Data I/O Corporation — Form 10-Q Summary
Business Context and Reporting Period
Data I/O develops and sells automated and non-automated semiconductor programming systems, adapters, software, and maintenance services for automotive electronics, IoT, industrial controls, consumer electronics, and programming centers. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods. Amounts are in thousands unless otherwise stated.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Net sales | $6,733 | $4,655 | $12,748 | $9,440 |
| Gross margin | $3,837; 57.0% | $2,439; 52.4% | $7,175; 56.3% | $5,223; 55.3% |
| Operating income (loss) | $110 | $(878) | $(220) | $(1,487) |
| Net income (loss) | $(29) | $(1,057) | $(362) | $(1,611) |
| Basic and diluted EPS | $0.00 | $(0.13) | $(0.04) | $(0.19) |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(156) | $106 |
- Second-quarter sales increased 44.6%; six-month sales increased 35.0%.
- Second-quarter operating margin was approximately 1.6%, compared with approximately negative 18.9% in the prior-year quarter. Six-month operating margin was approximately negative 1.7%, compared with approximately negative 15.8%.
- Second-quarter net margin was approximately negative 0.4%, compared with approximately negative 22.7% in the prior-year quarter. Six-month net margin was approximately negative 2.8%, compared with approximately negative 17.1%.
- Second-quarter EBITDA was $196, compared with $(712) in 2020. Adjusted EBITDA, excluding equity compensation, was $597, compared with $(231). Six-month adjusted EBITDA was $770, compared with $(341).
- Cash and cash equivalents were $13,013 at June 30, 2021, down from $14,167 at December 31, 2020. Working capital was $18,159, compared with $18,059 at year-end 2020.
- The filing reports no significant external debt. Liabilities primarily consisted of operating lease liabilities, accounts payable, accrued compensation, deferred revenue, and other operating liabilities. Operating lease liabilities totaled approximately $1,690, including $604 short-term and $1,086 long-term.
- Total assets were $26,890 and stockholders’ equity was $19,498 at June 30, 2021.
Revenue Mix and Material Changes
- Second-quarter equipment revenue was $4,130, up 66.8%; adapter revenue was $1,942, up 46.7%; software and maintenance revenue was $661, down 22.7%.
- Six-month equipment revenue was $7,477, up 47.7%; adapter revenue was $3,850, up 44.2%; software and maintenance revenue was $1,421, down 16.8%.
- Automated programming systems generated $5,379 in second-quarter sales, up 52.3%, and $10,289 for the six months, up 48.1%.
- International sales represented 93.0% of second-quarter revenue and 94.1% of six-month revenue.
- Recurring and consumable revenue, including adapters, was $2.6 million, or 39% of second-quarter sales, compared with $2.2 million, or 47%, in the prior-year quarter. Software and services declined as a percentage of sales because of the stronger equipment mix.
- Second-quarter bookings were $8.9 million, up 79% year over year. Backlog was approximately $5.0 million at June 30, 2021, compared with $3.0 million at March 31, 2021 and $2.8 million at June 30, 2020.
- Gross-margin improvement primarily reflected fixed-cost leverage, improved factory variances, and channel and product mix. R&D expense increased 3.7% in the quarter, while SG&A increased 20.6%, mainly because of higher sales commissions and incentive compensation.
- Cash used in operations for the six months was driven in part by a $2,031 increase in trade accounts receivable and higher working-capital requirements associated with business recovery.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that demand surged in the second quarter as customers resumed operations and added capacity. It expects the long-term outlook for automotive electronics to remain strong, but did not provide formal revenue or earnings guidance.
- Management believes existing cash and working capital are sufficient to fund operations and capital requirements for at least the next year under its operating plan. It also notes that additional cash or financing could be required if the business plan is not achieved or if losses, growth initiatives, acquisitions, or other uses reduce liquidity.
- COVID-19 remains a significant risk through travel restrictions, customer-site restrictions, facility restrictions, supply-chain disruption, shipping delays, and possible changes in demand. Semiconductor shortages have affected customers’ production plans and caused some automotive plant shutdowns.
- The company is mitigating supply-chain risk through dual production capabilities, additional local suppliers, supplier monitoring, and higher inventory levels of key parts.
- Purchase commitments and other obligations totaled approximately $2.5 million at June 30, 2021, with all but $81 expected to be paid within twelve months. Most arrangements are cancellable without significant penalty.
- Operating lease commitments totaled $2.036 million before imputed interest, with scheduled payments through 2025 and thereafter. The Shanghai facility lease was extended through October 31, 2024.
- No material pending legal proceedings or material indemnification claims were reported, and management identified no material changes to the risk factors in the 2020 Form 10-K.
- Other comprehensive income included a $4,210 foreign-currency translation gain for the six months, compared with a $180 loss in the prior-year period. This non-operating translation item materially increased six-month comprehensive income but did not affect net income.
- The company maintained a $9.5 million valuation allowance against deferred tax assets because of its loss history and uncertainty regarding future realization.
- Shares outstanding increased to 8,619,522 at June 30, 2021 from 8,416,335 at December 31, 2020, primarily reflecting stock awards. Share-based compensation expense was $401 in the quarter and $680 for the six months.
Investor Verification Points
- Verify whether the strong bookings and approximately $5.0 million backlog convert into revenue without material delays from semiconductor shortages, shipping constraints, or customer shutdowns.
- Monitor the sustainability of the 57.0% quarterly gross margin and the return to positive operating income, particularly as product mix and supply-chain costs change.
- Reconcile revenue growth with the decline in software and maintenance revenue and the lower proportion of recurring revenue.
- Assess cash conversion and working-capital requirements, especially accounts receivable growth and the six-month operating cash outflow of $156.
- Evaluate liquidity against approximately $2.5 million of purchase commitments, lease obligations, potential growth investments, and the risk of renewed operating losses.
- Track COVID-19 developments, international travel restrictions, customer-site access, foreign-exchange volatility, tariffs, and semiconductor supply conditions.
- Consider the effect of continued share-based compensation and the increase in shares outstanding on future per-share results.