Q3 2024 Data I/O Corp Earnings Call
Speaker Change: Good afternoon and welcome to the data I.O. third quarter, 2024 financial results conference call. All participants will be in a list and only mode. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: Please know this event is being recorded. I would now like to turn the conference over to Mr. Jordan Darrow. Investor Relations, please go ahead sir.
Jordan Darrow: Thank you, operator and welcome to the data IEO Corporation, third quarter 2024 financial results conference call, with we today are the company's president and CEO Bill Wentworth and Chief Financial Officer and Vice President Jerry A.
Speaker Change: Before we begin, I'd like to remind you that statements made in this conference call concerning future events
Speaker Change: Results from Operations Financial Resolution, Markets, Economic Conditions, Supply Chain Expectations.
Speaker Change: estimated impact of tax and other regulatory reform. Product releases new industry partnerships in any other statements that may be construed as a prediction of future performance.
Speaker Change: or events are forward-looking statements which involve knowing and unknown risks on certain ties and other factors which may cause actual results to differ materialially from those expressed to imply by such statements.
Speaker Change: These factors include uncertainties as the impact on global and geopolitical events, international trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall.
Speaker Change: Ability to Record Revenue's Based on the timing of Product Delivery Resonance Relations.
Speaker Change: Marketing Substance and New Products, Changes in Economic Ditions and Market demand, Part Shorted, Dispricing, and Other Activities by Competitors, and Other Risks, including those described from time to time in the company's findings on Forms 10K and 10Q, with the Securities and Exchange Commission, Press releases and other communications.
Speaker Change: The accuracy and completeness of forward-looking statements should not be unduly relied upon. Data IEO was under no duty to update any forward-looking statements. And now, we'd like to turn over the call to build one with President and CEO of Data IEO.
Speaker Change: Thank you very much Jordan and it is an honor to be presiding over this call which is my first Within RIO. While I was appointed to serve on the company's board of directors last year We announced the Manage CEO Transition Plan and August of
Speaker Change: of this year as President affected September 1st in CEO, first of October. We'll address our recent financial performance for the third quarter ending September 30th later on this call.
Speaker Change: So the heightened value creation for our customers business partners and shareholders now, let's drill into how we would do this since recently joining the company and our team is thoroughly engaged in discovery assessment and planning of new strategies to drive significant value to our customers in the markets we serve today.
Speaker Change: The initial findings are encouraging as we set a new direction to address our existing markets and serve new markets of data as future growth.
Speaker Change: Data <unk> intends to partner with its customers suppliers and enhance the overall customer experience.
Speaker Change: The company will be collaborating with our customers customer base.
Speaker Change: On our vast experience with programming solutions developed enhanced business models that could lead to higher margins.
Speaker Change: Diversification of revenue streams is extremely important and customer segments will be a very important element as I go forward strategy, we've identified customers that could lead to additional domains that will diversify our revenue currently data right now is dominant in the automotive electronics sector, they're willing to be engaging with the electronic supply chain component suppliers, who sells it.
Speaker Change: All markets. This engagement will naturally diversify our revenue streams.
Speaker Change: Leveraging our strong balance sheet will be able to invest in these strategies to move data around.
That should lead to sustained and sustainable growth.
Speaker Change: Thanks to the work with Jerry and his finance team since he came on board last year and as a board of director member and he's been doing a phenomenal job in controlling expenses and really cementing our capabilities around financial controls year to date operating expenses are down by more than $1 million 11 per cent for.
Speaker Change: Last year, our cash balance at the end of third quarter is the highest level in 10 quarters, while revenues and bookings were.
Speaker Change: Not where we'd like them.
Speaker Change: To be as I joined the company, we are optimizing and other areas to be well positioned to implement our new growth strategies for the future.
With that I'd like to pass it over to Jerry Yang for a closer look at our recent financial performance.
Jerry Yang: Thank you Bill and good day to everyone.
Jerry Yang: I look forward to outlining and elaborating on our recent financial performance in more detail.
Jerry Yang: My comments today will focus on key points of interests for the third quarter of 'twenty 'twenty, four and our perspective looking forward, including in market focus progress on spending efficiencies and balance sheet management.
Jerry Yang: Despite the current automotive market headwinds in the Americas and Europe.
I always financial condition condition remained solid at the end of Q3.
Jerry Yang: We maintain a strong backlog and a healthy balance sheet.
Jerry Yang: And a lower operating cost structure, which will contribute to improved future financial performance as the markets recover.
Jerry Yang: And as we implement our future transformative plan as Bill commented on earlier.
Jerry Yang: Despite the third quarter and year to date revenue shortfalls cash remained relatively steady at $12 4 million as of September 30th.
Jerry Yang: Up a million dollars from the $11 4 million at the end of Q2.
Jerry Yang: Cash benefited from continued strong customer collections and lower operating expenses.
Jerry Yang: We remain a cash generating business.
Jerry Yang: And that's reflected in our positive adjusted EBITDA of $37000 in Q3.
Jerry Yang: Accounts receivable was $2 6 million as of September 30th what day sales outstanding or DSO, improving to 43 days compared to 55 days at the end of Q2.
Jerry Yang: Inventory at $6 6 million increase from $5 9 million at the beginning of the year.
Jerry Yang: On lower sales year to date.
Jerry Yang: And in anticipation of higher salaries from future backlog reduction.
Jerry Yang: From bookings closed earlier in the year.
Jerry Yang: Overall net working capital at $17 $6 million at the end of Q3 was unchanged from the end of Q2 'twenty 'twenty four.
Jerry Yang: The company continues to have no debt.
Jerry Yang: Moving to the income statement.
Jerry Yang: Third quarter revenue at $5 4 million was down 17% compared with $6 6 million from the prior year period.
Jerry Yang: Since the beginning of the year.
Jerry Yang: Automotive electronics uncertainty increased and customer capacity expansion has slowed.
Jerry Yang: Resulting in lower system shipments in the Americas and Europe.
Jerry Yang: Offsetting this headwind, whereas our agent channel, which grew 29% in Q3 and 26% year to date.
Jerry Yang: Industrial markets and recurring revenue offerings.
Jerry Yang: Typically our consumables software and services grew 6% in Q3 and currently represents 50% of our total year to date revenue.
Jerry Yang: Which provides a steady base of revenues to help offset the present capex softness.
Jerry Yang: Finally.
Jerry Yang: Backlog remains strong at $4 7 million as of September 30th.
Jerry Yang: Only $700000 from the start of the quarter.
Jerry Yang: With further reductions expected ASP.
Jerry Yang: As planned customer deliveries occur in the next two quarters.
Speaker Change: But we went on to gross margin, we achieved 54% in Q3, which is comparable to our prior quarter Q2 and prior year Q3.
The lower sales volume has hindered our margins do do red relatively fixed manufacturing and service costs. However.
Speaker Change: Our material cost reductions inventory savings and quality improvements.
Speaker Change: And operational streamlining continues to generate favorable and sustainable impact.
Speaker Change: Similarly, I like to address the continued progress we have made on operating expenses.
Speaker Change: Third quarter operating expenses were $3 2 million down 334000, or 9% from the prior year.
Speaker Change: And down $1 3 million or 11% on a year to date basis.
Speaker Change: Core personnel facilities I T and other <unk>.
Speaker Change: Outside services costs declined through our ports prioritization of critical initiatives and overall efficiency improvements.
Speaker Change: This lower and more efficient cost structure has allowed the company to partially mitigate the year to date revenue shortfall.
Speaker Change: All positioning us to fund critical.
Speaker Change: Future market product.
Speaker Change: And other transformative investments to drive future growth.
The company incurred a net loss of $307000 for Q through.
Speaker Change: An improvement of.
Speaker Change: $490000 from the Q2 net loss of $797000.
Speaker Change: The Q3 loss was due largely to lower revenue, which again was partially offset by lower operating expenses.
Speaker Change: Despite the current challenges and its impact on our sales performance. We continue to focus on providing the highest product innovation and quality service and support and new offerings to our customer.
Speaker Change: Looking ahead.
Speaker Change: We expect continued near term market headwinds.
Speaker Change: Which will be partially mitigated by continued backlog reductions in the coming quarters as.
Speaker Change: As well as of course, leveraging the progress we've made on managing costs that I have highlighted.
Speaker Change: Overall, we remain very solid financially with a strong cash position no debt and again improved cost and operating structure, which enabled us to begin implementing our new and re imagine market approach.
Speaker Change: This concludes my remarks for the third quarter of 2024.
Speaker Change: Before we take questions. We are excited to participate in a few upcoming events. These include the NASDAQ closing Bell ringing ceremony scheduled for October 24th in New York.
Speaker Change: And the LD Micro main event conference on October 30th.
Speaker Change: We look forward to seeing you there.
Speaker Change: Operator could you please start the Q&A process.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: A speakerphone please pick up your handset before pressing the keys.
Speaker Change: Withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: And your first question will come from David Marsh with singular research. Please go ahead Sir.
David Marsh: Hi, guys. Thank you for taking the questions and welcome aboard.
Thank you.
Speaker Change: So if.
David Marsh: If we could just talk about auto for a minute and.
David Marsh: Maybe just talk a little bit more about.
David Marsh: The pace of activity that you're seeing whether it be you know.
David Marsh: Bidding activity or or anything else that can give us you know kind of a better indication of.
David Marsh: Yeah, maybe what the time frame for recovery in demand in that sector looks like.
Yeah sure. Thanks for the question, it's obviously been a choppy market out there for the last really most of the year and you know as you know.
David Marsh: No.
David Marsh: <unk> drove a lot of our content and expansion in that market as well as even hybrids as cars take on more technology as a content of the vehicle you know, we do believe and we do know that they kind of overshot that a little bit but that caused the slowness was also you know the the.
David Marsh: Sure of Evs, obviously slowing down the pace of that adoption as well, but we have seen some socket module increases of certain areas, which means which is a good sign of some production starting to bleed back into the space.
David Marsh: We don't see any significant pace of growth of increase but we do expect sometime next year. So some of that starting to to enter back into the market as well as new models coming out. It is a significant amount of our business, but at the same time, it's a market that will continue to grow in the future and it's just.
David Marsh: Paste right now is the best way to describe it I do believe we're at the kind of the bottom of the trough. So bumping a little bit but you know do you believe it sometime those troughs definitely start to leave back upward.
And Bill I think you know one of the things that are you know I I caught on to in your comments a bit actually is pretty encouraging to me was you mentioned have you know kind of broader expansion into more and different end markets can you talk about maybe.
David Marsh: A few that sort of you know sort of stand out in your mind is maybe low hanging fruit opportunities I mean, I know that the company has been good and industrial but beyond that I don't really know yeah, theres never really been a lot of talk about specific markets highlighted yeah and it's another great question obviously.
David Marsh: As I've done a lot of discovery work over the last 60 days and being in this industry as well as a independent service provider you know, it's it's it's about really inserting yourself into the path of the supply chain right. I mean, it's great to service on those direct customers, but who can you partner with that can drive you know <unk>.
David Marsh: <unk> more system sales, but also other products within our portfolio such as manual and semi manual systems, which.
David Marsh: Which also expands your platform as well so examples would be things like the global component distribution companies such as the arrows in the Avnet and EMS contract manufacturers, who already have a diversified customer base.
David Marsh: We just need to adapt some of our business models and how we manage a service that sector, which would definitely capable of doing theres going to be some changes necessary internally to do it as well as we need we need to do to service those clients, but that automatically diversity of customer base because the hours that they have and that's a really really good barometer.
Going on to the global supply chains, so really focusing in on those you know those supply chain partners that serve a broader markets broader markets.
David Marsh: Yeah.
Speaker Change: That makes a lot of sense, let me jump back in the queue and let some others have a shot yeah sure.
Speaker Change: The next question will come from Michael Cooper Investor. Please go ahead.
Speaker Change: Yeah.
Speaker Change:
Michael Cooper: My question is around executive compensation, Here's a company that for the last 10 years has made any money for shareholders.
Michael Cooper: You'd been utilizing our capital for all that time, you have to be Ambrose is pulled over $6 million out of the company in terms of stock options and and <unk> last year, you got a raise to $775000. So I'm. Just wondering is this company being run for exactly.
Michael Cooper: Yep.
Michael Cooper: Or for shareholders.
Michael Cooper: And what is the new CEO compensation package and what are the the.
Michael Cooper: Last year round.
Michael Cooper: Aligning.
Michael Cooper: Executive compensation and performance. Thank you.
Jerry Yang: Yeah. This is Jerry and I'll I'll take that particular call. There's also obviously as most are a threat to your question here, but.
Jerry Yang: But I'll try to keep it at a high high level first and foremost no. We are managed by our board of directors and as part of the board of directors. So we do have a compensation committee.
Jerry Yang: Our compensation Committee, obviously looks at the executive compensation on a recurring and annual basis.
Jerry Yang: So we I believe that the committee clearly looks at a.
Jerry Yang: Love Us that are market competitive given the level given the size of the company and so forth I felt I think thats one criteria is out but that is very structured and organized a number to a part of their comp.
Jerry Yang: Structure, which is again available in our proxy it's more of a mix of both salary as worth of O for variable compensation, including stock grants.
Jerry Yang: And again very similarly that has really looked at closely.
Jerry Yang: Portion of their compensation is tied to obviously salary a portion of that tied to the performance of the company and the performance of the business, which in turn is also have been tied to the value we generate for shareholders.
Jerry Yang: So I think all of those key concerns and points that you've noticed a Michael are things that the board and the comp committee it looks out as we establish a and again as we establish compensation for executives.
Speaker Change: The next question will come from Kris Tuttle with Blue Caterpillar. Please go ahead.
Kris Tuttle: Hi, Thanks for taking my question.
Kris Tuttle: I Wonder if you could elaborate a little bit on the transition.
Kris Tuttle: Two a growth strategy your you've tightened the hip here did a nice job on what's the Delta downs cyclical market, but what should we be looking for for the company to be back on a growth path are there do we need to wait and see some new products and now new marketing initiatives.
Kris Tuttle: AIDS or.
Kris Tuttle: Is it just going to be something that shows up in booking growth and you know maybe you could venture some rough timeframes on that.
Speaker Change: Gary you want to take it first seven all colors and yeah, yeah, I'll jump in and Chris a good question.
Gary: I'll give you a a couple of different frames in my response.
Gary: Our first frame short term versus long term, obviously, we are focused on on what we need to deliver today.
This month this quarter and this year and so we are we have clearly active participation initiatives.
Gary: From a sales marketing and the rest of the organization on how we can drive performance now.
Gary: Obviously those initiatives are going to be a little more focus on our current available products and and more on how we go to market. So that's clearly an emphasis again, we need to balance that with obviously the current market dynamics at the same time, we clearly have longer term opportunities that.
Gary: That bill and team are looking at that we've indicated some we're going to be on a product level in terms of how we optimize our improve and maybe even emphasize different components of our product line.
Gary: Some of it is gonna be channel.
Gary: Our Asia market has done really well this year, but.
But our Americas and European market have not and so there are some go to market initiatives and opportunities that we can improve upon that may deliver results not maybe necessarily tomorrow, but clearly in the near term.
Gary: And then of course, you know you always get into the discussion around organic versus inorganic.
Gary: And so I think everything is on the table in terms of our focus short term long term as well as organic and inorganic.
Gary: Product versus go to market activities.
Speaker Change: And Chris want to add to that so I'll go back to kind of my early days in this industry.
[laughter] I've been in this space are very long time, and when I started source.
Chris: Data, where it was a supplier they were only supplier.
Chris: And the reason why is because one of the things that data or did very well back in those days is that their their brand their their manual programming centers, where.
Chris: Given out to a lot of engineering labs and development teams and that's how it builds up the device library and algorithms and when you wanted to program apart. They option was the brand was data right now and so when I look back at that you know what what broad theater out to that point of that level of recognition across our industry.
When I got here and started to use everywhere Hum, what's going on in that manual and desktop and semi manual systems and what are we doing in that space. How are we broadening our customer base, how we broadening our device support and they found a gap and so you know we're looking at that space and we have products in that.
Chris: So we can push now.
Chris: Do they need to be updated sure that's been a little while so we're looking to you know look at some of the product gaps there not huge but you know small they're big enough to you know like that if we when we fill them. It will expand our device library and expand the brand and by doing that and getting in early in those.
Chris: You know engineering labs, you're specced in early when they go to production, which will lead to system sales. So when they talk about small gas. It seems it seems small, but when you actually execute it becomes a big growth driver as an example.
Speaker Change: Thank you Chris.
Speaker Change: Okay. Yeah. That's helpful. Thank you guys.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thank you very much operator to our listeners and participating in today's event, we trusts coming away from this call. He was sharing our excitement and enthusiasm the next phase of growth of data.
Speaker Change: At this point I'd like to conclude the call and enjoy the rest of your day Goodbye and look forward to seeing some of you out in New York City next week.
Speaker Change: The conference at the conference is now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Yeah.
Speaker Change: [music].