Revenue Growth of 25% Year-to-date Despite Challenging Business Conditions Late in Third Quarter

REDMOND, Wash. — (BUSINESS WIRE) — October 26, 2023 — Data I/O Corporation (NASDAQ: DAIO), the leading global provider of advanced security and data deployment solutions for microcontrollers, security ICs and memory devices, today announced financial results for the third quarter ended September 30, 2023.

Third Quarter 2023 Highlights

• Net sales of $6.6 million; bookings of $5.3 million
• Quarter-end backlog of $2.5 million
• Gross margin as a percentage of sales of 53.7%
• Net loss of ($53,000) or ($0.01) per share
• Adjusted EBITDA* of $402,000
• Cash & Equivalents of $11.9 million; no debt
• Automotive Electronics represented 63% of year-to-date 2023 bookings
• 4 new customer wins, including a major SentriX^® security provisioning customer in solar energy

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

Management Comments

Commenting on the third quarter ended September 30, 2023, Anthony Ambrose, President and CEO of Data I/O Corporation, said, “The third quarter was a decidedly mixed quarter. We won some exciting deals and saw strength in adapter bookings, but system bookings were soft as customers deferred capital purchasing decisions. Capital equipment purchasing may have been delayed amid a significantly rising interest rate environment, the United Auto Workers strike in the U.S. commencing on September 15, and geopolitical uncertainty. China continues to improve but is still well below 2022 levels. We have seen bookings strength early in October, and we are encouraged by automotive electronics demand at this point in the fourth quarter.

“We added 4 new customers in the third quarter, including a major new EV factory and solar energy customer through a partner. This demonstrates that our continued R&D investments support our leadership position in the industry. Solar has been a strong industrial market for us this year, both for PSV systems and now SentriX products. SentriX is making progress globally as a leading technology platform for securing firmware for connected devices in a variety of vertical markets, including AI, EV, data centers, utilities, industrial and now, solar.

“The Automotive Electronics sector represented 63% of bookings in the third quarter, consistent with the amount year-to-date. EVs continue to take market share in terms of total vehicles sold globally which is a catalyst for Data I/O as we stand as the clear leader in EV vehicle programming worldwide. Electronic content for each EV is estimated to be 2-3 times that of standard ICE vehicles and programming requirements continue to require higher speeds and more complexity. Long term, the industry expects automotive silicon growth to remain strong at 10-15% growth per year through this decade.

“Total operating expenses in the third quarter were marginally higher than the same period of the prior year as R&D spending slightly increased and SG&A costs were essentially flat. Third quarter operating expenses came in lower than the second quarter due to reduced channel expenses on lower sales volume and focused spending controls. We performed well in the third quarter despite challenging conditions. Our results demonstrate the resiliency of our operating model while controlling expenses and expanding our customer base.

“We remain positive on our outlook and continue to look for new and innovative ways to share the Data I/O story with the investment community. We will discuss our progress, views and insights through our next fireside chat series and also with the use of the Webull Corporate Connect Service platform to enhance communications with tech-savvy retail investors.”

Financial Results

Net sales in the third quarter 2023 were $6.6 million as compared with $7.2 million in the third quarter 2022. The decrease from the prior year period primarily reflects reduced systems demand late in the third quarter, and comparison to a favorable post-lockdown recovery one year ago. Third quarter 2023 bookings were $5.3 million, down from $7.6 million in the second quarter and down from $7.1 million in the third quarter 2022. Asia showed moderately improved order flow as overall demand continues to reflect economic recovery in China. Sales funnel activity in the Americas and Europe remained active but orders placed toward the end of the quarter were lower than anticipated, although an acceleration is happening in October. Automotive electronics represented 63% of year-to-date bookings compared to 61% for all of 2022. Backlog at the end of third quarter 2023 was $2.5 million, and the Company ended the period with deferred revenue of $1.3 million.

Gross margin as a percentage of sales was 53.7% in the third quarter 2023, as compared to 57.0% in the same period of the prior year. The difference in gross margin as a percentage of sales reflects lower sales volume on relatively fixed costs relating to the Company’s manufacturing and services platforms.

Total operating expenses in the third quarter 2023 of $3.6 million were moderately higher by $184,000 as compared to $3.4 million in the third quarter of the prior year. R&D expenses were $1.6 million in the third quarter 2023 compared to $1.4 million in the third quarter of the prior year reflecting ongoing investment in the Company’s technology platform to support continued and future growth. Selling, general and administrative (“SG&A”) expenses were $2.0 million in the third quarter 2023 and unchanged from $2.0 million in the third quarter of the prior year. Third quarter 2023 operating expenses were $626,000, 15% lower than second quarter 2023 of $4.2 million, due to lower sales related incentive compensation, improved operational efficiencies and focused cost management.

Net loss in the third quarter 2023 was ($53,000), or ($0.01) per share, compared with net income of $847,000, or $0.10 per share, in the third quarter 2022. Included in net loss is a foreign currency transaction loss of ($15,000) for the third quarter 2023 compared to a gain of $307,000 for the third quarter 2022. Also included in net loss is income tax expense for foreign subsidiaries of $16,000 for the third quarter 2023 and $181,000 expense for the third quarter 2022.

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which excludes equity compensation, was $402,000 in the third quarter 2023, compared to Adjusted EBITDA of $1,431,000 in the third quarter 2022. Year-to-date Adjusted EBITDA is $1.8 million in 2023, compared to $435,000 in 2022.

Data I/O’s balance sheet remained strong with cash at the end of the third quarter 2023 of $11.9 million, up from $11.5 million on December 31, 2022. The increase in cash from December 31, 2022 primarily reflects year-to-date operating profitability and increased net interest income. Data I/O had net working capital of $18.1 million on September 30, 2023, up from $17.6 million on December 31, 2022. The Company continues to have no debt.

Financial Outlook

The Company provided a financial outlook for 2023 upon reporting year end 2022 results. The third quarter 2023 financial results affirm its long-term growth prospects and operating discipline. For 2023, the Company now expects:

• Double-digit revenue growth for the year, consistent with the long-term double-digit semiconductor growth rate in the automotive electronics industry;
• Gross margins to be in the mid-to-high 50% range for the year; and
• Operating expenses for the year to be higher than 2022 primarily due to increased R&D spending, sales commissions, variable compensation and currency effects.

Conference Call Information

A conference call discussing financial results for the third quarter ended September 30, 2023 will follow this release today at 2 p.m. Pacific Time/5 p.m. Eastern Time. To listen to the conference call, please dial 412-317-5788. 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 8633261. The conference call will also be simultaneously webcast over the Internet; visit the Webcasts and Presentations section of the Data I/O Corporation website at www.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.