Good afternoon, and welcome to the Data I/O Corporation Fourth Quarter 2018 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jordan Darrow with Investor Relations. Please go ahead, sir.

Thank you, and, again, welcome to everyone to the Data I/O Corporation fourth quarter and year-end 2018 financial results conference call. With me today are Anthony Ambrose, President and Chief Executive Officer of Data I/O Corporation, and Joel Hatlen, Vice President, Chief Operating Officer and Chief Financial Officer of Data I/O. Before we begin, I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, estimated impact of tax reform, product releases, new industry partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which may involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. These factors include uncertainties as to level of orders, ability to record revenues based upon the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, pricing and other activities by competitors and other risks including those described from time to time in the Company's filings on Form 10-K and 10-Q with the Securities and Exchange Commission, press releases and other communications. The accuracy -- such forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any of these forward-looking statements. I would now like to turn the call over to Anthony Ambrose, President and CEO of Data I/O.

Thank you very much, Jordan. I'll start by commenting on 2018's full year results, give a little bit of an outlook on the overall market, what we think about 2019 and then I'll turn it over to Joel for some more detail on specific numbers. So for the full year in 2018, we had revenues of $29.2 million and about $27 million in bookings. Net income for the year was $1.6 million, representing our fifth consecutive year of annual profitability. Our business continues to focus on automotive electronics with automotive bookings now representing 60% of our orders. We also continue to see growth in our new products. We sold about 240 of our PSV family automated programming systems through the end of 2018. Our operating model continue to perform very well. Gross margins for the year were 59.4%, growing about 7 points over the past 4 years. In our SentriX family, we closed the year with SentriX installed in 4 sites with 12 industry partners and a growing list of OEM engagements. So overall, a solid 2018. Now, when we talk about our long-term outlook, I'd like to start with the automotive electronics industry. Data I/O is a key supplier to the growing automotive electronics industry. We've said for many times on this call that we have a thesis for automotive electronics growth and that it will continue to grow and that view is unchanged, and we view it also very positively for us over a long period of time for Data I/O. We're in the midst of new and exciting electronic content, including automotive infotainment systems, instrument cluster applications, advanced driver-assist systems in support of autonomous driving and connected car strategies from leading OEMs. We also see electronics companies focusing on auto electrification and enhanced mobility. These end applications…

Thanks, Anthony. Good day to everyone. Net sales in the fourth quarter of 2018 were $7.9 million as compared with $8.1 million in the fourth quarter of 2017 and $6.5 million in the third quarter of 2018. The year-over-year decline in sales was a result of the strong cyclical demands during 2017, particularly from programming center customers, while the increase from the third quarter represents growth driven in large part by demand from automotive electronics industry. On a geographic basis, international sales represented approximately 92% of total net sales for the fourth quarter of both 2018 and 2017. Europe was our strongest territory in the fourth quarter of 2018. For all of 2018, net sales were $29.2 million, down 14% from $34.1 million in 2017. Total capital equipment sales were 65% of revenues and adapters and consumables were 24% of revenues in 2018 compared to 71% and 22% respectively in 2017. For 2018 fourth quarter, gross margin as a percentage of sales was 58.2% as compared to 58.5% in the fourth quarter of 2017. The fourth quarter of 2018 level is at the higher end of the Company's anticipated target model due to a favorable mix and currency impacts. Cost reductions and manufacturing effects improved factory utilization also contributed to the strength of gross margins. These initiatives are standard ongoing focuses of our operations team. Data I/O has realized the benefit of these initiatives throughout 2018, although certain tariffs and commodity prices have partially offset the impact. For all of 2018, gross margin was 59.4% compared to 58.9% for the prior year. Total operating expense in the fourth quarter of 2018 were $3.8 million, up from $3.6 million in the 2017 period, and slightly up from $3.7 million in the third quarter of 2018. Spending on research and development, R&D,…

Thank you very much, Joel. At this time, operator, I'd like to open up the call to Q&A.

Thank you [Operator Instructions] The first question will come from Jaeson Schmidt with Lake Street. Please go ahead.

Hey guys, thanks for taking my questions. Anthony, just want to start with your comments on 2019 sort of shaping up to be similar to 2018. I know there's a lot of moving parts with the macro backdrop and the capacity digestion at the programming centers. But just want to clarify, do you anticipate that revenue or growth directionally being the same in '18? Or could 2019 be a growth year for you guys?

Well, I think what we said, Jaeson -- and thanks for the question. We think double digit bookings, that would give us kind of flattish as a starting point, depending on recognition, backlog, burndown all the things that come into play towards the end of the year. But there are really a couple different factors there. If it goes badly on tariffs and trade positions and we turn out to be very late in the economic cycle, that's probably too aggressive a forecast. On the flip side, if the tariff thing doesn't materialize to be a problem and the economy stays strong, there's probably some upside to that number. So I could build a bearish case and bullish case probably off that and I think we sort of split it down the middle.

Okay. I appreciate that color. And then looking at SentriX, it seems like momentum has picked up here. What tends to be the primary pushback from customers when you kind of talk with them on this product?

There is really -- the pushback is really not pushback. It's just -- I think when we look at it, customers like the flexibility of the SentriX. The semiconductor partners like it because we can do device supports fairly quickly now. The biggest challenge is getting customers that are designing new products with new silicon architectures to get them into the market and get their product ramping. I think we -- realistically, we under-called the time horizon that was going to take to get that done, and that's why you're seeing some of our focus not only being the strategic tops-down with the semiconductor partners. But also we're open for business now, and OEMs specifically come knocking on the door and they may have a device support that we haven't done previously but we can do that now as -- just as we've always done on the data side of the business. So I think that's a very positive sign for us.

Okay. Perfect. I’ll jump back in the queue. Thank you.

[Operator Instructions] The next question will come from James Lieberman with Revere Securities. Please go ahead.

Thank you. I really enjoyed the presentation. And I am especially impressed by the adoption of your technology on various platforms, especially in Europe. And I'm trying to understand from a modeling standpoint, where you see a possible acceleration of revenues? Is that something that you see like over a 3 to 5 year period because the order cycles are so long? And does it come mostly from a licensing, leasing type of technology, an add-on or is there some kind of a different model that I don't quite understand in terms of -- how you derive revenues from all these? Yes.

Sure, sure. Yes. This is Anthony. Let me try and answer your question. So with automotive, we've been saying for a while and I think we continue to believe is that, this is a very long-term secular growth pattern in automotive electronics. We see the move to autonomous vehicles, it occurs in multiple phases, which take five, 10 years to get ultimately to autonomous cars, maybe even a little bit longer. So you're going to see a consistent increase in electronic content per car, which creates demand for our products and growth opportunities for our products. So think of that as the baseline positive macro drop -- backdrop for us. The second one that's on there is much more of a market development activity for us in the SentriX and security platform. The market for microcontrollers, if you follow ABI Research as we do, is in the order of 22 billion, 23 billion units. About 12 billion of those are available for embedded design and over the next several years, 3 billion, 4 billion units of those become security components of one form or another. And ultimately, I think most of the market believes that given the recent announcements of new families of microcontrollers that all pretty much all 12 billion of those will become security microcontrollers over a 10 or 15 year period. So what we're trying to do is be on the front end of that wave as these designs happen with the capability that allows customers to securely provision these new silicon that's available to them. They haven't had an opportunity to do that one chip at a time until now, unless they were doing it, for example, at the end of the line, which is a little bit less convenient, a little bit less secure and doesn't get them really everything they need unlike SentriX. So we have a platform. We're working with our customers. We're working with people that have been programming devices for customers for decades and encouraging them to offer SentriX as a service to now securely provision these parts in addition to managing their supply chain and data programming needs. So that is very much a growth adder on top of the automotive story that -- we're looking at as being very exciting in the, not just the medium-term horizon but also medium and long term. Short term, we just have to get our first wins into production, get the market going and that's taken us some time. But we're very, very excited about where that's going to be medium and long term.

That's a very good help to understand how -- how things are going. I've been reading that the auto industry is in 2020, 2021 is going to be start transitioning from 12 volt to 48 volt batteries for those cars that have multiple supercomputers on board. And as you said, the amount of computing power being brought to bear is truly extraordinary. It's got to be right in your -- falling right in your lap the opportunities.

Yes, well, James, one way to look at it is, every time you add computing power, you have to add storage and I/O bandwidth, right. And the fact that you're not only adding centralized compute power, but you're also adding sensors and other things really creates an opportunity for us to grow the programmable market for Data I/O.

Thank you very much. It’s very helpful.

So actually another point [he] was talking about, what type of revenue it was. If you look at the automotive business, that's going to be more along our standard business model where capital equipment represents about 65% of the sales. Our consumables, primarily adapters, represent 24%, and then contract, software, maintenance and service modules [ph] represent about 11%. In the IoT SentriX world, we actually are changing things up. There are some capital equipment-related costs, but we're primarily focused on a new recurring revenue pay-per-use model we're associating with that new business.

Okay. That I was trying to understand, there. Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Thank you very much, operator. I appreciate everyone for dialing in. Thank you very much for attending the earnings call, and at this point it will close. Thank you.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.