Data I/O (DAIO) - 2019 Q2 - Quarterly Report

Part I. Financial Information Financial Statements Unaudited consolidated financial statements for Q2 2019 reflect decreased net sales, net income, total assets, and stockholders' equity, incorporating new lease accounting under ASC 842 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $15,165 | $18,343 | | Total Current Assets | $24,813 | $27,920 | | Total Assets | $29,690 | $30,723 | | Total Current Liabilities | $5,272 | $6,855 | | Total Liabilities | $6,961 | $7,366 | | Total Stockholders' Equity | $22,729 | $23,357 | Consolidated Statement of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $5,834 | $7,204 | $11,892 | $14,834 | | Gross margin | $3,584 | $4,249 | $7,269 | $8,665 | | Operating income | $75 | $246 | $105 | $590 | | Net income | $127 | $486 | $153 | $616 | | Diluted EPS | $0.02 | $0.06 | $0.02 | $0.07 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,455) | ($798) | | Net cash used in investing activities | ($305) | ($491) | | Net cash used in financing activities | ($1,442) | ($420) | | Net decrease in cash | ($3,202) | ($1,709) | - The company adopted the new lease accounting standard, ASC 842, on January 1, 2019, resulting in the recognition of a $2,176 thousand right-of-use asset and corresponding lease liabilities on the balance sheet[39][40] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 19% decline in Q2 2019 net sales due to automotive electronics downturn, improved gross margin, reduced operating expenses, and cash decrease from share repurchases and incentive compensation - The company is experiencing a capital spending cyclical downturn and is focusing on automotive electronics, IoT, and security provisioning to drive future growth[65][66] Net Sales by Type (in thousands) | Sales Type | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Equipment sales | $3,537 | $4,665 | (24.2)% | | Adapter sales | $1,421 | $1,750 | (18.8)% | | Software and maintenance | $876 | $789 | 11.0% | | Total | $5,834 | $7,204 | (19.0)% | - Net sales for Q2 2019 declined 19.0% to $5.8 million compared to Q2 2018, primarily due to slower Automotive Electronics cyclical demand[89] - Gross margin as a percentage of sales increased to 61.4% in Q2 2019 from 59.0% in Q2 2018, mainly due to a favorable product mix and favorable overhead and currency variances[93] - Both R&D and SG&A expenses were lower in Q2 2019 compared to Q2 2018, primarily due to lower headcount-related costs, incentive compensation, and stock-based compensation[94][95] - Cash decreased by $3.2 million since year-end 2018, mainly from paying 2018 accrued incentive compensation and repurchasing shares[100] Non-GAAP Reconciliation: Adjusted EBITDA (in thousands) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $127 | $486 | $153 | $616 | | EBITDA | $364 | $796 | $553 | $1,193 | | Adjusted EBITDA | $728 | $1,269 | $1,204 | $1,843 | Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - Not applicable[112] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls over financial reporting - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable level of assurance[113] - No changes were made during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[114] Part II. Other Information Legal Proceedings As of June 30, 2019, the company was not a party to any material pending legal proceedings - As of June 30, 2019, Data I/O was not involved in any material pending legal proceedings[115] Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018 - There are no material changes to the Risk Factors described in the Annual Report on Form 10-K for the year ended December 31, 2018[116] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, approved in October 2018, to buy back up to $2 million of stock - On October 31, 2018, the Board of Directors approved a share repurchase program to buy back up to $2 million of stock through October 31, 2019[62][105] Share Repurchases in Q2 2019 | Month | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | April 2019 | 69,141 | $5.36 | | May 2019 | 69,798 | $4.61 | | June 2019 | 49,255 | $4.42 | | Q2 Total | 188,194 | $4.81 | Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[118] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[118] Other Information The company reported no other information for this period - None[118] Exhibits The report lists filed exhibits, including CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and Interactive Data Files - Exhibits filed include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act (Sections 302 and 906)[118]