Results of Operations

8-K 1 f8k-2019q2final.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) : August 1, 2019 Data I/O Corporation (Exact name of registrant as specified in its charter) Washington 0-10394 91-0864123 (State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.) 6645 185th Ave. N.E., Suite 100, Redmond, WA 98052 (Address of principal executive offices, including zip code) (425) 881-6444 (Registrant’s telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: □ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) □ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) □ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) □ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Securities registered pursuant to Section 12(b) of the Act: Title of each class       Trading Symbol(s) Name of each exchange on which registered Common Stock DAIO   NASDAQ Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company                                                               □ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act                                                                                                                                    □ Items reported in this filing: Item 2.02 Results of Operation and Financial Condition Item 9.01 Financial Statements and Exhibits Item 2.02 Results of Operation and Financial Condition A press release announcing second quarter 2019 results was made August 1, 2019 and a copy of the release is being furnished as Exhibit 99.0 in this current report. Item 9.01 Financial Statements and Exhibits. (d)   Exhibits Exhibit No. Description 99.0 Press Release: Data I/O Reports Second Quarter 2019 Results SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Data I/O Corporation August 1, 2019 By: /s/ Joel S. Hatlen Joel S. Hatlen Vice President Chief Operating and Financial Officer EXHIBIT INDEX Exhibit No. Description 99.0 Press Release: Data I/O Reports Second Quarter 2019 Results Joel Hatlen Darrow Associates, Inc. Chief Operating and Financial Officer Jordan Darrow Data I/O Corporation 6645 185 th Ave. NE, Suite 100 (512) 551-9296 jdarrow@darrowir.com Redmond, WA 98052 (425) 881-6444 Data I/O Reports Second Quarter 2019 Results Redmond, WA, Thursday – August 1, 2019 -- 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 second quarter ended June 30, 2019. Second Quarter 2019 Highlights · Net sales of $5.8 million; bookings of $5.1 million · Gross margin as a percentage of sales of over 61% · Net income of $127,000 or $0.02 diluted earnings per share · Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)*, excluding equity compensation, of $728,000 · Cash & Equivalents of $15.2 million; no debt · Repurchased 188,000 shares as part of a $2 million buyback program authorized in October 2018 · Automotive electronics, advanced programming and secure provisioning leadership o Automotive represented 56% of bookings year to date through 2Q19 o Appointed Michael Tidwell as Vice President of Marketing and Business Development o Added Assembly Products LLC to expand sales in New York/New England region of USA o Embedded Technologies Conference speaking engagements included Managed & Secure Programming for the Automotive World o Announced support for NXP SE050 Secure Element; the fourth NXP product supported by the SentriX®™ platform *Adjusted EBITDA is a non-GAAP financial measure.  A reconciliation is provided in the tables of this press release. Management Comments Commenting on the second quarter ended June 30, 2019, Anthony Ambrose, President and CEO of Data I/O Corporation, said, “The global market for programming capital equipment in the second quarter remained in the down cycle that began last year.  Automotive sales declines, semiconductor cyclicality and global supply chain uncertainty are headwinds to the deployment of capital right now, and we are adjusting our planned 2019 spending and targets accordingly. Similar to the first quarter of this year, our performance in the second quarter reflects our disciplined and effective management practices.  Margin strength and expense controls led to improved earnings on lower revenue as compared to the first quarter.  As we invest and plan for the next upward cycle, we took the opportunity to return cash to shareholders through the continuation of our stock buyback.   “The long-term catalysts for our business continue to be the secular growth of electronic content in automobiles and IoT devices, and the increasing need to secure these platforms.  We continued to invest in market development and R&D in the second quarter at a robust level even as discretionary and variable expenses declined compared to the first quarter and the prior year period. “The investments we have been making include our SentriX platform for IoT security.  Revenue adoption remains lower than we originally planned due to the longer time required for security provisioning to be designed into OEM production models.  Despite the longer adoption cycle, we remain bullish on the market opportunity and our position in this emerging market.   The 5th SentriX system was brought online in Europe in the second quarter.” Financial Results Net sales in the second quarter of 2019 were $5.8 million, as compared with $7.2 million in the second quarter of 2018.  The year-over-year decline in sales was a result of a cyclical downtrend in the industry that began at the end of 2017.    For the 2019 second quarter, gross margin as a percentage of sales was 61.4%, as compared to 59.0% in the second quarter of 2018.  The second quarter 2019 level exceeded the higher end of the Company’s anticipated 2019 target due to a favorable product mix and variances, primarily labor and overhead as well as foreign currency effects. Total operating expenses in the second quarter of 2019 were $3.5 million, down from $4.0 million in the 2018 period.  Spending declined across the board with the most significant reductions due to lower variable incentive compensation accrual and stock compensation. Data I/O continues to support its industry leading platform of programming and provision solutions while emphasizing ongoing expense management practices. Operating income was $75,000 for the second quarter of 2019, down from $246,000 for the second quarter of 2018. Net income in the second quarter of 2019 was $127,000, or $0.02 per diluted share, compared with net income of $486,000, or $0.06 per diluted share, in the second quarter of 2018.  Included in net income is foreign currency transaction gains of $69,000 for the second quarter of 2019 and $269,000 for the same period of the prior year. Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $364,000 in the second quarter of 2019, compared to $796,000 in the second quarter of 2018.  Adjusted EBITDA, excluding equity compensation, was $728,000 in the second quarter of 2019, compared to $1.3 million in the second quarter of 2018. Bookings in the second quarter of 2019 were $5.1 million, compared to $7.2 million in the second quarter of 2018 and $6.2 million in the first quarter of 2019.  Backlog at June 30, 2019 was $1.4 million, as compared with $2.0 million at March 31, 2019.  Data I/O’s financial condition remains strong with cash of $15.2 million at June 30, 2019, up from $14.8 million at March 31, 2019.  During the second quarter, approximately $908,000 was used to buyback common stock.  The Company had net working capital of $19.5 million at June 30, 2019, down from $20.4 million at March 31, 2019, which reflects the cash spent on the share repurchase.   The Company continues to have no debt. Conference Call Information A conference call discussing the second quarter ended June 30, 2019, 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 10133624.  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 use Data I/O security deployment and 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 June 30, Six Months Ended June 30, 2019 2018 2019 2018 Net Sales $5,834 $7,204 $11,892 $14,834 Cost of goods sold 2,250 2,955 4,623 6,169 Gross margin 3,584 4,249 7,269 8,665 Operating expenses: Research and development 1,680 1,845 3,361 3,724 Selling, general and administrative 1,829 2,158 3,803 4,351 Total operating expenses 3,509 4,003 7,164 8,075 Operating income 75 246 105 590 Non-operating income: Interest income 10 9 22 16 Gain on sale of assets - 4 60 4 Foreign currency transaction gain (loss) 69 269 (36) 93 Total non-operating income 79 282 46 113 Income before income taxes 154 528 151 703 Income tax (expense) benefit (27) (42) 2 (87) Net income $127 $486 $153 $616 Basic earnings per share $0.02 $0.06 $0.02 $0.07 Diluted earnings per share $0.02 $0.06 $0.02 $0.07 Weighted-average basic shares 8,257 8,356 8,280 8,321 Weighted-average diluted shares 8,332 8,500 8,375 8,521 DATA I/O CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (UNAUDITED) June 30, 2019 December 31, 2018 ASSETS CURRENT ASSETS: Cash and cash equivalents $15,165 $18,343 Trade accounts receivable, net of allowance for          doubtful accounts of $72 and $75, respectively 3,812 3,771 Inventories 5,218 5,185 Other current assets 618 621 TOTAL CURRENT ASSETS 24,813 27,920 Property, plant and equipment – net 1,953 1,985 Income tax receivable 640 598 Other assets 2,284 220 TOTAL ASSETS $29,690 $30,723 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $1,006 $1,755 Accrued compensation 1,415 2,872 Deferred revenue 1,365 1,392 Other accrued liabilities 1,451 789 Income taxes payable 35 47 TOTAL CURRENT LIABILITIES 5,272 6,855 Operating lease liabilities 1,532 - Long-term other payables 157 511 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, 8,261,702 shares as of June 30, 2019 and 8,338,628 shares as of December 31, 2018 18,463 19,254 Accumulated earnings 3,848 3,695 Accumulated other comprehensive income 418 408 TOTAL STOCKHOLDERS’ EQUITY 22,729 23,357 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $29,690 $30,723   DATA I/O CORPORATION NON-GAAP FINANCIAL MEASURE RECONCILIATION Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018  (in thousands) Net Income $127 $486 $153 $616    Interest (income) (10) (9) (22) (16)    Taxes 27 42 (2) 87    Depreciation and amortization 220 277 424 506 EBITDA earnings $364 $796 $553 $1,193    Equity compensation 364 473 650 650 Adjusted EBITDA earnings,    excluding equity compensation $728 $1,269 $1,203 $1,843