Nasdaq: DAIO. Data I/O Corporation January 2018 Investor Presentation

Transcription

1 Nasdaq: DAIO Data I/O Corporation January 2018 Investor Presentation

2 Safe Harbor The matters that we discuss today will include forward-looking statements that involve risks factors that could cause Data I/O Corporation s results to differ materially from management s current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release as well as our most recent SEC filings for a complete description. Additionally, those forward-looking statements are made as of today, and we take no obligation to update them. Data I/O, LumenX, SentriX, ConneX, FLASHCore are trademarks of Data I/O Corporation. All rights Reserved 2

3 Who We Are Data I/O enables the secure digital world by designing, manufacturing, and selling programming systems to global electronic device manufacturers. 3

4 Supporting the Secure Digital World Data I/O s programming systems are used by the world s leading manufacturers, programming centers, and contract manufacturers, to securely program integrated circuits and bring their devices to life. Circuits Need To Be Programmed Options for Programming (DAIO customers) Data I/O On-Line or Off-Line Programming Final Assembly End User OEMs Contract Manufacturers Programming Centers 4

5 Company Snapshot Recent Achievements and Trends 4 consecutive years of revenue growth 3 consecutive years of profitability Strong Momentum in Automotive and IoT devices 8 of top 9 Auto electronics companies are customers Significant win in automotive, awarded 5-year global supply agreement with Bosch Served Available Market expansion of 2x: Puget Sound Business Journal s Fastest Growing Public Technology Companies list 3 Consecutive Years LumenX & PSV5000 wins Global Technology Award for Programming; 150 PSV systems sold in under 4 years Introduction and demonstration of SentriX Managed and Secure Programming Technology Committed to Growing Shareholder Value Focusing programmable core competencies on higher growth, higher margin vertical markets Differentiated market position through technology leadership, and global support Approx. 15% of stock held by insiders so that management and Board are aligned with shareholders NASDAQ: Headquarters: DAIO Established: 1972 Stock Price: $10.85 Market Cap: $92M Diluted Shares: 8.5M 3-Month Avg. Volume: Sales (TTM): Redmond, WA 296,000 shares $32.3M Diluted EPS (TTM): $0.55 Adj. EBITDA (TTM): Cash & Sec. (9/30/17): Company Snapshot (1)(2) $6.3M Debt (9/30/17): $0.0 (1) Stock price, market cap and volume as of 1/12/18 (2) Financials for the TTM period ended 9/30/17 or as noted $15.2M ($1.79/share) 5

6 Strategic Objectives Long Term Growth Focus Growth strategy focused on Automotive Electronics and expansion into Security Provisioning for the Internet of Things (IoT). Revenue growth to support market share gains Expansion of addressable markets Technology leadership through continued investment in intellectual property portfolio Developing new partnerships for Security Provisioning Platform Deploying excess capital and other resources for opportunistic growth 6

7 Servicing Customers Globally in Growing Markets Data I/O delivers cutting edge products and technology to hundreds of customers around the globe Global footprint with headquarters in Redmond, Washington and offices located in Shanghai, China and Munich, Germany 55% growth in Automotive electronics orders in 2016 with eight of the top nine automotive electronics companies buying from Data I/O Automotive Wireless Sample Customers 32% 39% 15% 14% IoT/ Industrial/Consumer Programming Centers and EMS 7

8 How Data I/O Markets Grow Market Forces Programming Impact 1. More products will require device programming as they get connected Unit Growth 2. Products will increase their code size as customers want more features Bit Growth 3. Products will be more secure, creating new opportunities Added Complexity + Security Requirements Programming Demand = Units x Bits x Security 8

9 Market Leading Technology Industry Leading Products Automated Handlers Data I/O s products are viewed as the gold standard for advanced programming equipment and IP management and security solutions. Programming Engines Managed and Secure Programming Systems History of Innovation Research and Development focused on: Breakthroughs in programming technology to support explosive demand for automotive infotainment solutions using large FLASH memories and microcontrollers. Security Provisioning Platform technology for Internet of Things applications During the past 15 years, Data I/O has been granted ~50 U.S. and International utility patents. Currently, Data I/O has ~20 U.S. and International utility patents pending 9

10 Razor/Razorblade Model Capital Equipment 66% of 2016 Sales Off-line and in-line programming systems Automated systems cost $65,000 to $628,100 Manual systems cost $675 to $32,400 Usually last 5-7 years Adapters fit to these products Adapters 25% of 2016 Sales Usually last 3-24 months Consumables Software and Maintenance 9% of 2016 Sales Annual software upgrades Consumables and equipment sales have similar gross margins Installed base drives recurring consumables sales High customer retention 10

11 Financial Overview

12 Financial Overview Third Quarter 2017 Highlights Net sales of $9.6 million, a 17-year high, up 46% from $6.6 million in 3Q16 Gross margin as a percentage of sales of 62.1%, up from 55.3% in 3Q16 Net income of $1.7 million ($0.20 dil. EPS), from $625,000 ($0.08 dil. EPS) in 3Q16 Total bookings of $8.2 million, a 10-year high for the third quarter Automotive orders represented 51% of year-to-date bookings Key win at European customer with multiple automated systems ordered at a location previously supported by Data I/O s competitors Deployment of first SentriX Security Provisioning Platform 12

13 Operational Performance Consistent Performance Improvements through Innovation and Operational Excellence Adjusted EBITDA ($M) Revenue and Net Income Revenue Net Income M17 EBITDA adjusted for restructuring charges and stock based compensation M /2018 Growth Drivers Semi-cap equip. cycle Automotive Electronics Internet-of-Things Recurring revenues from installed base 13

14 Balance Sheet and Capital Structure Overview 40% 30% 20% 10% 0% Enterprise Value ($K) Market Cap (1) $ 92,225 Plus Total Debt (2) 0 Less Total Cash (2) $ 15,164 Enterprise Value $ 77,061 Diluted Shares Outstanding (2) 8,467 (1) At 1/12/18 Management Effectiveness 2012* Q17** ROE ROA *2012 ROE and ROA were -43.5% and -34.0%, respectively, but shown as 0% for illustrative purposes **3Q17 data includes annualized net income; shareholders equity and assets as of 9/30/17 Balance Sheet Strategy Important to maintain strong balance sheet Financial flexibility allows the company to: o Withstand downturns in semiconductor cycle o Invest in organic and acquisitive growth opportunities Over $6 million returned to shareholders in form of 2012, 2016 share repurchase programs At September 30, 2017: $15.2 million in cash and cash equivalents No debt $18.4 million of working capital Total stockholders equity of $20.2 million, or $2.38 per diluted share outstanding EV/Sales at 2.39x EV/Adjusted EBITDA at 12.23x (3) NOLs of approximately $17.0 million (2) Weighted average at 9/30/17 (3) Sales and Adjusted EBITDA based on TTM through 9/30/17 financial results 14

15 Market Outlook

16 Growth of Electronic Systems in Automobiles According to The Clemson University Vehicular Electronics Laboratory, a typical automobile on the road today has over 50 computer controlled electronic systems. 16

17 The FLASH Memory Opportunity in Automotive Could Grow 20x in 8 years 17 20x: ~50GB today to 1TB by 2025

18 Semiconductor Content per Car Forecasted to Grow 20% in $ value, much more in bits Data I/O Confidential

19 IoT Market Drivers - Multi-year Secular Growth The IoT is forecast to be bigger than the mobile internet and desktop markets We believe nearly every single industry will eventually migrate to an IoT model yielding 50 billion connected devices by Needham & Company, November 27, 2015.But Security Issues are top of mind and must be addressed 19

20 IoT Market Segmentation

21 IoT Device Security Threats 21

22 Security Provisioning Addresses IoT Device Security Needs Security Must Become Ubiquitous Secure Update Services Secure Firmware Development Secure Manufacturing New Secure Elements, and Secure MicroControllers 22

23 SentriX Security Provisioning Platform US and International Patents Pending 23

24 New Partnerships for Growth Data I/O, the global leader in firmware provisioning, is partnering with the leading suppliers of secure elements and secure microcontrollers and industry security experts to develop high volume, cost effective security provisioning solutions: Renesas and Data I/O partnership on Synergy Family MicroController Programming EBV/Infineon and Data I/O partnership on Authentication IC Programming Secure provisioning support for Maxim Integrated Products DeepCover Secure Authentication ICs Data I/O and SecureThingz partnership for security systems Data I/O joins the IoT Security Foundation Plan: Development Costs: 2017/2018 increased R&D expense First Products: additional investment for equipment; units in field during 2H17/2018 Deployment in October 2017 of first SentriX Security Provisioning System Additional Industry support announcements now through 2018 Revenue Recognition: scaling begins mid to late

25 The Opportunity: 4B Units of Security Devices in 2022 Standalone Secure Elements (eg: AICs, ESEs, TPMs) 2022 MCU Market Secure MCUs with Embedded Secure Elements 2022 Security TAM: ~4.0 Bu Traditional MCUs 2022 Total TAM: Smart Card MCUs 25.4 Bu 25

26 Investment Merits: Positioned for Long-Term Growth Market Expansion in Automotive and Internet of Things Strong Brand with Leading Products Strong Balance Sheet and Operating Leverage Stable Financially & Positioned For Growth NASDAQ: DAIO Seasoned Management Growth in Secure Provisioning 4 Consecutive Years of Revenue Growth Global Sales and Infrastructure 26

27 Appendix 27

28 Adjusted EBITDA Reconciliation 3Q17 NON-GAAP FINANCIAL MEASURE RECONCILIATION (in thousands) Three Months Ended September 30, Nine Months Ended September 30, Net Income $1,728 $625 $3,913 $901 Interest (income) (6) (11) (19) (34) Taxes Depreciation and amortization EBITDA earnings $2,136 $755 $4,735 $1,288 Equity compensation Adjusted EBITDA earnings, excluding equity compensation $2,309 $865 $5,275 $1,697 28

29 Income Statement 3Q17 CONSOLDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, Net Sales $9,596 $6,588 $25,955 $17,002 Cost of goods sold 3,639 2,945 10,629 7,743 Gross margin 5,957 3,643 15,326 9,259 Operating expenses: Research and development 1,814 1,358 5,130 3,655 Selling, general and administrative 2,319 1,664 6,300 4,766 Total operating expenses 4,133 3,022 11,430 8,421 Operating income 1, , Non-operating income (expense): Interest income Gain on sale of assets Foreign currency transaction gain (loss) (66) (3) (158) 41 Total non-operating income Income before income taxes 1, , Income tax (expense) (108) (4) (207) (12) Net income $1,728 $625 $3,913 $901 Basic earnings per share $0.21 $0.08 $0.48 $0.11 Diluted earnings per share $0.20 $0.08 $0.47 $0.11 Weighted-average basic shares 8,201 7,977 8,112 7,955 Weighted-average diluted shares 8,467 8,183 8,400 8,083 29

30 Balance Sheet 3Q17 CONSOLDATED BALANCE SHEETS (in thousands, except per share data) (UNAUDITED) September 30, 2017 December 31, 2016 ASSETS CURRENT ASSETS: Cash and cash equivalents $15,164 $11,571 Trade accounts receivable, net of allowance for doubtful accounts of $104 and $96, respectively 5,233 4,725 Inventories 4,950 4,059 Other current assets TOTAL CURRENT ASSETS 25,884 20,838 Property, plant and equipment net 2,158 1,875 Other assets TOTAL ASSETS $28,087 $22,776 LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Accounts payable $1,598 $1,428 Accrued compensation 3,273 2,208 Deferred revenue 1,570 1,926 Other accrued liabilities Income taxes payable TOTAL CURRENT LIABILITIES 7,470 6,265 Long-term other payables 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, 8,240,711 shares as of September 30, 2017 and 8,015,746 shares as of December 31, ,836 19,204 Accumulated earnings (deficit) 553 (3,360) Accumulated other comprehensive income TOTAL STOCKHOLDERS EQUITY 20,179 16,032 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $28,087 $22,776 30

31 Data I/O: Turnaround in Review Reinvigoration of the core business through new product development, cost control and global sales 4 consecutive years of revenue growth 3 consecutive years of profitability Success of new products, with focus on automated preprogramming Automotive growth: approximately half of new orders, largest end market, double digit increases 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % System Revenue from New Products Full Year Bookings by Segment Automotive 25% 20% Programming Centers 8% 47% Wireless IoT/Industrial/Consumer 25,000 20,000 15,000 10,000 5,000 4,000 2, (2,000) (4,000) (6,000) 56.0% 55.0% 54.0% 53.0% 52.0% 51.0% 50.0% 49.0% 48.0% 17,085 18,717 Revenue 21,924 22,017 23, (8,000) Operating Income(Loss) Net Income(Loss) EBITDA EBITDAS 50.6% 50.8% Profitability Metrics GM% 53.9% 52.4% 55.0%

32 Financial Overview Full Year 2016 Highlights Net sales of $23.4 million, 5-year high Net income of $1.7 million, or $0.20 per diluted share Adjusted EBITDA excluding equity compensation was $2.8 million Total bookings of $26.9 million, highest level in 8 years Automotive orders increased 55% over 2015 to a new record level Won 5 year supply award from Bosch for car multimedia programming Sales of new products launched since Sept represent 78% of system sales Repurchased 80,345 shares at average price per share of $2.36 Third Quarter 2017 Highlights Net sales of $9.6 million, a 17-year high, up 46% from $6.6 million in 3Q16 Gross margin as a percentage of sales of 62.1%, up from 55.3% in 3Q16 Net income of $1.7 million ($0.20 dil. EPS), from $625,000 ($0.08 dil. EPS) in 3Q16 Total bookings of $8.2 million, a 10-year high for the third quarter Automotive orders represented 51% of year-to-date bookings Key win at European customer with multiple automated systems ordered at a location previously supported by Data I/O s competitors Momentum for SentriX Security Provisioning Platform 32