Good afternoon and welcome to the Data I/O Corporation Fourth 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Kreps of Investor Relations. Please go ahead.

Thank you, and welcome to the Data I/O Corporation fourth quarter 2019 financial results conference call. With me today are Anthony Ambrose, President and CEO of Data I/O; and Joel Hatlen, 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 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 levels 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 Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases and other communications. The accuracy and completeness of our 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.

Well, thank you very much Matt. I would like to comment on the 2019 fourth quarter results and our outlook and then I'll turn it over to Joel Hatlen for more detail on specific numbers. As expected and discussed in our last call we bounced back strongly on bookings in Q4 with a sharp increase from Q3. This was due to some business that pushed from Q3 to Q4 due to tariff related uncertainties as well as capacity driven orders and automotive electronics where we were especially strong again. For the year however we sustained our first loss in six years due to the downturn and overall orders combined with increased investments in security R&D. As far as long-term trends go, we have not changed our views on the growth in auto electronics and security for IoT. There are clearly some short-term issues which we'll discuss shortly but as the market leader we plan to invest for the long term to retain and extend our leadership position in programming. Our strong cash position combined with our long term view of the market gives us the financial flexibility to make those decisions. Regarding the short term statements I'm referring to the Corona virus which you've all heard about. We see impact here in two areas, supply chain and demand creation. On the supply side our global workforce has no reported incidents of contraction of Corona virus and our China-based team was required to close for an additional week after the Lunar New Year holiday in accordance with government mandates. However, we've been up and running since February the 9, the earliest possible date and are delivering product from China. We also now seen cases nearby in the USA in Washington State for Corona virus. They've taken appropriate precautionary measures here in…

Thank you Anthony. Good day to everyone. Net sales in the fourth quarter of 2019 were $5.9 million as compared with $7.9 million in the fourth quarter of 2018 and $3.8 million in the third quarter of 2019. For the year 2019 sales were $21.6 million versus $29.2 million in 2018. The fourth quarter of 2019 bookings were 6.9 million as compared to 4.3 million in the third quarter of 2019 and 6.5 million in the fourth quarter of 2018. For the year 2019 bookings were 22.5 million as compared with 27 million for 2018. On a geographic basis international sales represented approximately 94% of total net sales for the fourth quarter of 2019 compared with 92% in the 2018 period. Total capital equipment sales were 64% of revenues and adapters and consumables were 22% of revenues in the fourth quarter of 2019 compared with 65% and 24% respectively for the fourth quarter of 2018. For all of 2019, capital equipment sales were 58% of revenues and adapters, consumables and maintenance were 42% of revenues compared with 65% and 35% respectively for the full year 2018. For the fourth quarter of 2019 gross margin as a percentage of sales was 55.9% as compared to 58.2% in the fourth quarter of 2018. For the fourth quarter of 2019 gross margin was primarily impacted by fixed costs being spread over lower revenues and tariffs increasing on U.S. and China trade in 2019. For all of 2019 gross margin remained in our expected range of the mid to upper 50s, 2019 gross margin of 58.2% compared to 59.4% for the prior year which included an estimated reduction of 160 basis points in 2019 resulting from increased tariffs. So excluding the impact of tariffs, we actually did quite well on a gross margin basis…

Well, thank you Joel. At this time operator I'd like to open up for Q&A.

We will now begin the question and answer session. [Operator Instructions] Our first question comes from Jaeson Schmidt of Lake Street, please go ahead.

Yes. Thanks for taking my questions. Just curious if you could comment on the linearity of orders you saw in Q2 or Q4 and I guess relatedly I know it sounds like things have resumed since Lunar New Year but just if you could discuss what you're seeing from an order pattern standpoint here in the first couple months of the March quarter?

Sure Jaeson. I think that the linearity we talked about last call that October was pretty good. Really the strength continued throughout the quarter and it was a very good quarter from a booking standpoint. Some of that backlog rolled over into Q1, which will obviously help in Q1. I think again, we don't give formal guidance but for Q1 I think what you're hearing from a lot of people in the industry is obviously a big impact in China in terms of their economic activity since middle of January with the Corona virus, we mentioned earlier from a demand creation standpoint we've obviously seen an impact in China in Q1. The big question is, does it look like that's gone forever or things push out, we'll find out but as I mentioned earlier the anecdotal information is we think we're seeing the early indications of bottoming out at least around the Shanghai area just from your discussions with our sales people. The other point is what we did see Q3 when things got a little bit stuck, it did release again in Q4 and we're certainly hopeful that that's the pattern we're going to observe here. Time will tell.

Okay. That's very helpful. Thank you.

Our next question comes from Robert Anderson of Penbrook. Please go ahead.

Good afternoon Anthony and Joel.

Hey Bob.

Hi Bob.

Hi. You didn't as far as I recall say too much about the Internet of Things Anthony. How about letting us know whether we'll start to see some orders in that category during 2020?

Yes, I think on the IoT side Bob we are planning to have a little more public presence at the Embedded World Show. The focus on IoT for the data business is obviously with our, the 2800 to do the high mix. I'm sorry the high volume low mix programming and on SentriX as we mentioned earlier we did see some traction on SentriX. We're in late stages of negotiation for some additional systems. We're seeing some additional supports. So basically we're continuing to see the growth on SentriX.

And you're still sticking with shall we say a leased model rather than an outright sale model.?

That's correct.

Okay. Thank you.

[Operator Instructions] Our next question will come from Jay Michaels of JM Capital. Please go ahead.

Thank you. In light of the Corona virus, how do you see this changing the landscape in terms of market demand for your programming products and your competitors also to win deals and deliver on? Thanks.

Sure. So Jay as we mentioned in the release and the comments, I think it's a shock to the system and we've talked about what we saw on the demand side especially in Asia. I don't have any better macro prognostications than what you're probably able to read from some of the larger companies. We're taking it from an approach of what's it going to mean for us, what's going to mean for our competition because Data I/O is the largest company in our industry and we have the strongest balance sheet, we're better prepared than anyone else to ride out whatever may come forward. We're debt-free. We will clearly see some short-term disruptions and push outs in China. Prior to Corona virus, industry forecasts from people such as Dan Niles we're predicting more of a semiconductor rebound and growth in 2020 whether that gets displaced or moved back from Q1 remains to be seen, but our plan -- long term investment plan is unchanged. Short term we're still seeing a sales funnel puts and takes etc. But it's obviously a very fluid situation.

Thank you.

This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation and you may now disconnect.