you guys were maximizing that and also taking a look at every line item on the expense sheet.
Jerry Ng: I will start with the balance sheet and then move to the income statement. My commentary today will focus on specific points of interest and allow you to review the earnings release for a more detailed understanding of our two three financials. Data IO's financial condition remains strong at the end of Q3. Well, $11.9 million in cash, up $367,000 from $11.5 million at the beginning of the year. With cash and working capital at $18 million had a comparable increase of $520,000 from $17.6 million at the beginning of the year.
Understood Dave Thanks.
Thank you.
Speaker 1: transcript
Speaker 1: Our next question comes from Chris Pichowski. Actually our next question comes from Michael Cooper. Please go ahead with your question. Please go ahead with your question.
Our next question comes from Chris Kotowski.
Actually our next question comes from Michael Cooper. Please go ahead with your question.
Good afternoon.
Speaker 7: transcript
Speaker 6: As they can you talk a little bit more about the centric.
Anthony can you talk a little bit more about the centrists funnel.
Speaker 7: transcript
Speaker 6: I've been watching the sales progression of Centrix over the past few years as you improved the product and then learned about the market a little bit more and I think you've changed where you're going into the market, maybe more on the design side of things.
I've been watching the sales progression of centric over the past few years as you are.
<unk> improved the product and then learned about the market a little bit more and I think you've you've changed where youre going into the market maybe more on the design side of things.
Jerry Ng: Receivables at $4.9 million increased $175,000 from the previous quarter. Stay still without standing or DSO was at 39 days at the end of Q3. Past due receivable balances greater than 30 days remains very low at less than $30,000 on September 30th. Payables at $1.1 million decreased by $468,000 from the previous quarter. Moving on to the inventory, we finished at $6.4 million, a decline of $476,000 from the previous quarter. Inventory had been intentionally elevated in 2020 to address potential shortage risk.
Speaker 7: transcript
Speaker 6: But I'm still, you know, each quarter comes and goes and I'm waiting for a nice big uptick in revenue from Centrix and I'm not exactly seeing it.
But I'm still you know each quarter comes and goes and I'm waiting for a nice big uptick.
Uptick in revenue from center X and I'm not exactly seen it.
Speaker 7: transcript
Speaker 6: But what I'm hoping is that in the background, you guys are very active maybe and have been over the last three or four quarters on the design side and maybe that is progressing through the funnel. I know that takes some time. But can you give us some metrics around that kind of dynamic so that we can understand how the market opportunity on centric is performing?
But what I'm, hoping is that in the background are you guys are very active may be and have been over the last three or four quarters.
On the design side, and maybe that is progressing through the funnel I know that takes some time, but can you give us some metrics around that kind of dynamic so that we can understand how the market opportunity on centrex is performing.
Speaker 3: transcript
Speaker 3: Sure. I'll start, Michael, by saying, you know, we don't break out centrics separately.
Sure.
I'll start Michael by saying, we don't breakout centrex separately, but in my comments our pay per use revenue. This year from units running through machines that are under that type of contract is up.
Speaker 3: transcript
Speaker 3: But in my comments, our pay-per-use revenue this year from units running through machines that are under that type of contract is up pretty close to 100% year over year. So that's a good.
Jerry Ng: Earlier this year, we went to a more neutral supply chain strategy, improving supply chain conditions, dispossession a material for end-of-life products, and our lean operational initiatives contributed to our overall reduction. Optimizing inventory levels remain a top priority while balancing anticipated customer demands going forward.
Pretty close to 100% year over year.
So that's a good indicator on the revenue side.
Speaker 3: transcript
Speaker 3: On the design inside, I didn't give you a size estimate of the wind here in the solar market, but it's a pretty hefty wind. Channel Partner believes it's mid-six digits, okay, which would be a very, very nice...
On the design inside.
I didn't give you the size estimate of the.
When you hear in the solar market, but it's a pretty hefty win.
Jerry Ng: Moving to the income statement, revenue at $6.6 million declined $651,000 from the prior year on lower bookings performance in the current quarter and strong ship and recovery in Q3 of the prior year due to the supply chain disruption that occurred in the first half of the prior year. Revenue through the first nine months of this year was $21.2 million, up $4.2 million, or a 25% increase from the prior period. Our Q3 ending backlog was $2.5 million down from $3.8 million from the previous quarter.
<unk> partner believes it's mid six digits.
Okay, which would be a very very nice oh.
<unk> run rate for us on the centric platform.
Speaker 3: transcript
Speaker 3: Having said that, we continue to refine our marketing to better tailor our message and focus. And we have customers that we're engaged with now on Centrix opportunities in automotive, industrial, and other markets. The key thing for us is to find the right person in the company to talk to about Centrix. And we've learned over the years.
Having said that we continue to refine our marketing to better tailor, our message and focus and we have customers that we're engaged with now on centrex opportunities in automotive industrial and other markets. The key thing.
For us is to find the right person in the company to talk to about Centrex and we've learned over the years that person.
Speaker 3: transcript
Speaker 3: is not the person we usually talk to for data.
He's not the person, we usually talk too for data programming.
Jerry Ng: As Anthony indicated, Automobile Electronic continues to be our primary addressable market at 63% of your date booking. Gross margin at 34% in Q3 was down from 59% in Q2 due primarily to lower sales volume, lower inventory levels, and related absorption are relatively fixed costs for our manufacturing and service operations. Good news is the rep material and other variable costs declined in line with revenue change. Operational expenses at $3.6 million increased 5% from the prior year, with R&D representing the majority of the increase while G&A remained relatively flat.
Speaker 3: transcript
Speaker 3: And so part of the problem in the strategy is, okay, we have these relationships. How do we use them to find the right people in the company and talk about Centrics? And that's...
And so part of the problem and the strategy is okay. We have these relationships how do we use them to find the right people in the company and talk about Centrex and that's what we're doing on the marketing side.
Speaker 7: transcript
Speaker 6: Okay, excellent. Thank you. And that's thank you half million potential number on your solar contract is very encouraging.
Okay excellent. Thank you and that I think you have million potential.
Number on your solar contract is very encouraging.
Speaker 3: transcript
Speaker 3: Yeah, it's like I said, mid mid 6 digits. Sure, sure, understand.
Yes.
As I said mid bid six digits sure sure understood.
Speaker 1: transcript
Speaker 1: And ladies and gentlemen, at this time, and showing no additional questions, that'll conclude today's question and answer session. I'd like to turn the floor back over to the Management Team for any closing remarks.
And ladies and gentlemen at this time in showing no additional questions that will conclude today's question and answer session I'd like to turn the floor back over to the management team for any closing remarks.
Speaker 3: transcript
Speaker 3: Operator, thank you very much, and I'd like to thank everyone who joined the call and asked questions today. We look forward to sharing the developments with you as we go through Q4, and we'll be at the Productronica trade show in Germany in November in Munich. We also have an Investor Summit Group's virtual conference in the Singular Research Best of the Uncovered Conference in San Francisco in December , and we'd love to see you there. If you have any questions on that, please send a note to Jordan Darrow. With that, I'd like to conclude today's conference.
Operator, thank you very much and I'd like to thank everyone, who joined the call and ask questions today, we look.
Jerry Ng: Rate strides were made in reducing our Q3 costs with a decline of $626,000 from the prior quarter. A critical review of spending was performed, non-critical costs reduced or eliminated, and, of course, operational efficiency increased. Excluding costs related to sales volume changes, we expect to maintain this strong operational discipline Q4 and 2024. Currently transaction impact was minimal in Q3 with $15,000 loss compared to a $370,000 gain in the prior year, from, of course, a strengthening dollar. Net loss of 53,000 in Q3 compared to a net income of 847,000 for Q3 of 2022 would do largely to the change in revenue and lower FX gain from the prior year.
Look forward to sharing the developments with you.
As we go through Q4 and will be at the product chronic a trade show in Germany in November and Munich, and we also have an investor summit groups Virtual conference and the singular research best of the uncovered conference in San Francisco in December and we'd love to see you. There. If you have any questions on that please send a note to Jordan Darrow.
With that I'd like to conclude today's call. Thank you very much.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining.
Speaker 1: transcript
Speaker 1: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
May now disconnect your lines.
Jerry Ng: David. Net income remains positive, however, at $342,000 through nine months compared to a net loss of 1.6 million for the similar periods in 2022. Adjusted Ibadah was $400,000 in Q3 and increased to 1.8 million through nine months of this year. This represents a year-over-year improvement of 1.3 million. Overall, we remain very strong financially with no debt and a good position to denavigate market dynamics. We'll have returned to profitability on a consolidated basis, but we will be able to take advantage of our NOLs, which stood at 15 million on September 30th.
Jerry Ng: I am excited to be part of the Data I.O, team and look forward to working and partnering with Anthony and our global team to continue improving our operational and financial performance.
Jerry Ng: This concludes my remarks for the third quarter of 2023.
Operator: Operator, would you please start the Q&A process?
Operator: Ladies and gentlemen, we'll now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone telephones. You are using a speaker phone. We do ask that you please pick up your handset before pressing the keys. To withdraw your question, you may press star and two. We do also ask that you please limit yourselves to one question and a single follow-up. If you do have additional questions, you may re-enter the question queue. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster.
Kevin Garrigan: Our first question today comes from Kevin Garrigan from West Park Capital. Please go ahead with your question. Yeah, good.
Anthony Ambrose: Hey, good afternoon everybody and thanks for letting me ask a question. Hey, on the EV front and congrats on the new EV factory customers, you know, not saying that you'll supply every EV factory out there, but is it a safe assumption that you'd supply kind of one system per factory or, you know, there are possibility that multiple factories would use one system such as like a programming center or something like that.
Anthony Ambrose: Yes, so Kevin, good to hear from you. In general, I would say on average, we supply more than one system per factory in the automotive space. And that's just based on an analysis. I mean, it ranges from, we have a number of customers of one factory or one system per factory. I've been in places that have, you know, 10 systems in a factory. So the average is certainly going to be more than one.
Anthony Ambrose: For us, we see the growth in automotive coming from again, the focus on new factory acquisition as customers expand in certain areas of the world. We want to be their choice as they put programming capacity in place in those new factories. We think that's a good, um, A good predictor of what their future demand will be in that factory. And then of course people that have been with us for years are placing additional capacity orders as again they have more and more electronics going into their cars and they need to add capacity.
Anthony Ambrose: So it's their customers that already have a PSD system that are asking to add centric capabilities. The short answer there is most of our centric demand today continues to come from people that have the system already. That includes our programming center partners and a handful of non-programming center customers. Okay, perfect. And then just one last quick question. So, you know, looking at your customer additions, you had started out the year adding 10 customers in Q1 and then that number has kind of come down as we've gone through the year but you're still on on-paces surpass your 2022 customer additions.
Anthony Ambrose: What is kind of keeping some potential customers on the sideline? I think the, you know, the numbers on any quarter are going to have, you know, some lumpiness to it. That is the nature of our business. That's why we give you the data on the quarter and then also try and provide some context with a year-to-date numbers as well. For us in Q3, the, you know, we probably would have had more new customers if people bought more systems.
Anthony Ambrose: As I mentioned, it seemed like people just didn't want to place any orders towards the end of the quarter and then once the quarter flipped over, it's like the spigot turned back on. I don't know why they didn't want to have it on their books. I don't know whether it was, you know, the uncertainty created by the factors I described earlier, strikes, other stuff as well, interest rates. But, you know, at the end of the day we believe that there'll be more capacity to man because there's more silicon going into cars and it needs to get programmed. It's not really any more complicated than that. Okay, perfect. Thank you very much. Thanks, Kevin.
David Mars: Our next question comes from David Mars from the Singular Research. Please go ahead with your questions. Thanks for taking the questions. I guess I'm trying to, Anthony, I'm trying to read the tea leaves here a little bit on comments on China. It sounds like there is some sort of recovery taking place but it doesn't sound like it's a robust and fast-paced recovery. I was just hoping that you could provide us a little bit more granularity there and just help us understand them.
David Mars: David, I think tea leaves is probably an appropriate metaphor for the future forecasting there. I think you nailed it. That's exactly what I'm trying to say. We've had continuous improvement throughout the year but it's at a level of business that's lower than last year. We still haven't gotten to that level. I think it'll, you know, you can continue to see more recovery there and consistent with the fact that China produces and consumes an awful lot of cars and 30% of them are EV.
David Mars: Please. Right, right. That's, yeah, it's helpful. I guess it's just, it'd be really, it'd be really helpful to get a better sense of what that pace is going to look like going forward, but I guess it's really very difficult to predict. Yeah, I think there's a lot of third-party information there. I mean, you can sort of pick the forecast you want. A lot of people are nervous about the property market in China.
David Mars: A lot of people are nervous about, you know, our people continuing to still build there. We just had a trade show there, very well attended, probably the best attendance in three or four years. And you know, as I said, I would expect continuous steady improvement. I don't think you're going to get, you know, a massive sudden uptick, but I think it'll be better as we go forward. Got it, got it, that's really helpful.
Anthony Ambrose: And then just as my follow-up, I guess, you know, one of the things that took me a bit by surprise and I think you addressed it a little bit, but I just kind of wanted to pull the thread on it. Your backlog is down from 3.8 at the end of Q2 to 2.5 at the end of Q3, but you know, based on your commentary, it actually sounds like, you know, bookings have picked up as we've entered the new quarter.
Anthony Ambrose: So just, you know, with all of that information, I mean, you know, I'm reading into your commentary that you for could be sequentially better, but I just was wondering if you might just help us, you know, with the information that you have today, just kind of get better understanding about that. Yeah, I think the, you know, the tough thing for us is we don't give the quarterly guidance, but as I indicated in my remarks, I certainly think the bookings will be better Q4 and Q3.
Anthony Ambrose: And the revenue given our sales funnel, we still have in the funnel that have not yet booked, you know, we have an opportunity to have strong revenue quarter as well, provided the timing is such that we can book and ship some of those systems. So, you know, the funnel looks good. We just have to deliver on it and, you know, we're off to a good start. Great, that's helpful. Thanks, I'm on, talking about Q2. Thanks a lot, Dave.
David Cannon: Our next question comes from David Cannon from Cannon Wealth Management. Please go ahead with your question. Hi, thanks for taking my questions.
David Cannon: I've got a few, so if it's okay to bend the rules a little bit, I'd appreciate that. The first one is in regards to you said five system orders so far in the quarter, what are ASPs on systems? Not going to get into that, Dave. They're consistent and typical with prior quarters. Nothing strange either way. Okay. And for the quarter, what were adapter sales? The exact number we'll put in the queue, but I know the things were up pretty well quarter on quarter. Jerry, do we have the exact adapter numbers? Jerry will take a look at that and we'll let you know, what's the next question? Okay.
Anthony Ambrose: On operating expenses, you know, we're up year-over-year revenues are down, year-over-year, close margins are down. It seems like an unsustainable posture going forward. Can you talk about opportunities to trim costs and to be more efficient so that when we do report good revenues, we can get some leverage to the bottom line and if possible, quantify that. I'm assuming this is in the works, but if not, you know, I would be quite disappointed.
Anthony Ambrose: You know, I think, you know, Jerry's clearly got some ideas on spending and he started implementing those in Q3. I'll let him talk about that in a moment, but he's want to clarify some things. The revenue is actually up 25 percent a year over year through the first nine months. So, yeah, spending is up. Frankly, spending is up more than we would like it to be up. And the focus on spending control is something that Jerry is clearly digging into and has already, you know, got that started in Q3.
Anthony Ambrose: But, you know, the whole concept is we want to, we're delivering on our operating leverage of about 40 percent, pretty close to that, but we clearly want to do better. And I think your comments are, how can we continue to get more efficient and deliver even better operating leverage to the bottom line? That'll be better. So, I think, Jerry, what was our revenue on the adapters in Q3? 1.8 million. Okay.
Anthony Ambrose: And then, you know, last question, this seems like an inconsequential item, but it makes me question the seriousness and stewardship that you're approaching the business at the current time. Interest income, the quarter was $41,000. Now, this may seem trivial, but what it tells me, if I annualize that on average, you're getting about 1.4 percent. A three-month T bill is at 5.3, a six-month T bill is at, you know, almost 5.6. You can get a multitude of money markets paying five and a quarter percent.
Anthony Ambrose: Why is that? And going forward, is that something you're going to pay attention to? Because on an annualized basis, we're talking about giving away, you know, according to my math, like $400,000. Am I wrong? It's so please correct me, but, you know, if you can give an explanation, and what we're doing going forward. Yeah, David, I can, I can highlight that. As you know, we do have a fairly strong cash position.
Anthony Ambrose: However, we do have operational needs, both in the US, in our Shanghai manufacturing facility and in Germany. We do have a very active method of deploying unneeded cash to maximize the interest earnings, but it's not clearly the case where we deploy everything 100 percent. We are obviously looking at that and balancing operational needs as well as the earnings opportunity. So, Jerry, we're clearly looking at that, but also my understanding is that, you know, if you look outside the US, the interest rates available on cash deposits may not be the same as the current high rates that we enjoy in the US.
Anthony Ambrose: Correct. So on a blended basis, we probably can't get 5 percent, but I think to Dave's point, we're certainly looking at it. And, um, Yes, and we are currently using, you know, nightly sweeps. We are also deploying some of our money into short-term investments. So, we are obviously looking at it and then, and continuing to maximize the opportunity where we can. How much of the 11.9 million is in the US approximately half?
Anthony Ambrose: Yeah, so even on that, we're not maximizing it. I mean, you can put your money in the money market and get five and a quarter percent. I'm sure it's better than 1.4 percent in Europe and in China. I mean, across the globe, you know, there have been numerous interest rate heights.
David Cannon: So, just pointing it out, it would make me feel better if you guys were maximizing that and also taking a look at every line item on the expense sheet. Understood, Dave. Thanks. Thank you.
Chris Pichowski: Our next question comes from Chris Pichowski.
Michael Cooper: Actually, our next question comes from Michael Cooper.
Michael Cooper: Please go ahead with your question.
Anthony Ambrose: Good afternoon. Anthony, can you talk a little bit more about the centric funnel? I've been watching the sales progression of centrics over the past few years as you've improved the product and then learned about the market a little bit more. And I think you've changed where you're going into the market, maybe more on the design side of things. But I'm still, you know, each quarter comes and goes and I'm waiting for a nice big uptick in revenue from centrics.
Anthony Ambrose: And I'm not exactly seeing it. But what I'm hoping is that in the background, you guys are very active, maybe, and have been over the last three or four quarters on the design side. And maybe that is progressing through the funnel. I know that takes some time. Well, can you give us some metrics around that kind of dynamic so that we can understand how the market opportunity on centrics is performing?
Anthony Ambrose: Sure. I'll start, Michael, by saying, you know, we don't break out centrics separately. But in my comments are pay per use revenue this year from units running through machines that are under that type of contract is up pretty close to 100% year over year. So that's a good indicator on the revenue side. On the design inside, I didn't give you a size estimate of the win here in the solar market, but it's a pretty hefty win.
Anthony Ambrose: Channel partner believes it's mid six digits, okay, which would be a very, very nice volume run rate for us on the centrics platform. Having said that, you know, we continue to refine our marketing to better tailor our message and focus. And we have customers that we're engaged with now on centrics opportunities in automotive, industrial, and other markets. The key thing for us is to find the right person in the company to talk to about centrics.
Anthony Ambrose: And we've learned over the years that person is not the person we usually talk to for data programming and so part of the problem in the strategy is, okay, if we have these relationships, how do we use them to find the right people in the company and talk about centuries and that's what we're doing on the marketing side. Yeah, I guess mid-six digits. Sure. Understood.
Anthony Ambrose: And ladies and gentlemen, at this time and showing no additional questions, that'll conclude today's question and answer session. I'd like to turn the floor back over to the management team for any closing remarks. Our operator, thank you very much and I'd like to thank everyone who joined the call and asked questions today. We look forward to sharing the developments with you as we go through Q4 and we'll be at the productronic, a trade show in Germany in November in Munich.
Anthony Ambrose: And we also have an investor summit group's virtual conference in the singular research best of the uncovered conference in San Francisco in December. And we'd love to see you there. If you have any questions on that, please send a note to Jordan Darrow. With that, I'd like to conclude today's call. Thank you very much.
Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your line.