Data I/O Corporation

Good day and welcome to the Data I.O. First 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. To ask a question, you may press star then 1 on a touchtone phone. To withdraw your question, please press star then 2. 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, Betsy, and welcome to the Data.io Corporation first quarter 2023 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 predictions of future performance or events or 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 the impact from COVID-19, including outbreaks in China, Russia in war with Ukraine, including any related international trade restrictions, along with continued reopening recovery efforts within the relevant global supply chains and among our customer base, level of orders for the company and the activity level of the automotive and semiconductor industry overall. The 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 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 the call over to Anthony Ambrose, President and CEO of Data.io.

Well, thank you very much, Jordan, and welcome, everyone. I'll begin my formal remarks by addressing our 2023 first quarter financial and operational performance, and then I will turn over the call to our CFO, Joel Hatlin, for a more detailed look at the numbers. Q1 was an excellent quarter. We reported 46 percent top-line growth, with quarterly revenues reaching the highest first quarter level since 2018. Gross margins were also at the high end of our range and were profitable in a traditionally challenging quarter. Year-over-year financial comparisons did include and reflect the fact that we returned to more normal operating conditions compared to the challenges we faced last year in Q1 and Q2. Our worldwide installed base of PSV systems increased to more than 450 machines, aided by 10 new customer wins during the quarter. This is also helping to create a more sustainable revenue profile through recurring and consumable sales, which accounted for 44% of our total revenue in the quarter. We continue to lead in automotive electronics, and we're also seeing strong industrial market growth globally. Regionally, we forecast and observed some softness in China in the first quarter due to the COVID shock in December and January, as well as some upcoming changes in the automotive emissions regulations. We expect China to be a little bit stronger in the second half of the year. As I mentioned earlier, we acquired 10 new customers in Q1, and our sales funnel is very strong, and we're reiterating our annual projections that we made in our last call. We believe demand is being driven fundamentally by several factors. Number one is the long-term secular growth in the automotive electronics market, and that includes a more short-term tactical improvement in the supply of silicon products to our automotive electronics customers. This is across a range of applications, including, first and foremost, the accelerating adoption of electric vehicles, the growth in active safety systems or ADAS, automotive connectivity, infotainment systems, and increased security. The second major demand driver for us is strength in the industrial sector, including factory automation advancements and increased demand for security within factories. Third is the acceptance of our products and services that contribute to our consumable and recurring revenue growth. Fourth is the onshoring to North America. There's also the recovery going on in Europe, the overall creation of demand for security and security-enabled products everywhere. And that finally is built upon by the impact of government policy and regulation for not only the security requirements but onshoring for content into North America. I've talked quite a bit about the dynamics of the automotive electronics industry and long-term growth prospects there. But at this call, I'd like to share some insights from recent third-party announcements and earnings call transcripts to give you some context on why we are so excited about the long-term opportunity. First, Teradyne announced and projected a testing market that would be down about 20% this year. On the surface, that sounds extremely difficult for environment for everyone in the capital equipment business. But if you look beneath the headline number and beneath the overall average, you see some very interesting trends. What Teradyne said was they're seeing very, very weak conditions in PC and mobile versus what they were seeing in automotive and industrial. It's really a tale of two markets. Because PCs and smartphones represent about two-thirds of their market, and automotive and industrial is only one-third, the overall market was down quite a bit. But they did say that they saw strength in automotive and industrial, and they were pretty bullish on that overall segment. The second announcement that was interesting for us was made by General Motors. Not in their earnings call, but you may have seen the fact that they said that they were going to be designing and supporting and managing their own software for their instrument clusters and infotainment systems, and no longer supporting Apple CarPlay. Now, what this means for us is we'll have an additional demand stimulus in instrument clusters, and we've already been in discussions with the customers that have won this business, or at least won part of the business, about their outlook for the next one to three years. And we've seen before that this one OEM decision alone could have a material impact, to demand in programming in this segment. And you add on top of this the announcements you've seen in automotive about lowering prices to stimulate EV demand. Obviously, that's going to be good for suppliers into the automotive electronics industry. Shifting to IoT, I'd like to talk more about the impact of regulations and government policy and a little bit less about the technology. For years, we've been talking about why you want to have security in your hardware, the benefits, for managing your devices, securing your supply chain, securing your software, protecting your data, which is what you're monetizing with an IoT device. And what we've seen right now is increasingly governments are stepping in and acting. We're seeing a heavier hand from government around the world demanding better products, better software and security, and more accountability from manufacturers. The latest here is the policy document that was recently issued titled The National Cybersecurity Strategy of the United States. That was published in March of this year. It's a very comprehensive plan to improve cybersecurity across the board for U.S. corporations and consumers. There's some very interesting specific sections related to device security that I think would be of interest to you. I'd encourage all of you to look at this. We'll put a copy up on our website. But look at sections 3.2 and 3.3. Section 3.2 is titled Driving the Development of Secure IoT Devices. This is the clearest description yet of what we've been advocating for years. Manufacturers will need to develop better products, which include stronger security, and there will also be a labeling requirement going forward. Section 3.3 focuses on creating better software and software security, and also discusses liability impacts for those who produce poorly designed and insecure software. Now this sounds onerous to manufacturers, and potentially it could be. The good news is with our Centrix platform and our use cases that are specifically designed to address the two items I mentioned earlier, we're very well positioned to support customers that have needs to improve their products in these areas. Talking a little bit more about Centrix, we continue to have a strong pay-per-use revenue in the first quarter, and we made two significant partnership announcements as well in the first quarter. We announced our relationship with NOAA Leading to establish the first centric security provisioning service in Japan. And we had a separate collaboration formed with Nuvaton Technology Corporation Japan to enable security deployment services across their IoT microcontroller product lines. Our work with Nuvaton enables OEMs to design solutions such as building automation, metering, medical, and many other applications that are protected for high security and simplified process for deploying IoT security using DataIO's Centrix product creator software tool. In addition to these activities, we had a very strong marketing momentum in the first quarter. This included our trade shows both at APEX in San Diego and Embedded World in Nuremberg, Germany. In fact, we had a tremendous embedded trade show with a real reawakening of the engineering community and product management community after three years of playing defense. People are eager to start new product development. They're eager to start that with better security in mind, and they're very excited to talk to Data.io about how we could help them. We met with a number of companies, potential partners, and had a very substantial bump in the number of qualified leads for our Centrix platform, as well as our traditional data programming business. Combined with these marketing leads, our sales funnel remains robust, as we benefit from the secular and regulatory growth trends, and look forward to an exciting second quarter. With that, I'll turn it over to Joel Hatland for a more detailed look at the numbers.