Data I/O Reports Fourth Quarter 2018 Results

Fifth Consecutive Year of Profitability Driven by Leadership in
Automotive Electronics

REDMOND, Wash.–(BUSINESS WIRE)–Data I/O Corporation (NASDAQ: DAIO), the leading global provider of
advanced data and security programming solutions for flash, flash-memory
based intelligent devices and microcontrollers, today announced
financial results for the fourth quarter and year ended December 31,
2018.

Fourth Quarter 2018 Highlights

  • Net sales of $7.9 million; bookings of $6.5 million
  • Gross margin as a percentage of sales of 58.2%
  • Net income of $648,000 or $0.08 diluted earnings per share
  • Adjusted earnings before interest, taxes, depreciation and
    amortization (EBITDA)*, excluding equity compensation, of $1.2 million
  • Cash & Equivalents of $18.3 million; no debt
  • Won multiple industry awards for technology, products, and service
  • Automotive electronics and advanced programming leadership

    • Automotive represented 60% of bookings for the year
    • Released Lumen®X version 1.6 to support doubling of programming
      download speed and Dynamic Data Injection
    • Released SentriX® Scripting Interface Upgrade for more advanced
      security provisioning
  • Repurchased 102,000 shares as part of a $2 million buyback program
    authorized in October 2018

Full Year 2018 Highlights

  • Net sales of $29.2 million; bookings of $27.0 million
  • Gross margin as a percentage of sales of 59.4%
  • Net income of $1.6 million or $0.19 diluted earnings per share
  • Ended year with 12 partners and 4 system deployments for SentriX system

*Adjusted EBITDA is a non-GAAP financial measure. A reconciliation is
provided in the tables of this press release.

Management Comments

Commenting on the fourth quarter and year ended December 31, 2018,
Anthony Ambrose, President and CEO of Data I/O Corporation, said, “2018
was a solid year for Data I/O as we strengthened the Company’s position
as the global leader in programming and security provisioning solutions,
and delivered our 5th consecutive year of profitability.

“In 2018 we extended our leadership in automotive electronics
programming technologies. Automotive customers represented 60% of our
total bookings for the year, up from 54% in 2017. Our PSV family of high
speed programming systems, which is ideal for automotive electronics, is
capturing market share as we won several new sites and marquee
customers. In 2018, we celebrated the sale of our 200th PSV
system. Separately, the industry celebrated Data I/O, honoring our
programming innovations with three industry awards in the past few
months alone. We also expanded and extended our SentriX platform for IoT
security. We announced several new partnerships and deployments, and
planted the seeds for the longer term industry transition to security.

“In 2018 we continued to drive operational excellence across our
organization to manage our expenses and effectively drive profitability.
Our gross profit as a percentage of sales was higher for the year,
despite lower revenues. We attribute much of this performance to
continued business process improvement and focus on manufacturing
efficiencies. Beyond investing in the business to capitalize on the many
growth opportunities ahead of us, we are simultaneously returning
capital to shareholders. During the fourth quarter we repurchased
approximately 102,000 shares valued at $536,000 as part of a $2 million
buyback program. At the end of the year, we maintained our strong
balance sheet with $18.3 million in cash and no debt.

“Our formula for long term profitable growth and success is unchanged.
We continue to invest in our technology platforms to address the secular
growth for automotive electronics and meet the emerging demands for a
secure IoT. In 2019, we are focused on the UFS Flash memory transition
in automotive infotainment and Advanced Driver Assist Systems (ADAS)
enhancing performance, expanding our SentriX device supports while
bringing early customers to revenue, maintaining our commitment to
operational excellence, and being excellent stewards of capital.”

Financial Results

Net sales in the fourth quarter of 2018 were $7.9 million, as compared
with $8.1 million in the fourth quarter of 2017, and $6.5 million in the
third quarter of 2018. The year-over-year decline in sales was a result
of cyclical demand during 2017, particularly from programming center
customers, while the increase from the third quarter reflects growth
driven in large part by demand from the automotive electronics industry.
For all of 2018, net sales were $29.2 million, down 14.4% from $34.1
million in 2017.

For the 2018 fourth quarter, gross margin as a percentage of sales was
58.2%, as compared to 58.5% in the fourth quarter of 2017. The fourth
quarter 2018 level is at the higher end of the Company’s anticipated
target due to a favorable channel and product mix and currency impacts.
Cost reduction and manufacturing efforts to improve factory utilization
also contributed to the strength of gross margins. Data I/O has realized
the benefits of these initiatives throughout 2018, although certain
tariffs and commodity prices have partially mitigated the overall
impact. For all of 2018, gross margin was 59.4%, compared to 58.9% for
the prior year.

Total operating expenses in the fourth quarter of 2018 were $3.8
million, up from $3.6 million in the 2017 period, and slightly up from
$3.7 million in the third quarter of 2018. Spending on research and
development (“R&D”) to support the Company’s two primary technology
platforms was $1.8 million which is flat as compared with both the
fourth quarter of 2017 and the third quarter of 2018. Selling, general
and administrative expenses of $2.0 million in the fourth quarter of
2018 were up from $1.9 million in the third quarter of 2018 and $1.8
million in the year earlier period. The Company continues to actively
engage in market development and R&D initiatives for its SentriX
platform while emphasizing ongoing expense management practices. Total
operating expenses for all of 2018 were $15.6 million, up 4% from $15.0
million in 2017 due to higher marketing expenses and R&D, partially
offset by reduced variable compensation.

Operating income was $744,000 for the fourth quarter of 2018, up from
$404,000 for the third quarter of 2018 and down from $1.2 million in the
fourth quarter of 2017. For the full year, operating income was $1.7
million in 2018 as compared with $5.0 million for 2017.

Net income in the fourth quarter of 2018 was $648,000, or $0.08 per
diluted share, compared with net income of $342,000, or $0.04 per
diluted share, in the third quarter of 2018, and $1.5 million, or $0.18
per diluted share, in the fourth quarter of 2017. Included in
non-operating income is a currency loss of $98,000 for the fourth
quarter of 2018, a currency gain of $108,000 for the third quarter of
2018, and a currency loss of $123,000 in the fourth quarter of 2017.
Included in fourth quarter 2017 net income is a one-time net benefit
recorded as a result of the Tax Cuts and Jobs Act of 2017 of $531,000.
For the year, net income in 2018 was $1.6 million, or $0.19 per diluted
share, as compared with net income in 2017 of $5.4 million, or $0.65 per
diluted share. Gains on sales of non-core internet domain assets
contributed non-operating income of $366,000 in 2017, while 2018 gain
was $19,000.

Earnings Before Interest, Taxes, Depreciation and Amortization
(“EBITDA”) was $881,000 in the fourth quarter of 2018, compared to
$742,000 in the third quarter of 2018 and $1.2 million in the prior year
period. Adjusted EBITDA, excluding equity compensation, was $1.2 million
in the fourth quarter of 2018, compared to $1.0 million in the third
quarter of 2018 and $1.4 million in the prior year period. For all of
2018, EBITDA was $2.8 million, compared to $6.0 million for 2017, while
Adjusted EBITDA, excluding equity compensation, was $4.0 million in 2018
compared to $6.7 million in 2017.

Bookings in the fourth quarter of 2018 were $6.5 million, compared to
$7.6 million in the fourth quarter of 2017 and $7.0 million in the third
quarter of 2018. Bookings for all of 2018 were $27.0 million, down from
$34.3 million in 2017 and up from bookings of $26.9 million in 2016.
Backlog at December 31, 2018 was $1.9 million, as compared with $4.0
million at December 31, 2017.

Data I/O’s financial condition remains strong with cash of $18.3 million
at December 31, 2018, down from $18.9 million at September 30, 2018, and
$18.5 million at December 31, 2017. Cash at the end of the fourth
quarter reflects part of the $2 million share repurchase program
authorized in October 2018. Accounts receivable of $3.8 million at
December 31, 2018 increased by $1 million from $2.8 million at September
30, 2018 and was flat as compared with the end of the prior year. Net
working capital at the end of 2018 was $21.1 million, up from $20.6
million at September 30, 2018, and $19.5 million at December 31, 2017.
The Company continues to have no debt.

Conference Call Information

A conference call discussing the fourth quarter ended December 31, 2018,
financial results will follow this release today at 2 p.m. Pacific
Time/5 p.m. Eastern Time. To listen to the conference call, please dial
412-902-6510. A replay will be made available approximately one hour
after the conclusion of the call. To access the replay, please dial
412-317-0088, access code 10128659. The conference call will also be
simultaneously webcast over the Internet; visit the News and Events
section of the Data I/O Corporation website at dataio.com to access the
call from the site. This webcast will be recorded and available for
replay on the Data I/O Corporation website approximately one hour after
the conclusion of the conference call.

About Data I/O Corporation

Since 1972 Data I/O has developed innovative solutions to enable the
design and manufacture of electronic products for automotive,
Internet-of-Things, medical, wireless, consumer electronics, industrial
controls and other markets. Today, our customers manufacture hundreds of
millions of products each year using Data I/O programming solutions to
reliably, securely, and cost-effectively bring innovative new products
to life. These solutions are backed by a global network of Data I/O
support and service professionals, assuring success for our customers.

Learn more at dataio.com

Forward Looking Statement and Non-GAAP financial measures

Statements in this news release concerning economic outlook, expected
revenue, expected margins, expected savings, expected results, orders,
deliveries, backlog and financial positions, as well as any other
statement 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 ability to record
revenues based upon the timing of product deliveries, installations and
acceptance, accrual of expenses, changes in economic conditions and
other risks including those described in the Company’s filings on Forms
10K and 10Q with the Securities and Exchange Commission (SEC), press
releases and other communications.

Non-GAAP financial measures, such as EBITDA and Adjusted EBITDA
excluding equity compensation, should not be considered a substitute
for, or superior to, measures of financial performance prepared in
accordance with GAAP.
We believe that these non-GAAP financial
measures provide meaningful supplemental information regarding the
Company’s results and facilitate the comparison of results.

– tables follow –

DATA I/O CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(UNAUDITED)

   
Three Months Ended Twelve Months Ended
December 31, December 31,
2018   2017 2018   2017
 
Net Sales $7,857 $8,096 $29,224 $34,051
Cost of goods sold 3,284   3,363   11,868   13,992  
Gross margin 4,573 4,733 17,356 20,059
Operating expenses:
Research and development 1,811 1,766 7,361 6,896
Selling, general and administrative 2,018   1,816   8,257   8,116  
Total operating expenses 3,829   3,582   15,618   15,012  
Operating income 744 1,151 1,738 5,047
Non-operating income (expense):
Interest income 11 10 37 29
Gain on sale of assets 15 3 19 366
Foreign currency transaction gain (loss) (98 ) (123 ) 103   (281 )
Total non-operating income (72 ) (110 ) 159   114  
Income before income taxes 672 1,041 1,897 5,161
Income tax (expense) benefit (24 ) 495   (291 ) 288  
Net income $648   $1,536   $1,606   $5,449  
 
 
Basic earnings per share $0.08 $0.19 $0.19 $0.67
Diluted earnings per share $0.08 $0.18 $0.19 $0.65
Weighted-average basic shares 8,431 8,260 8,378 8,149
Weighted-average diluted shares 8,509 8,542 8,514 8,436
 

DATA I/O CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(UNAUDITED)

   
December 31, December 31,
2018 2017
 
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $18,343 $18,541
Trade accounts receivable, net of allowance for
doubtful accounts of $75 and $73, respectively 3,771 3,769
Inventories 5,185 4,168
Other current assets 621 708
TOTAL CURRENT ASSETS 27,920 27,186
 
Property, plant and equipment – net 1,985 2,458
Income tax receivable 598 598
Other assets 220 45
TOTAL ASSETS $30,723 $30,287
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $1,755 $1,301
Accrued compensation 2,872 3,536
Deferred revenue 1,392 1,787
Other accrued liabilities 789 858
Income taxes payable 47 218
TOTAL CURRENT LIABILITIES 6,855 7,700
 
Long-term other payables 511 527
 
COMMITMENTS
 
STOCKHOLDERS’ EQUITY
Preferred stock –
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none
Common stock, at stated value –
Authorized, 30,000,000 shares
Issued and outstanding, 8,338,628 shares as of December 31,
2018 and 8,276,813 shares as of December 31, 2017 19,254 18,989
Accumulated earnings 3,695 2,089
Accumulated other comprehensive income 408 982
TOTAL STOCKHOLDERS’ EQUITY 23,357 22,060
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $30,723 $30,287
 

DATA I/O CORPORATION

NON-GAAP FINANCIAL MEASURE RECONCILIATION

   
Three Months Ended Twelve Months Ended
December 31, December 31,
2018   2017 2018   2017
(in thousands)
Net Income $648 $1,536 $1,606 $5,449
Interest (income) (11 ) (10 ) (37 ) (29 )
Taxes 24 (495 ) 291 (288 )
Depreciation and amortization 220   188   956   822  
EBITDA earnings $881 $1,219 $2,816 $5,954
 
Equity compensation 297   174   1,230   714  

Adjusted EBITDA earnings, excluding equity compensation

$1,178   $1,393   $4,046   $6,668  

Contacts

Joel Hatlen
Chief Operating and Financial Officer
Data I/O
Corporation
6645 185th Ave. NE, Suite 100
Redmond,
WA 98052
(425) 881-6444

Darrow Associates, Inc.
Jordan
Darrow
(512) 551-9296
jdarrow@darrowir.com

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