Data I/O Corporation

Good afternoon and welcome to the Data.io second quarter 2022 financial resource conference call. All participants will be in listen-only mode. To give you assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press start and 1 on your telephone keypad. To withdraw your question, please press start and 2. Please note this event is being recorded. I will now turn the conference over to Jordan Darrow, investor relations. Please go ahead.

Thank you, operator, and welcome to the Data.io Corporation second quarter 2022 financial results conference call. With me today are Anthony Ambrose, president and CEO of Data.io Corporation, and Joel Hatland, chief operating officer and chief financial officer of Data.io. Before we begin, I'd like to remind you that statements made in this conference call concerning COVID-19, future revenues, results from operations, financial position, markets, economic conditions, silicon chip shortages, supply chain expectations, estimated impact of tax reform, product releases, new industry partnerships, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements which involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from those expressed or implied by such statements. These factors include uncertainties as to the impact of COVID-19 including the 2022 outbreaks in China, the Russia war with Ukraine, including any related international trade restrictions, along with continued reopening and recovery efforts within the relevant global supply chains and among our customer base, levels of orders for the company, and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing, and other activities by competitors and other risks, including those described from time to time in the company's filings on Forms 10-K and 10-Q with the Securities Exchange Commission, press releases, and other communications. The accuracy and completeness of forward-looking statements should not be unduly relied upon. Data.io is 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 of Data.io.

Thank you very much, Jordan. I'll begin my formal remarks by addressing our 2022 second quarter financial and operational performance, and then I'll turn over the call to Joel Hatlin for a more detailed look at the numbers. Strong bookings through the first half of the year, an encouraging business development pipeline, and a record backlog at June 30, 2022, are expected to give rise to significantly improved financial performance in the second half of 2022. It appears as if the slowdown in the automotive industry during the past three years is slowly beginning to unwind, with semiconductor allocations gradually returning as consumer electronics and enterprise demand wanes. For example, Bloomberg reported last month the following. Mercedes-Benz, Daimler Truck Holding, and BMW are among automakers now getting enough of their high-tech components to produce at full capacity after experiencing crippling outages for months. BMW expressed similar optimism. saying all plants are up and running and the company's not experiencing any stoppages due to chip supplies. Additionally, NXP announced a few days ago their quarterly results in highlighted strength in automotive and industrial markets. We think there's a pattern here. DataIO has seen firsthand these same positive indicators. For the third consecutive quarter, we've achieved bookings in excess of $6 million, the second quarter bookings of $6.4 million, reaching the highest level within this nine-month period. Automotive Electronics represented 58% of all of our orders so far in 2022, and we had six new customer wins this quarter alone. Our new business success was distributed across automotive, industrial, medical, and a new programming center customer. Our sales funnel in the second quarter continued the momentum from the first quarter when we added millions of dollars of new opportunities. Increased demand is coming primarily from customers in Asia and the Americas. This has been partially offset by weakness in Europe due to the war, currency adjustments, inflation, and other factors. Bookings were back-end loaded in the second quarter with nearly 50% coming in June, contributing to our very high backlog. Dataio's Shanghai operations partially reopened in May and fully reopened in June following the most recent COVID-19 lockdown restrictions imposed by the Chinese government. From an operations perspective, lead times are now back to normal, although we still see some spot shortages in parts and assemblies. So from an operational perspective, we're nearly back to normal. From a balance sheet perspective, we expect accounts receivable, inventories, and cash flow to return to more normal levels by the end of the current third quarter. On Centrix, we had a customer go into volume production and have orders for two Centrix-ready systems. These are data programming customers looking to add Centrix capability in the future. We also received patent extensions in the United States and a new Centrix patent from China. Throughout the unusual circumstance of a pandemic and ensuing supply chain issues, global economic gyrations, the Russia-Ukraine war, I once again would like to acknowledge the great performance of our team, particularly in China, where many of our team members made personal sacrifices to support operations and customers from home, while they were locked down. Turning now to our 50th anniversary celebration, as you know, we've been planning to have celebration activities throughout the year, and we're conducting a series of interviews that we've dubbed Fireside Chats. Formats are open and informal, focusing on specific topics with leaders in media, finance, and technology. In June, we published the first interview, which talked about Data.io's opportunity as a business and an investment, The guest host was Tim White-Trout of Alpha Wolf Trading. Then earlier this month, we published the second installment entitled The Future of Semiconductors for Automotive Electronics, guest hosted by Suji Da Silva, the equity research analyst at Roth Capital. We liked that. We had a lot of fun, and the session was highly informative. During the session, we covered how DataIO ascended to become the leader in automotive technology for programming. We talked about the long-term growth rate we see in semiconductors, between 10 and 15 percent for automotive electronics semiconductors. We talked about the growth catalysts, including electrification, secure programming, autonomous driving, connectivity, and other factors. We also talked about how DataIO's PSV family of programming systems has become the platform of choice for automotive electronics manufacturers. And then we also talked a little bit about the global semiconductor supply chain and capacity in automotive, which appears to be improving, as I discussed earlier. We have several additional fireside chats planned for the year, and I look forward to them. As we see the business looking out towards the second half, there are really two competing global narratives. First one is the weak macroeconomic picture you hear discussed daily in the business press, talking about inflation, stagflation, recession, war in Europe, and all sorts of other negative indicators. The other narrative is what we see in our business. It's a very strong backlog with a strong sales funnel, as we see data IO specific items that are much stronger than the general macro picture. As other companies have reported, automotive and industrial, which are our largest markets, are strong relative to consumer and enterprise right now. Automotive electronics supply chains are also benefiting from drops in demand elsewhere. The ability of automotive electronics and industrial companies to be better supported with chips means they ultimately need more programming capacity. Our plan is to stay very close to the market, continue to expand our available markets wherever possible, and prepare our operations to build a demand we already have in backlog and that we see in our sales funnel. Q3 orders tend to be back-end loaded in September, and that's when we'll have another structured look at the second half demand overall. To net it out, supported by a very significant backlog, we're more optimistic for the second half than the general stagflationary business conditions would indicate. With that, I'll turn it over to Joel Hatlin.