Data I/O (NASDAQ:DAIO) reported lower third-quarter sales and a wider net loss as acquisition-related costs weighed on results, while executives said the recently completed purchase of V-TEK is expected to nearly double the company’s revenue and expand its reach beyond automotive customers.
Net sales fell to $4.9 million from $5.4 million a year earlier and $5.2 million in the second quarter. Chief Financial Officer Charlie DiBona said platform revenue rose both sequentially and year over year, but adapter sales were softer because of timing. Bookings totaled $5 million, up slightly from the prior quarter.
The company posted a net loss of $2.7 million, or $0.27 per share, compared with a loss of $1.4 million, or $0.15 per share, a year earlier. DiBona said the latest loss included $624,000 of noncash interest expense associated with the rapid amortization of a discount on June convertible notes, as well as $75,000 in tax expense related to a dividend repatriation from the company’s China subsidiary.
Margins improve despite transaction costs
Gross margin rose to 58% from 50.7% a year earlier and 57% in the second quarter. DiBona attributed the improvement to pricing discipline, sales of several high-margin platform units and greater operational efficiency.
Operating expenses were $4.9 million, including approximately $1.4 million in one-time expenses. About $800,000 of those charges related to merger, acquisition and financing activities, DiBona said. Other one-time costs included expenses tied to an enterprise resource planning transition and a noncash inventory reserve adjustment.
Adjusted earnings before interest, taxes, depreciation and amortization, excluding equity compensation and one-time items, was a loss of $71,000, compared with a loss of $563,000 a year earlier. DiBona said the result marked a second consecutive quarter near break-even on that measure. At current gross margins, he estimated the company’s organic business would be cash-neutral at approximately $5 million in quarterly revenue.
Cash stood at $9.4 million at September 30, down from $10.8 million at June 30. Data I/O had no debt on its balance sheet at quarter-end after convertible debentures converted into preferred equity in July. After the quarter closed, the company completed a $13.25 million private placement and established a $7.5 million asset-based revolving credit facility with Western Alliance Bank.
V-TEK adds services and new markets
Chief Executive Officer Bill Wentworth said Data I/O paid $23 million for V-TEK, with $3 million of the consideration taken in equity by the selling family office. He said the acquisition would be immediately accretive and approximately double Data I/O’s revenue. DiBona declined to provide financial guidance or quantify expected cost synergies.
Wentworth said the combined companies would have generated approximately $10 million in third-quarter revenue on a pro forma basis, with a backlog of about $8.8 million. He expects roughly half of the identified synergies to be actioned within 90 days.
V-TEK brings semiconductor packaging equipment and supplies, Royce Instruments’ die-testing platform and A&J Programming’s programming services business. Wentworth said the combination gives Data I/O access to customers in photonics, aerospace and defense, and satellite communications, reducing its reliance on the automotive market, which he described as soft.
The CEO said V-TEK’s manufacturing capacity in Minnesota also offers opportunities to lower costs. Data I/O plans to move production of some systems there from Redmond while retaining intellectual property-related work and new system development in Redmond, he said. Management also identified potential savings in materials and overlapping roles.
Programming services and robotics opportunities
Wentworth said A&J gives Data I/O immediate access to programming services, which the company can provide through regional centers or at customers’ manufacturing sites. He estimated the programming services market at $500 million to $700 million annually, describing the figure as a back-of-the-envelope calculation.
Data I/O will continue selling capital equipment, he said, and plans to introduce new products in the first quarter and a new programming platform toward the end of next year. The company is also discussing services arrangements with existing customers.
Wentworth said Tesla’s Optimus humanoid robotics division placed an initial purchase order after testing a demonstration system. Data I/O is awaiting a possible order for one to three additional systems during the current quarter, he said. He also said the company is working to acquire a security platform and expects to discuss it further during the fourth quarter.
About Data I/O (NASDAQ:DAIO)
Data I/O Corporation (NASDAQ:DAIO) develops and supplies automated programming and security-provisioning systems for electronic devices. Its equipment is used to load software, firmware and other data into semiconductor devices such as flash memory, microcontrollers and programmable logic devices during electronics manufacturing. The company’s product portfolio includes automated device-programming systems, programming engines, software and related accessories. Its offerings are designed to support high-volume production, improve programming accuracy and help manufacturers manage device security, including the provisioning of keys and other credentials used in connected and embedded products.
