Participants

Jordan Darrow; IR; Darrow Associates Inc

Anthony Ambrose; President, Chief Executive Officer, Director; Data I/O Corp

Gerry Ng; VP & CFO; Data I/O Corp

David Marsh; Analyst; Singular Research Inc

Kevin Garrigan; Analyst; WestPark Capital Inc

Presentation

Operator

Good afternoon and welcome to the Data I/O First Quarter 2024 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.

Jordan Darrow

Thank you, operator. And welcome to the Data I/O Corporation First Quarter 2024 financial results conference call. With me today are the company's President and CEO, Anthony Ambrose, and Chief Financial Officer, Jerry Yang.
Before we begin, I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, supply chain expectations, estimated impact of tax and other regulatory 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 in global and geopolitical events, international trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall ability to record revenues based on a 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 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 I/O is under no duty to update any forward looking statements.
And now I would like to turn over the call to Anthony Ambrose, President and CEO of Data I/O.

Anthony Ambrose

Thank you very much, Jordan's. I'll begin my formal remarks by addressing our first quarter 2024 financial and operational performance, and then I'll turn over the call to Jerry Yang for more detailed look at the numbers, we had very strong bookings at $8.1 million in the first quarter closing deals and a strong sales funnel that we previously discussed in February's call. This is the highest bookings level in 11 quarters. We won five new customer locations in Q1, including a major programming center win in Amea for a new site. Orders were back-end loaded and we closed with revenue at $6.1 million. We have a very strong backlog in place and we continue to expect a back-end loaded year as most of this backlog will be recognized as revenue in the second half of 2024.
Geographical rotation is also happening in our business. The Americas region has been very strong for us the past couple of years, and we're seeing a digestion of some of the CapEx winds for the past two years. Perhaps it's due to a change in demand for EVs in North America or perhaps it's just the fact that it's been so strong for the past two years.
At the present time, we're seeing immediate pick up some of the slack as they've been stronger than they have been in the past couple of years, both in bookings and future opportunities. Asia continues to be strong and is expected to remain strong for the rest of the year. We continue to see some interesting deals and Centrex in our units program continue to grow through our partners. However, the sales cycle remains long due to the complexity of the design and programming requirements for those applications.
When I talk to investors and others, I get a lot of questions about AI. and how it impacts our business. And one of the emerging growth areas for AI. is a so called HAI. This is different from what you read about in Chad GBT. and some of the other things is agile edge, AI, agile, the deployment of artificial intelligence algorithms directly on devices or hardware at the edge of the network. We're seeing significant adoption in several industries, and these include many of the industries Data I/O has been talking about as our key markets for a number of years and some of them include a DAS or advanced driver assist systems, otherwise known as active safety or autonomous, driving a second areas, IoT and smart devices. A third would be health care monitoring and wearables. Fourth would be smart factory automation, which we've also talked about, and fifth would be retail analytics. As you know, we're a very big player in ADAS. and a key supplier to the Tier ones and OEMs in the automotive industry. And again, we've been discussing that for some time.
We've also talked about how industrial IoT is our second largest market behind automotive, and that's also positively impacted by Edge AI. So what is Edge AI? It's all about bringing intelligence right to the edge in the case of eight us right to your car. What this means is you get the data processing locally instead of having to send data to the cloud. This enables real-time decision making, which obviously is very important for ADAS and autonomous driving. What this means for us is that the Edge AI ensures that the processing power remains localized and it requires the code and the decision making apparatus of code to be in the car, which means it has to get program there and that's going to get programmed in flash memory, most likely large and memory like EMC or UFS. that we've been talking about again on many of these calls. What this means for Data I/O is the Edge AI coming to cars and aid us means there's more programming demand due to faster growth of the data systems, the larger code sizes and the complexity of the device.
During Q1, we won several systems for a DAS and continue to have a strong automotive funnel, which includes ADAS, electrification, instrument clusters, et cetera, in IoT devices and smart home systems, HAIs revolutionizing the IoT landscape by embedding AI algorithms directly into IoT devices. Again, Edge AI enables local data processing, reducing latency and enhancing privacy from smart thermostats to security cameras, Edge AI empowers IoT devices to make intelligent decisions without constantly relying upon cloud services again, for Data I/O. This drives increased data programming demand as well as the need for security remains strong to maintain strong identity rather for these IoT devices. So again, as we talk about a I think AJI. has some very interesting applications for Data I/O programming demand, both in the data area and the security area and finally, I'd like to talk about our 500th PSV system order, which we announced earlier this month in conjunction with the APEX tradeshow. This milestone is a testament to Data I O's continued innovation investment and leadership in the programming technology for automotive, industrial and consumer markets and confirms the PSV. family as the most successful automated programming system in the industry, not only myself, but our team take great pride in this achievement and believe it sets the tone for our future with additional software innovations, security capabilities, enhancements to this platform in pursuit of more balanced profile from not only system sales but also recurring revenue.
And finally, to summarize from our last call, we talked about the focus being on continued disciplined growth as we target automotive, industrial and programming center markets worldwide. We continue to have investor outreach and our marketing initiatives include not only these calls, but also our fireside chats or we have an opportunity to go into a little bit more detail on a specific topic. Last month, we launched an interview in which I was hosted by Equity Research Analyst Day in March of Singular Research on the topic of on-shoring and near-shoring, our next fireside chat will be released later this month or early next month and will be hosted by investment manager and influencer, Avi Fisher, Long Cast Advisers, topically smart factory industrial applications. And imagine we'll talk a little bit more about edge AI as well.
Before I turn it over to Jerry for his commentary and a view on our 2024 outlook. I'd like to remind our shareholders of record as of March 18, are holding our annual meeting on May 16, at our headquarters in Redmond, Washington. You should have already received all your materials around the 10-K and proxy and voting information, and we look forward to receiving your vote and attendance at the meeting.
With that, I'll pass it over to Jerry.

Gerry Ng

Thank you, Anthony, and good day to everyone. I look forward to outlining and elaborating on our recent financial performance in more detail. My comments today will focus on key points of interest for the first quarter of 2024 and our perspective, looking forward data, I O's financial condition remained strong at the end of Q1 was $12 million in cash, slightly down $342,000 from the beginning of the quarter, which reflects the anticipated higher first quarter expenditures for public company costs, including audit regulatory filings and NASDAQ fees and annual incentive compensation disbursements.
Our cash and working capital at $18.1 million had a comparable decrease from $18.4 million on December 31. Cash benefited from strong customer collections of accounts receivable at $4.8 million, Days sales outstanding or DSO was 59 days past due receivable balances greater than 30 days remained very low at less than $30,000 at the end of Q1. Inventory at $6.4 million increased from $5.9 million from the of the beginning of the quarter on lower Q1 sales volume. The Company continues to have no debt moving to the income statement. First quarter revenue at $6.1 million was down 16% compared to $7.2 million from the prior year period, reflecting lower backlog coming into the period plus timing of shipments from our new bookings. On a more favorable note, first quarter bookings were $8.1 million, up 41% from the prior year on strong opportunity conversions in Europe and Asia. As a result, our backlog increased $1.7 million in Q1, to $4.5 million as of March 31, 2024.
Gross margin for Q1 was 53%, down five percentage points from the 2023 prior year. This decline was driven by a combination of lower sales volume higher mix of distributor channel sales and product mix. These unfavorable impacts were partially offset by ongoing initiatives to reduce material and operational costs, which we continue to realize excluding the impact of sales volume fluctuations, we expect gross margin rate to return to a more normalized mid to high 80% range as outlined in our '24 outlook, as I am leading the Company's disciplined growth initiatives.
I'd like to address the progress we have made on operating expenses. Although we still reported net and adjusted EBITDA losses this quarter due to timing of shipments. Our Q1 operating expenses were under $4.1 million, down $53,000 or 1% from the prior year. As noted earlier, first quarter expenses are typically higher due to annual payments for public company costs and certain compensation related expenses, which are non-recurring in future quarters. This year, we anticipate with continued cost lead functions associated with strong operational discipline and processes commencing in the second half of 2023 that our performance will reflect lower spending going forward.
Again, reiterating our 2024 outlook, we expect double digit bookings growth, as Anthony highlighted earlier, with system deployments to be weighted more in the second half of the year. As is customary, the timing of orders and subsequent deliveries will be reflected in our revenue recognition. On a full year basis, we expect gross margins Roger, to return to a target range as discussed earlier, and fixed operating expenses to decrease, which will help offset variability from sales volume and compensation related increases this year. Overall, we remain very solid financially with a strong cash position, no debt and the ability to navigate market opportunities and any challenges that may emerge through the course of the year.
That concludes my remarks for the first quarter of 2024. Operator, would you please start the Q&A process.

Question and Answer Session

Operator

We will now begin the question and answer session. To ask a question, you may press star and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to one question and rejoin the queue. If you have additional questions at this time, we will pause momentarily to assemble our Yes. Our first question comes from David Marsh with Singular Research. Please go ahead.

David Marsh

Hi, guys. Thanks for taking the question, guys. Maybe a little tough one question here. So I've just tried to do one with them.

Anthony Ambrose

Yes, they are here specials. So we'll let you go for two.
How about that.

David Marsh

Hey, thanks, Jonathan. So yes, I mean, yes, obviously a little bit of a tough quarter for revenue realization, but I'm assuming very encouraging is the backlog growth. I just was hoping maybe you could provide a little bit of color. I noticed in the commentary it seemed like you were indicating of the backlog was going to kind of ship later in the year, a lot of it. So I was hoping you might be able to provide a little clarity in terms of backlog in terms of geographies and down and that mix, if it shifts, if it's Oracle bonuses that there's stuff in there, there's Concentrix and they're just kind of give us a sense of how to think about what goes into that backlog?

Anthony Ambrose

Yes. So if you recall in our call in February, we said we had a very strong sales funnel and we were able to monetize that pretty much as expected in March with bookings.
Okay, which led to the highest bookings quarter we had in 11 quarters at $8.1 million. Seen those bookings included a large order for a customer opening up a new site and pretty typically with customers opening up a new site. You can imagine a factory opening up and they have SMT lines that need two or three quarters advance notice they get all their corporate ducks in a row and get the approval to go and then placed the orders for delivery later in the year. So for that big order, that's going to start shipping in the second half.
Okay. And we also got a lot of orders very late in the quarter that are going to ship. And we would just wanted to indicate that the balance of that's likely to ship in the second half which is typically orders that we get ship next quarter. We just want to call that others can be much more back-end loaded than normal so that you can build a good model and our investors can build a good model.

David Marsh

Going from for-profit recurring local And then I'm just talking about them.
Yes, I know you guys, you said some time in overseas markets maybe in there. So you had some comments about it sounds like North America may be slowing down that, but overseas but particular movies give us general market pulse kind of quick tour around the world.

Anthony Ambrose

Yes, pretty much what I said on the prepared remarks and in the release, I know North America, especially Mexico, has been very strong for us from a lot of capital purchases and we're engaged with customers now they need machine number three or machine number four and on in Q4, they said they need it in Q1, Q1, they said I need it in Q2 here in Q2. They say I might need it in Q2. I might need it in Q3. And it's really that they believe they need it. It's just their demand is not ramping as fast as they thought it would. I'm pretty confident we'll get the orders. I just don't think that's going to happen to be revenue again until the second half in North America, I was in Asia earlier in Q1, and we continue to have strength in our Asian markets. Korea, China was also in India and there they're just a different cycle. I think China was bad last year. Everyone had hoped for it to bounce back early in the year and it didn't but it's been slowly coming back. And I think they're very, very keen on their EV industry in China. And we're a critical supplier to that industry from automotive and the rest of Asia continues to be very strong for us as well. Europe has been weak for a while, and again, we see some strength in Europe. We had a very strong bookings quarter in Europe in Q. one of a good sales funnel. There's some very interesting opportunities. Again, we'll see the timing and how they realize. But I just wanted to share with investors that our overall plan for the year remains unchanged in terms of bookings. But just I think where we're going to get those bookings has probably changed a little bit in our thinking in the past five or six months.

David Marsh

Thanks very much. Appreciate taking the questions.

Operator

As a reminder, if you have a question, please press star then one to be joined into the queue.
The next question comes from Kevin Kerrigan with WestPark Capital. Please go ahead.

Kevin Garrigan

Yes, hey, guys. Thanks for letting me ask a question on going on David's question and your previous answers. So again, I know automotive is kind of your largest market for system orders and then it's followed by industrial and programming centers. And, you know, in your prepared markets that programming programming programming centers that had a strong start. So looking at the pipeline right now, can you talk a little bit and give us some color on which end markets you think are going to be the strongest for orders in 2024? I mean, do you think programming programming centers may become centers of orders? Or is it really just going to be automotive, that's going to kind of drive the bookings growth.

Anthony Ambrose

I think if I look at the funnel going forward, it looks a lot like our last several years of business.
Okay. For any one quarter, we can have a significant shift one way or another, just based on the level of orders that we have and the markets into which those orders are represented. But in terms of the fundamental nature of the business, it's continues to be automotive, industrial.
And the point I wanted to make in my remarks is a lot of these things are connected by this HAI. theme. I've done some research and discussion and talk to some folks on that. And I wanted to include that in the remarks because I think that's a connecting thread there. And I know people are very excited about AI. They tend to think of it as Chad GPT. and some of the things that are going on. But I think a lot of it's going to be more much more meat and potatoes around advanced driver assistance systems, smart IoT smart homes, factory automation, things like that. And the common connecting thread is more code, more programming, more security. And at the risk of <unk>, it's colloquial isn't that's more better for Data I/O.

Kevin Garrigan

Okay.
Perfect. Perfect. I appreciate that color.
And if I could just a quick follow-up. You had noted in your prepared remarks that you're seeing some interesting deals for SentriX I know last year you had a solar energy customer win that you had called out. Can you just expand a little bit on kind of what market some of these deals that you're seeing are coming from.

Anthony Ambrose

Kind of the IJI. market that I just described at a high level?
Usually IoT, Kevin, on a lot of interesting deals, there's a lot of presales effort from a lot of work that has to go into these. Otherwise, we probably have more unit growth continues to go up, but there are a couple of really interesting deals in the funnel. I'm hoping we can close them.

Operator

Thank you.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Anthony Ambrose for any closing remarks.

Anthony Ambrose

But thank you very much, operator. I'd like to thank everyone for attending and the questions from our analysts. And I'd also like to again, remind everyone to please return your folks for the shareholder meeting in May. And with that, I'd like to close the call. Thank you, very much.

Operator

Because it is now concluded. Thank you for attending today's presentation. You may now disconnect.