Data I/O Corporation

Good afternoon and welcome to the Data.io fourth quarter 2022 financial results conference call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Jordan Darrow, investor relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Data.io Fourth 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 and other regulatory reform, product releases, new industry partnership, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. These factors include uncertainties as to the impact from 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, 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 10-K and 10-Q with its Securities and 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 DataIO.

Well, thank you very much, Jordan. I'd like to begin my formal remarks by addressing our 2022 fourth quarter and full year financial and operational performance, and then I'll turn over the call to Joel Hatlin for a more detailed look at the specific numbers. Our performance in the fourth quarter and second half of last year demonstrated a strong rebound from a challenging set of conditions in the first half. Underlying demand for our products remains strong as silicon shortages abate, and the automotive and industrial markets consume ever-increasing amounts of silicon. We observed an expansion of our sales funnel and bookings growth in the second half of 2022, leading to improved sales and operational momentum that is continuing into 2023. For the fifth consecutive quarter, we achieved bookings in excess of $6 million, with fourth quarter 2022 bookings of $6.8 million worldwide. reaching the highest level for a fourth quarter since 2019. Bookings for the year were 26.5 million US dollars, the highest level in four years and a million dollars higher than in 2021. Due to the challenges associated with lockdowns in China earlier in 2022, our revenue for the year was lower than in 2021, but our revenue in the second half of 2022 was 11% higher than the prior year period. The second-half comparisons are up despite a meaningful negative impact of U.S. dollar strength versus the euro, yuan, and most other foreign currencies. Stepping back a bit, we believe demand is strong and being driven by multiple factors. Number one, the continuing recovery in the automotive electronics market, including improved silicon availability. Number two, the accelerating adoption of electric vehicles, which consume two to three times the silicon content of cars built around the internal combustion engine. Number three is strengthen the industrial sector, including factory automation advancements. Number four is on shoring to North America as part of a global China plus one strategy for the electronics industry. Number five is the recovery in Europe that's digested the impact of the war in Ukraine, higher interest rates and inflation, and has stabilized and is growing again in the second half. And number six is the impact of government policies here in the U.S. to support on-shoring and security requirements. This is a push from the government that is useful for growing the electronics industry in North America as well as requiring security in certain products. Job one for us is to continue growing our business in the automotive and industrial markets. We did this well in Q4 and overall in 2022 as we acquired 21 new customers for our products worldwide. The growth in automotive electronics includes growth in the infotainment systems, advanced driver safety systems, and electrification. As mentioned earlier, electric vehicles are estimated to require two to three times the amount of electronics content per vehicle as compared with internal combustion engine models. Even if the total number of cars and light trucks levels off, the sheer number of EVs taking market share, as well as increased complexity for infotainment and advanced driver assist systems, grows the amount of electronics content and programming content required in the automotive industry. We have multiple wins globally in the EV segment. We further solidified our leadership position in automotive electronics last year, with the market accounting for over 60% of our bookings in 2022. In addition to automotive, we were excited about Centrix last year. Our total Centrix bookings and revenue increased by over 100% for the second consecutive year. The volume of programmed parts in 2022 set a record as several customers went into production in the second half and specifically the fourth quarter. We saw a sharp increase in overall units programmed in Q4. After the quarter, earlier this week, we announced an expansion into Japan through our new sales distribution partnership with NOAA Leading, a leading programming center and distributor in Japan. We're very pleased to have this reach into one of the world's largest and most advanced electronics markets, where they clearly recognize the need for security and now have a local option for Centrix. Total recurring and consumable revenues represented 43% of our total in 2022, an increase from about 42% in the prior year. Our growth in recurring revenue as a percentage of total revenue tracks the installed base of PSV systems, throughout the world, as well as the increased value delivered to our software and security product lines. At the end of 2022, we deployed over 440 PSV systems worldwide, an increase of 58 systems during the year. With 21 new customer wins last year, we achieved a second consecutive year where we added over 20 new customers. In addition to global service, resilient supply chain, we attribute this customer growth to our technology innovation continued investment in R&D, and the expansion of our intellectual property portfolio. Both the automotive electronics and industrial automation industries are forecasting greater complexity of programming, an acceleration in the amount of code going into semiconductors and microcontrollers, and the need for improved efficiency, scalability, and security. We continue to invest to meet these needs as data remains at the forefront of the industry. Company's strength and IP portfolio includes multiple new patents and patent extensions issued in 2022 in several countries. During 2022, new product launches included our Verify Boost technology to support the automotive memory market with substantially improved UFS programming times by accelerating the Verify portion of the programming cycle by a factor of 4.5x. We demonstrated connected factory enablement with our Connect software significantly improving factory integration with programming. This application supports hardware-based security and mass-market IoT edge devices and enables OEMs to protect revenue-generating business models and secure their supply chain. We also benefit from the potential impact of government spending, such as creating helpful industries, otherwise known as the CHIPS Act and the Inflation Reduction Act of 2022. These regulatory issues point towards onshoring, a significant push from the U.S. government and European governments to make sure they have semiconductor production and electronics production within their domains. And we're also seeing both in Europe and the United States increased activity for governments to specify and mandate security in certain product lines. As we look forward to 2023, we get pretty excited when we look at our marketing efforts and especially the most recent APEX trade show held in San Diego in January. This is the first full-scale event at APEX in three years. And we had a very exciting show. Our leads and scans were up over 100% versus 2021, with the large majority of our visitors being new contacts. So, again, we think this reinforces the themes we talked about, about onshoring, new customers looking for programming, And those customers are excited to talk to Data.io about their needs in automotive, industrial, and other markets. In addition to the U.S., we see a strong Mexico market, as well as a strong recovery in EMEA that started in the second half of 2022. So as we said in the release, amid an economic backdrop where we expect a moderate recession and soft landing, We've positioned the company for revenue growth, increased net income, and cash flow generation in 2023. We have a positive outlook with a high level of backlog and deferred revenue, combined with a very strong sales funnel and weaker U.S. dollar. Our end markets of automotive and industrial electronics continue their long-term growth in semiconductor consumption with fewer supply chain issues. We see a surge of investment in electronic vehicles, that drive substantial increase in semiconductor content. And finally, as we just discussed, demand will be benefiting from government mandates and recent investment decisions. Before I hand it over to Joel, I'd like to close by briefly highlighting the fact that, as we announced in our release, after more than three decades at DataIO and approaching his 65th birthday, Joel is planning to retire in the second half of this year. This allows us to implement an orderly transition as we look for a new CFO. On a personal note, I'd like to take this opportunity to publicly acknowledge Joel for his many contributions to the company and to the programming industry overall. When I joined the company as a first-time CEO over a decade ago, it was very comforting to have a seasoned and experienced financial partner in Joel as my CFO. He's been a very valuable partner, a friend, and a leader as well as being someone of the utmost integrity and character, and it'll be a hard act to follow. With that, I'll turn it over to you, Joel.