DAIO - Earnings call transcript Q4 2017

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Data I/O Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded. turn over to Jordan like now the to conference Darrow. I’d ahead. go Please

Jordan Darrow

With Anthony you. Data Data and XXXX Financial I/O. year call. the welcome I/O Data financial Officer of Officer today Corporation conference Thank Hatlen, to Chief and Corporation; I/O and And Vice CEO President Ambrose, and fourth Joel quarter results and me of Operating are President end Chief

you turn of I/O. to not I from that and forward-looking concerning and timing other uncertainties Before demand, statements. financial Commission, statements any differ other competitors in Data no of partnerships, changes the factors, construed should we like results and these to prediction to and unduly deliveries future factors update and conditions completeness in over and be cause Anthony activities CEO upon. new begin, accuracy based actual conditions, Exchange call market on performance Forms statements. from results by to I’d from now is materially filings statements of and of may company’s and as would may call the with this of including products, Securities Tax other President Data under economic to other levels and releases, XX-Q installations, orders, involve of market releases of to duty events, economic by those communications. risks the and product The in or other Ambrose, future forward-looking other markets, risks, statements, remind revenues, described pricing which relied be to I/O of acceptance the are time-to-time Reform, and expressed XX-K uncertainties as press forward-looking operations, These which upon such like position, conference ability any impact or new that a made those include estimated the statements implied product revenues unknown known record industry and

Anthony Ambrose

on you our Hatlen on Security in Data and million, including had us turn the our year some for the quarter We the high Thank full-year highlights XXXX I’d and on law collecting everyone. revenue supporting include, fourth commenting with our million changes on CFO, were Once impact results in it operations XXXX’s fourth from tax recent receivables. Good will multiyear start orders, by performance, detailed backlog for continued the detail strong Then their on high our new over more strength cash. Jordan. specifics much, in Revenues and Joel delivered the I automotive for outlook another in us as SentriX very afternoon, and quarter. programming overall market. like to quarter. the first and and $XX.X an We I/O. very center again well bookings, represent in $X.X the $X.X numbers, ended XX Provisioning platform. year as more to quarter fourth which segments realize our fourth also million

partners. $X.X our benefits I/O quarter full Joel of XXXX enjoyed us. the let strong I the of our the both locations. more China the that Redmond conditions, of we hard company. those Certification very and employees the well for and market right years year execution result Net about plan talk had have everything received the of also in We We products we for it our the specifically work These income the across and outstanding one multiyear are where results again at on. will for was million, from our benefit for aligned was all Data and Reform and ISO-XXXX-XXXX tax look When manufacturing Tax one-time including later XXXX

$XX were revenue of this growth. revenues in full-year represents year consecutive highest For of years the level our the XX fifth and million

also were $XX about legislation. years. Automotive the which center at $X.XX half Net up tax XX% now went our the Programming share, a bookings in orders including passed also per grew bookings, and for diluted tripled income in highest over represents XX%. XX XXXX, represented for million level affects our XX% XXXX of following market. the orders the million of to in $X.X from this programming year had represent centers strong XX% and to recently We the year very

our our We new products. continued growth in also

We programming to perform XXX have through continue our model PSV family automated over shipped operating well. exceptionally systems XXXX and

the us for the year we over long-term our showed sat results, ago margins automation. discussed we electronics, reviewed our factory doubling at Data and Things the when XXXX compounded years. of year from of about gross Switching forecast, Internet market automotive growing driven looking for XX.X%, market years four We available years time and at here in the how discussed five last a substantially were which was long-term this our per Our outlook, XX% now by I/O or XXXX. to two through

look take time From that I a to our XXXX about XXXX update at XX%. our and outlook. to our at long-range increased revenue think that on look it’s by progress

period. programming mentioned time automotive during the as revenue. two our than also doubled and during Our grew bookings X.XX than and programming and revenue this past of our of faster in over half earlier, I in our represent more our this more now time about We centers years, centers in substantially doubled industry automotive bookings than represents

is thesis long-term automotive Our about unchanged. growth

sharply but it’s memory lagging in to and automotive solutions our growing customers instrument continues come connected more of We planned and that we’ve in already are the advanced compounded Security eight content market about and systems and both a to XX% larger grow, programming is compounded content, growth increases. announced terabit next leading for the Leading a X systems We’ve to industry maintain integration, industry our applications, the global and and sales. to OEMs. in cars, as of automotive simplify said about mapped in seven total are and process security assist all solution automotive the automation the XX% investments current of rate annual cars, increase year new our platform. leading customer. first technology, competitive and make a provisioning driver earned all flash our for and or flash support to in show flash also service autonomous of we annual We to the about for available I/O marketing strategies of from to strategy a to and semiconductor from eMMC driving suppliers XX% Industry and technology, cars. years. sizes. before multiyear IoT As SentriX all software, keep from midst simplify car in OEMs a flash migrate support, planning leadership in standard areas security The security for handling automotive continued factory business, also have we called developed and recently UFS growth forecast The UFS interfaces today the rate to cluster automotive provisioning customers space memory including To of electronic opportunity automotive exciting solutions. have a their infotainment demand market and Data memory out

X partnering to ABI to five billion of successful and ICs years units leading of microcontrollers. investing here the the in the according been are secure in silicon We the authentication industry lead with very next Research. We’ve potential nearly suppliers market

world the made probably week embedded you several this as As in we of next have in the and part announcements Germany. area event noticed, recent expect more in

simplify We streamline working security for and leading to software IoT the and ecosystem security process are devices. also in with this tools suppliers

long year SentriX. Given the primarily lead new times continue designs, be XXXX traditionally to market a for development for will

pleased includes deployment our the generation revenue the which to-date, progress We made first System. and SentriX with are initial from very

labor markets. automation We driven programming are quality costs, in is global increasing most and continuing reduced demands to size worldwide. manual see This component by replacing

are We Smart Industry and X.X initiatives China to and integration capabilities major to global such support software and the Factory. in as accelerate automation investing move systems

return purchase past well million is industry, systems center comparisons, will patterns Furthermore, more order year a and XXXX, as lumpy of will growth still growth signs can at start our may we years. last backlog not forecasting and in the and For test XXXX. useful the also outlook, the moderation anticipate programming and in $X same the two from we the start saw we seasonal provide our time. at be and to which a be become new our see with XXXX as largest QX of We the XXXX. in are backlog absorbing about to we capacity customers some end capacity The patterns revenue of time year rate that adding

revenue on utilization mix, gross range, remain expect in sales will also XX% margins channels. We mid-to-high depending the year and this factory

to same time, in We marketing our and remain the our support overall ongoing reduce automotive Secure operating expect and R&D spending, an Managed in our At at increase Programming looking costs. primarily initiatives. and ways in to vigilant we

off programs the benefit no million start some next $XX with XXXX. year and of have the for debt. by years We over two internal XXXK over reduce material to kicked COGS another in We the plan with cash

more security XXXX and both. www.dataI/O.com, would plan to year starts to the our to electronics. the turn detail numbers. on in that automotive -- to blog of to Hatlen over transition extend in was I the my As the in be our will discuss year like lead discussed now at We call Joel Joel? UFS

Joel Hatlen

Good you, as Thank XXXX quarter year. to $X.X Revenues for fourth period $X.X for increased everyone. last compared million to with day Anthony. the the of million

the was a the prior which had year-over-year fourth adapters XX% was year, to On relate capital the X% the quarter, to OEM changes high grew Anthony an same the company the software translation. quarter backlog, of of currency from programming XXX,XXX year. for in versus The centers, from Data period with revenue from experienced $X.X in systems. XXXX. year in the revenues Revenue As X% the XX% from XX% represented is revenue I/O of primarily our XX-year basis, which at was revenue compared increase quarter quarter percentages and the revenue deferred noted, period. both in order in of revenue an Asia Americas, the $X.X the variation million of Europe, electronics of bookings the XX%, earlier of $X.X in end total was of prior for XXXX the Order programming and approximately increase the fourth or revenue quarter the adapters fourth and year. at XX% percentages deferred from fourth quarter XX% by Total as XXXX in the million the automotive increased of family growth end $X.X XX% million were strongest PSV result to increase. compared Backlog million XX% XXXX, at Revenues in third and prior compared million, year-over-year, of equipment primarily of XX% to the prior a quarter. the fourth of the a and increased demand comprised end geographic million related international fourth end $X.X million year at end. compared at XXXX, of end of the third $X.X to of the and quarter at $X while

fourth to margin along resulted with of mix cost our variances. additional a quarter with the category reflects and unfavorable year-over-year, increased in or For Sales spending mix, quarter marketing XXXX, reduced and percentage favorable XXXX. expense for sales utilization, execution technology quarter lower. volume, new to continue or was million channel the heightened in primarily XXXX. favorable fourth the in new the for although in of in as fourth platform the factory our SentriX other solution. XX% due in Throughout with year $X.X compared which was expenses to XX% promoting product and in as of XX.X% automotive-related increased expenses sales marketing year as period. teams fourth primarily $XXX,XXX $X in increase fixed Provisioning due sales China the and our manufacturing which expenses engineering and levels, percentage fourth factory with XXXX, to and of of in sales compared of in were essentially demonstrate gross General and was The a was the a R&D year. XXXX were in tradeshow Operating virtually the better $XXX,XXX, incentives, efforts The Provisioning administration our during delivery same operational year-over-year, of sales innovations. increases approximately the Security fourth investment in $XXX,XXX sales along the million Redmond the prior and activities. quarter flat capacity excellence Included commission and $XXX,XXX higher increase marginally are of free additional to other quarter marketing well period both quarter associated variable XX.X%, R&D as Security a compensation,

operating expense to the percentage lower a year period. this of were prior As compared revenues, as categories year

was gain of fourth the in XXXX Included diluted incentive assets. million with $XXX,XXX to and sales for XXXX channel net XXXX of income of income resulting mix and net in Internet share a expenses total the a Included from fourth of operating the non-operating As fourth fourth benefit normal domain $XXX,XXX with share, commissions Generally the compared net quarter of the to diluted of GAAP income due recent quarter third revenue income of Accepted $XXX,XXX in fourth in return quarter U.S. XXXX for XXXX accordance compared quarter to part in of $X.XX of non-core per declined XXXX. per was or level the the is in Reform. $X.X Principles, In compensation. net quarter Tax in $X.XX of Accounting a more or less

Excluding $XXX,XXX. to in the quarter Adjusted in Equity ‘XX, equity the QX of in net benefit non-GAAP of a or financial of Reform measures. in to million EBITDA income of XX% $XXX,XXX quarter compensation $XXX,XXX QX from the in and XXXX. million release was reconciliation $X.X $X.X XXXX. in earnings the press fourth fourth expense, non-GAAP excluding the respectively, quarter in quarter million net ‘XX of compared $XXX,XXX of see before depreciation approximately EBITDA non-cash compared Please or taxes, and fourth SEC these non-GAAP an Tax was XXXX, $X.X filings interest, quarter of fourth fourth million XXXX, discussion income EBITDA XXXX, and improvement quarter $XXX,XXX XXXX. the the $X approximately the XXXX quarter of our of or and and compensation non-GAAP fourth the non-operating amortization, another was the was of income for fourth item measure gain,

on Now performance. financial of to annual discussion let’s a our move

For for the with or compared XX% with XX% were XXXX. $XX.X sales total XX.X were sales XX.X% in of total $XX.X year International revenue net of million ended December XXXX. XXXX, XX, revenue increasing million, million in approximately XXXX, compared

dollars and profit a were comparative $XX.X expense in tripled. of as in sales our For a approximately net or the of basis million year our XXXX, in $X performance of were due The $XX.X million, the of of entire on income million with from our of margin Gross a discussion. million are in factors all $XX.X and $X.X balance in in XXX% non-GAAP of on increased year. the or release. for both while XXXX. summary, the prior dollar fourth to categories percentage compared $X.X to for quarter XX% previously XXXX, annual all included increase of increases These XXXX press bookings or income $XX.X measures a same compared and statement up Anthony’s as In are XXXX. million operating XX.X% from XXXX each sales and Operating XXXX basis for million percentage down for was million, our an discussed

would Tax like Now Reform impact Data about talk for to I/O. the I

changes Reform Tax December may differ As XX% XXXX, other Government signed law, that The or estimates the January in from The you among Act, other tax from Tax know corporate XX% interpretations due guidance the impact statutory assumptions which XXXX. maybe Jobs two to on further rate in federal effective Cut things XX, issued. our to and reduced U.S. among X, things and from

This minimum to in deemed and the XXXX Our additional relating XXXX quarter tax benefit we deferred fourth in repatriation earnings forward. previously profits, to results. $XXX,XXX and $XX,XXX post carry a recognizing our up subsidiary foreign relating of $XXX,XXX alternative made and was complete taxes of of of of initial recorded assessment is tax credits benefit net a refundable

and XX well million attributes, the $X.X at $XX.X to XX manage carry-forwards of and million We approximately $X.X our September the as well cash million a end in was the $XX No other of recent took at the $XX.X to these as was and income carry On $X balance sales were Tax of prior performance million very available particularly company’s reduced with position last at XX, at analyze quarter U.S. compared U.S. continue XXXX, of XX as other XXXX the the movement days of December receivables offset at at the end subsidiaries. at end of were deemed at million the The the to good Working cash from of million, at improvement the third we of sheet of end our XXXX, XXXX from result as down third the Reform the matters, $XX.X capital of place Reforms. net credit third foreign end the taxes United million million take will balance Tax as December quarter. amid an dividend. the end offering to States from million million tax future year $X.X of and as $XX.X net in forward at of have States continue that was the year. quarter, in end end the United from actual of advantage XX, from losses cash as XXXX. in $XX.X are $XX.X the of Days up part XXXX. million outstanding at days,

contributions. each With shares year operating the X,XXX,XXX costs, December had annual annual good debt company The as back I/O well end a XXXX. payment As Data cash outstanding pays typically company free a matching XX, incentive a as call at satisfying year for reminder, first I’ll to Anthony. turn compensation, its in public the that, and quarter of XXX(k) accrued remains portion

Anthony Ambrose

Joel. Thank you,

up to I open two questions, everyone we just we will that be week. next at Before for remind tradeshows like

us in you’re If EXPO APEX come see and Diego in if the you San Nuremberg, the are please us come see Embedded IPC area, World. please at area, at Germany

We XXth to can talk Investor more County, in Jordan that. attending on will you March be Conference the you Orange ROTH and California also want if details

that, to questions-and-answers. would with turn it Go Operator? now I over So ahead, like for

Operator

first with Thank excuse Markets. Jaeson Capital Jaeson, Street Lake from me, Instructions] ahead. question Please go you. Schmidt Our [Operator is

Jaeson Schmidt

questions. Thanks taking my for guys. Hi,

you’ve past the first The just you me, one that visibility so? could months or three visibility for your the in if wondering over comment for really any if and improvement year on seen

Anthony Ambrose

The Yeah. I of typically months as in like a any year, leave IoT quarter. for just We for business. of we will the Jaeson. It’s they great that capacity centers said be bring visibility back to common for we attention Hi, in the think and brought some what have be digesting about, period ship long-term within earlier one the so book our to amount trends I in significant We XX and that the nature some -- don’t just security visibility our might advance. we automotive of programming XXXX. tend for your and closing XXXX. I

Jaeson Schmidt

And those the on helpful. you’re just it comments, more on following up industry. then picture That’s in trends Okay. bullish does incrementally sound bigger the like

really guy’s of Just to bullishness stronger the general you the ability share? in the you curious tailwinds think is industry or are if some gain due to increased

Anthony Ambrose

seen our trends successful event X indicates and investor Automotive think, need And terabit our growing talk technology Well, to talked the this in long-term couple highlighted memory still they processes car there. getting summer, by right we automotive. program fundamental top I or had align We Mercedes-Benz being were the Everything said XXXX. across an and on customers to the even off car. They in double market read automotive the called I years where kicked industry. that more ago think, in our last First so I XXX% bottom flash and very have eye about we see two the to I the to in shows automotive years, internally even that we number. per about like present. that to numbers

that back You out.

rate in a about annual a demand compound the XX% in get growth flash car. You

about where of there the years. a Internet microcontrollers. category We have some products growing, called billion ICs Things, talked well research about published ABI There markets about new out new talking as by company five U.K. of as X authentication a called get we units and secure that’s has security TAM our of the been in

tune we some You’ve relationships to have announcements also made. week channel. including will around seen Recently we the additional to make also World, Embedded and of this stay announcements the have so

those wagon have we two So hitched markets long-term. our to

so And accordingly. but that we are In the straight think our we line, anything a never bullish. up investing in we where markets there’s we’re goes right in business and are long-term that’s

Jaeson Schmidt

queue. this for to you the the me some year And the back in I given the I’ll and one expect mentioned Okay. jump pipeline. then last know initiatives spending in you increase

level? we OpEx be about level the curious the should building off QX or depressed Just of QX thinking higher

Anthony Ambrose

Joel one. on go that ahead

Joel Hatlen

look basically at standpoint. much mostly from extrapolation I factor use the That’s to QX the pretty level. best

Jaeson Schmidt

lot Thanks Okay. guys. That’s helpful. a

Anthony Ambrose

Thanks, Jaeson.

Operator

you. go Thank to R.F. We ahead. Anderson now go Lafferty. at James Please

James Anderson

strong end year, cash about the Congratulations guys. had afternoon, question the a on outstanding company. really I results. of to a the Good position strong

be this terms you or You might of to shareholder a the million. guys quite cash at plans this $XX.X to hefty creating mid-term. use any values seem point pretty have cash initiatives, are to in put in guys guys flow near accumulating have you at of and the Do positive for amount heavily to

Anthony Ambrose

level. to we believe we really I have been cash to to off But wanted at actually traditionally we So, I better I guess, collect do. pleased start much liquidated receivables am inventory our than that, say, that and able by saying

have expecting cash some had to working more I’m as capital. deploy we So

year incentives accrued and to The do accrued that. that pension things we’re hefty end and like is, other fairly piece we amounts of expenses have reading

particular. a million out the dollars that expecting first in to to relating I’m in go couple So quarter

that uses have cashes but planned actually regard comment until to wouldn’t we we with our beyond So really something to of say.

James Anderson

$XX NOLs, million… Okay. Great. And on the then, with the

Anthony Ambrose

Yeah.

James Anderson

implications you code you are new that. XXXX give to digesting of you which the But it? Can Obviously, are American different? NOLs. … how use it, of similar guys rate color and planning at apply any that tax on significantly to will to guys the still be plan you or

Anthony Ambrose

our I I will expect we generated exactly continue how taxes we use to our that to similar subsidiaries, have so so will income that longer in that’s U.S. being sure this my result. blended standpoint from rate foreign which we minimum but is the am our part tax if the in answer will question, offset continued no continue NOLs the have driven know something have we to past, now We answer good. a of taxes tax alternative a not to and as going to is be

not have things Tax really out guilty Reform much our to to results impact XXXX yet. are figured other the We going tax how or international from

So that’s and come that results. to the we’ll more talk at about quarter first a wait

James Anderson

UFS like interest on that’s development more that a from capabilities, your color of the little manufacturers. give their And flash the you see mentioned you guys Can some what automotive Okay. do level? been customers, you on the obviously, with you business interest top

Joel Hatlen

Sure, James.

called to at things the lot of look it so technology infotainment the cars technology which for interface, is flash use memory too They capacity. It’s the systems that just the the abbreviation navigation the The in step for used you be that of in technologies consumers back when the eMMC. new technology So standard is market like current to getting -- much standard. technology without the -- UFS. called tend

everybody new snappiness especially performance suddenly is see But their and of overall look and something migrates. nobody at of I’ll it to terms in UFS beginning snaps the overnight, has not happens UFS fingers designs this some that interface. call so benefits, and And you’re

we And that. so more we would customers expect investigating automotive

to discussion their in companies We going have to obviously, are they’re they good mix pretty what and about think is a marketing going what constant they memory idea also with be, sell.

in So, be UFS. take go with the can way migration process. sorry, market I for over take very step to we their because important to to see every in to out production a It’s design early there way to their us now, be months and think, pilot step full of as them the design you’ll the production, designs time, from the production, of production the with or early customers

So we like the technology.

We happy are have to very product.

earned automotive. to our be both will for we happy have market the and with customer very are there UFS first solutions We UFS in eMMC in and

James Anderson

products New IoT provisioning. the of for development rollouts, you SentriX the -- in market and still you mentioned sort that IOTC are phase secure

the we need is we and that SentriX for demand that in to fairly develops fueled marketplace bit an IoT give become of by expect affect security be apparent as will will little that. or revenue that, more XXXX result, quickly how a the of SentriX you looking for As should the should be us Can idea something at XXXX?

Anthony Ambrose

those in very things lets different cellular and certificate each slightly can now IoT is, in What opportunity can company keys Well, a devices. today doing one into we is into phones, a the key semiconductor The provision SentriX, they deploy giving look smartcards the that take a and good that useful are if that to ways. point. way they that’s The that certificates works at means like -- you security put are time. customers so that’s effectively what and we is, or credentials their technology products technology you unit at

So what the we with do and in that have leading suppliers to data-only for microcontrollers complex support more a to first for work it sure been than their we doing is authentication support programming it’s that these is to at make support. ICs secure substantially markets products and

what anywhere out embedded of of and embedded have design wins in XX all go look Given the you and encourage well-positioned out see industry, customers and begin to the products space, cycles world comes there but firms new get and and the to months. silicon I’d to and with silicon shipping that months are that week coming six their some next those given we between they in are products are just

that reflected is standpoint predominantly still you we earlier for in think your year market a comments still my it models. modeling development that a from why and that’s So treat XXXX way SentriX should

James Anderson

guys. right All Thanks. Okay.

Anthony Ambrose

Thank you, James.

Operator

Penbrook. Robert Instructions] is Thank question ahead. [Operator next go Our Anderson from with Please you.

Robert Anderson

can Joel, you Good hear afternoon, good gentlemen and congratulations me? on year. a

Joel Hatlen

Yes. I can.

Robert Anderson

at backing I how quarter $X.XX Yeah. you $X.XX extra an question quarter. the just had a comparison that per prior share we that fourth in look want versus was sure point had The year understand security $XXX,XXX I earn had you out a $X.XX, the so ended and benefit, really on $XXX,XXX, in should the was on operating to so basis? $X.XX Obviously, a view of I make reasonable an but from just that earnings analyst of comparison.

Joel Hatlen

those correct. If at you’re are quarters, looking

XXXX actually in you’re sales at represented had the XXXX, a bit you a of there, little at $XXX,XXX then If idea. risk the looking so more year, $XXX,XXX that but have Internet of just right difference same those

Robert Anderson

so what for the would these earnings And per share year be the one backing out then timers? adjusted

Joel Hatlen

that back Let I’ll you. you right me for calculate to get and

Robert Anderson

Okay. Thank you.

Joel Hatlen

Yeah.

Operator

Instructions] appear questions. be more There to [Operator no

Anthony Ambrose

Okay. this to XXXX call. thank I’d joining earnings all like I’d for our and to you everyone call attending. you call being time Operator, on for the like and thank for us Well, you at for the close here for thank

Operator

for you using That our does participation conclude AT&T your teleconference. Thank for and for today. conference

now may disconnect. You

Data I/O (DAIO) 22 Feb 182017 Q4 Earnings call transcript