Nasdaq: DAIO Anthony Ambrose President and CEO Data I/O Corporation May 2017 B. Riley & Co. Conference -- Investor Presentation
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
Who We Are Data I/O enables the secure digital world by designing, manufacturing, and selling programming systems to global electronic device manufacturers. 3
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
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: 2016-2020 Ranked 9th in Puget Sound Business Journal s 2016 Fastest Growing Public Technology Companies list LumenX with PSV5000 wins Global Technology Award for Programming 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 NASDAQ: Headquarters: DAIO Established: 1972 Stock Price: $7.18 Market Cap: Redmond, WA $59.8M Diluted Shares: 8.3M 10-day Avg. Volume: Sales (TTM): 253,000 shares $26.0M Diluted EPS (TTM): $0.34 Adj. EBITDA (TTM): Cash & Sec. (3/31/17): Company Snapshot (1)(2) $4.0M Debt (3/31/17): $0.0 14% of stock held by insiders so that management and Board are aligned with shareholders (1) Stock price, market cap and volume as of 5/16/17 (2) Financials for the TTM period ended 3/31/17 or as noted $10.5M ($1.26/share) 5
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 2012 2013 2014 2015 2016 2016 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 2,000 - - (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 23,413 2012 2013 2014 2015 2016 (8,000) Operating Income(Loss) Net Income(Loss) EBITDA EBITDAS 50.6% 50.8% Profitability Metrics 2012 2013 2014 2015 2016 GM% 53.9% 52.4% 55.0% 2012 2013 2014 2015 2016 6
Strategic Objectives Long Term Growth Focus Growth strategy focused on Automotive Electronics and expansion into Managed and Secure Programming 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 Capitalizing on operating leverage Deploying excess capital and other resources for opportunistic growth 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 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 9
Financial Overview
Operational Performance Consistent Performance Improvements through Innovation and Operational Excellence Adjusted EBITDA ($M) Revenue and Net Income 3 2 1 30 20 Revenue Net Income 0 10-1 2013 2014 2015 2016 1Q17 EBITDA adjusted for restructuring charges and stock based compensation 0-10 2012 2014 2016 1Q17A 2017/2018 Growth Drivers Semi-cap equip. cycle Automotive Internet-of-Things Recurring revenues from installed base 14
Balance Sheet and Capital Structure Overview 25% 20% 15% 10% 5% 0% Management Effectiveness 2012* 2014 2016 1Q17** ROE ROA *2012 ROE and ROA were -43.5% and -34.0%, respectively, but shown as 0% for illustrative purposes **1Q17 data includes annualized net income; shareholders equity and assets as of March 31, 2017 Enterprise Value ($K) Market Cap (1) $ 59,788 Plus Total Debt (2) 0 Less Total Cash (2) $ 10,500 Enterprise Value $ 49,288 Diluted Shares Outstanding (2) 8,327 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 March 31, 2017: $10.5 million in cash and cash equivalents No debt $15.5 million of working capital Total stockholders equity of $17.1 million, or $2.05 per diluted share outstanding EV/Sales at 1.6x; EV/Adjusted EBITDA at 10.4x (3) NOLs of approximately $18.0 million (1) At 5/16/17 (2) Weighted average at 3/31/17 (3) Sales and Adjusted EBITDA based on TTM through 3/31/17 financial results 15
Market Outlook
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. http://www.cvel.clemson.edu/auto/systems/auto-systems.html 17
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 2020. Needham & Company, November 27, 2015.But Security Issues are top of mind and must be addressed 19
Managed & Secure Programming Addresses IoT Device Security Needs Security Must Become Ubiquitous Secure Update Services Secure Firmware Development Secure Manufacturing New Secure Elements, and Secure MicroControllers 20
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 Data I/O and SecureThingz partnership for security Plan: Development Costs: 2016/2017 increased R&D expense; engineers added; partnering for new expertise Beta Products: additional investment for equipment; beta units in field during 2H17 Revenue Recognition: scaling begins in mid- to late-2018 21
SentriX Secure Programming System US and International Patents Pending 22
The Opportunity: 4B Units of Security Devices in 2021 Standalone Secure Elements (eg: AICs, ESEs, TPMs) 2021 MCU Market Secure MCUs with Embedded Secure Elements 2021 Security TAM: 4.0 Bu Traditional MCUs 2021 Total TAM: Smart Card MCUs 24.7 Bu 23
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 Managed and Secure Programming 4 consecutive years of revenue growth Global Sales and Infrastructure 24