Data I/O Corporation: Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
Data I/O Corporation develops programming, security deployment, provisioning, and intellectual-property protection solutions for electronics manufacturers using flash memory, microcontrollers, secure elements, authentication devices, and related technologies. Operations and customers are global, with manufacturing in Redmond, Washington and Shanghai, China. This unaudited report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $6.099 million | $7.231 million | Down 15.7% |
| Gross profit | $3.220 million | $4.302 million | Down 25.2% |
| Gross margin | 52.8% | 59.5% | Down 6.7 percentage points |
| Operating income (loss) | $(0.860) million | $0.169 million | Declined to an operating loss |
| Net income (loss) | $(0.807) million | $0.095 million | Declined to a net loss |
| Diluted EPS | $(0.09) | $0.01 | Declined |
| Operating cash flow | $(0.041) million | $0.463 million | Declined to a use of cash |
| Adjusted EBITDA | $(0.364) million | $0.502 million | Declined |
Equipment revenue was $3.366 million, adapter revenue was $1.846 million, and software and maintenance revenue was $0.887 million. Automated programming systems generated $4.823 million, or approximately 79% of sales. International sales represented 96.3% of total revenue.
Research and development expense was $1.582 million, down 2.6%, while selling, general and administrative expense was $2.498 million, down 0.4%. Total operating expenses were $4.080 million, compared with $4.133 million in the prior-year quarter. Interest income increased to $80,000 from $35,000, while foreign-currency results improved to a $14,000 gain from a $74,000 loss.
Cash and cash equivalents were $11.999 million at March 31, 2024, compared with $12.341 million at December 31, 2023. Working capital was $18.148 million, compared with $18.425 million at year-end. The company reported no debt. Capital expenditures were $139,000, and financing activities provided $7,000.
Total assets were $26.204 million and stockholders’ equity was $19.632 million at March 31, 2024. Inventories increased to $6.372 million from $5.875 million at December 31, 2023, while accounts receivable declined to $4.822 million from $5.707 million.
Material Changes Versus the Prior Comparable Period
- Revenue decreased $1.132 million, primarily because of lower beginning backlog and shipment timing on new bookings, as well as the prior-year post-lockdown recovery comparison.
- Bookings increased 41% to $8.1 million from $5.7 million. Backlog increased $1.7 million during the quarter to $4.5 million at March 31, 2024, compared with $3.2 million at March 31, 2023. Most of the backlog was expected to ship and be recognized in the second half of 2024.
- Gross margin declined because lower sales volume was absorbed by relatively fixed manufacturing and service costs, with additional effects from sales-channel and product mix.
- Despite modest reductions in R&D and SG&A, lower gross profit drove a $1.029 million deterioration in operating results and a $0.902 million deterioration in net results.
- Operating cash flow declined to a $41,000 use of cash, reflecting the quarterly loss, higher inventory, and changes in payables and accrued liabilities, partially offset by collections of accounts receivable.
- Foreign currency translation produced a $168,000 loss in other comprehensive income, compared with a $65,000 gain in the prior-year quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide specific full-year revenue or earnings guidance in the filing. Management expects most of the March 31 backlog to convert to revenue in the second half of 2024 and described strong first-quarter bookings in Europe and Asia as offsetting weaker orders in the Americas. The company expects Americas capacity expansion to be absorbed during 2024.
Management remains focused on automotive electronics, industrial markets, programming centers, IoT, secure supply-chain solutions, automated programming, and support for newer semiconductor devices. Cost controls, process efficiency, geographic shifts, and operating leverage remain priorities.
The company stated that existing cash and internally generated funds are expected to support operations and capital requirements for the next year and beyond. However, prolonged losses, weaker-than-expected business performance, currency volatility, tariffs, taxes, supply-chain conditions, semiconductor demand, inventory obsolescence, customer credit risk, warranty claims, and changing technology could adversely affect liquidity and results.
Operating lease commitments totaled $1.371 million, including $614,000 due during the remainder of 2024. The company had one other commitment requiring approximately $174,000 in 2024 and $251,000 beyond one year. No material legal proceedings, material indemnification claims, or material changes to previously disclosed risk factors were reported.
The company maintained an $8.9 million valuation allowance against deferred tax assets because of its loss history and uncertainty regarding future realization. Share-based compensation expense was $281,000, compared with $249,000 in the prior-year quarter. The filing identifies no material impact from recently adopted accounting pronouncements.
Management concluded that disclosure controls and procedures were effective at a reasonable level of assurance, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the $4.5 million backlog converts into revenue as expected, particularly during the second half of 2024.
- Whether bookings remain strong enough to offset lower current-period shipments and support a recovery in revenue.
- Whether gross margin recovers from 52.8% as volume improves and product and channel mix changes.
- The company’s ability to return to profitable operations while maintaining investment in strategic product development.
- Inventory levels, potential obsolescence charges, and the effect of technology or product transitions on margins.
- Cash usage, working-capital requirements, and the company’s ability to fund operations without additional financing.
- Foreign-exchange exposure, international concentration, tariffs, taxes, and geopolitical or supply-chain risks.
- The continuing impact of the $8.9 million deferred-tax-asset valuation allowance and the absence of debt.