00:06 Good day, and welcome to the Data I/O Third Quarter twenty twenty one Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. 00:34 I would now like to turn the conference over to Jim Fanucchi, Investor Relations. Please go ahead.

00:41 Thank you, and welcome to the Data I/O Corporation third quarter twenty twenty one financial results conference call. This is Jim Fanucchi filling in today for Jordan Darrow, who will be available starting tomorrow. With me today are Anthony Ambrose, President and Chief Executive Officer of Data I/O Corporation; and Joel Hatlen, Chief Operating Officer and Chief Financial Officer of Data I/O. 01:03 Before we begin, I'd like to remind you that statements made in this conference call concerning COVID-19, 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. 01:41 These factors include uncertainties as to the impact from the COVID-19 pandemic, along with continued reopening and recovery efforts within the supply chain and among our customer base, levels of orders for the company and the activity level of the automotive and semiconductor industry overall, 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 forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any of these forward-looking statements. 02:37 Now I would like to turn over the call to Anthony Ambrose, President and CEO of Data I/O.

02:45 Well, thank you very much, Jim. I'll begin my formal remarks by addressing our twenty twenty one third quarter financial and operational performance, talk a little bit about how we see the long-term future, and then I'll turn it over to Joel for more detailed discussion of the numbers. 02:59 Company reported good results in twenty twenty one third quarter, driven primarily by the substantial backlog developed during the first half of the year and continuing strong adapter demand. Adapter bookings in the third quarter twenty twenty one continued their strength that we've seen all year. 03:16 Our increasing installed base of PSV machines provide recurring and consumable revenues which supplement our capital equipment sales. Additionally, we've seen customers qualifying second sources for short semiconductor components and this requires new design support, new adapter support from Data I/O. Additionally, we've also seen increased software and services bookings year-to-date, which will translate for into increased revenue as it is recognized. 03:45 Recurring revenue is about forty percent of the total revenue this year-to-date and our long term goal for this to continue to increase. On the CapEx side, we had an excellent win rate on new systems where customers actually ordered systems. We did see some customers push some orders out of third quarter until they had better visibility on their silicon supply chain to justify new capital investment. 04:09 Earlier today, you may have heard that GM and Ford indicated the worst of the automotive induced semiconductor shortage was behind them where the full recovery expected sometime in mid-twenty two. Our resilient supply chain delivered extremely well in Q3. Our factories in Redmond and Shanghai were able to ship despite the global supply shortages of semiconductors, shipping issues, and ongoing concerns with COVID-19 in many customer locations. 04:36 Our…

13:06 Thank you, Anthony. Good day to everyone. For the first nine months of the year, our financial performance is advanced with meaningful year-to-date growth in revenues, bookings and backlog. We continue to effectively manage our operating expenses and maintain a strong balance sheet. 13:25 Now let's look at the third quarter results. Net sales in the third quarter of twenty twenty one were six point seven million dollars, up thirteen percent from five point nine million dollars in Q3 of last year. The third quarter revenues we believe were constrained by customers supply chain silicon part shortages and related order deferments by those customers as described in Anthony’s remarks. But yeah, we still came in with revenues that were equal to or higher than the level we achieved in the past eleven quarters. 13:56 The increase from prior period primarily expects the use of our higher backlog at the start of the quarter coming from this year's higher demand for equipment and compares to the third quarter of twenty twenty’s reduced business activity in mid-COVID conditions. 14:13 Revenue growth also benefited from higher adapter sales associated with increased usage and our growing installed base of machines throughout the world. On geographic basis, international sales represented approximately eighty six percent of net sales for the third quarter of twenty twenty one compared with ninety three percent in the twenty twenty period. 14:36 Third quarter of twenty twenty one bookings were five million dollars down from five point six million dollars in the third quarter of the prior year. We believe the second quarter benefited from an order pull-in and we experienced order flow deferments, which impacted the current quarter. 14:52 Adapter bookings for the third quarter of twenty twenty one continued to be strong at one point seven million dollars.…

19:04 We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Jaeson Schmidt with Lake Street. Please go ahead.

19:31 Hey, guys. Thanks for taking my questions. I just want to start with the supply chain and some of your comments in the prepared remarks. Can you quantify the impact that the supply chain headwinds had in Q3?

19:45 Yes. Hi, Jason. This is Anthony. I think we spent a lot of time working on issues that were, I'd call it months out in terms of making sure our supply chain was stable as opposed to weeks out. I think that was certainly the case on our PSV family where we -- as we've talked about earlier leaned in a little bit on making sure we had adequate supply. We did sell some road runner systems in the quarter and we did not do as much leaning in if you will on the road runner and so those actually took a little bit longer to build. 20:21 I think we probably could've put one more out the door in Q3, if everything was perfect. So, I guess technically, that would be something that had a minor impact. But overall, I think on the supply for us, the supply chain issues have been very minimal in terms of observable performance or I think it's a bigger factor is our customers need to get chips to build auto electronic components and ultimately, if they're shorter chips, they're not following through on some of their capacity expansions. So, that's a short term negative until they get that sorted out which could be Q4 certainly no later we think than early next year. But it also created some interesting dynamics where we're seeing a lot of demand for customers coming into qualify second source components. For designs that they're redoing because they can't get support on the components that they were planning to use. So little bit of a mixed bag for us, and I think it impacts us more on the demand side than on the supply side.

21:29 Okay. No, that color is helpful. And just to clarify, you did mention some deferments, but have you seen any cancellations at all?

21:38 No.

21:41 Okay. Perfect. And then last one for me, and I'll jump back in queue. Can you just update us, what you're seeing from an inventory standpoint at the programmers and how that market is shaping up?

21:53 Do you mean programming centers?

21:57 Yes.

21:58 Yeah. I think our programming center business was actually up a little bit in the quarter. Again, I think that's just reflecting the fact the industry is high utilization of the equipment they have and that's about all I'd read into it.

22:17 Okay. Thanks a lot guys.

22:21 Thank you.

22:31 [Operator Instructions] The next question comes from Jeff Peterson with Austin Capital. Please go ahead.

22:37 Hey. Thanks, guys. In early September, the stock traded over two million shares in one day and the trading was halted. What happened?

22:48 We had a situation where on that day, essentially, retail trading, we were told took place that really pushed the volume way up and that also moved the shares way up. It got hot enough where the NASDAQ actually shutdown trading for a quick limited halt around three seventeen. And we commenced training about a half hour later. So as a company policy, we don't comment on market speculation with regard to the trading of the shares and NASDAQ was never able to notify us, if any action that may have been involved in the training, but it was something where the inner day high and the close was up substantially, and we always try to keep an eye of unusual moves on our shares.

23:45 Thank you. That was helpful. We have seen some insider selling in Q3, why and what is the company's policy here?

23:55 Yes. We always have a policy about approving insiders trading activities, and we actually don't have a requirement, but we strongly recommend that insiders that want to get into a trading program, actually get a formal 10B5-1 plan. And have it regulated so that there isn't trading on any kind of suspected insider information that may be out there. So those are pre-arranged. We don't actually comment about the officers and other plans, but from time to time, officers will sent -- sell stock to diversify their personal individual portfolios. We do have clear trading policies with regard to helping officers, directors and employees. We have pre-clearance arrangements for entering into those agreements in any direct selling that takes place and clear policies about what we need to have people to do trade in the stock. But we do not require the use of the 10B5-1 plans as I mentioned. The plans have to be created in an open window, require a thirty day lag before effective and training we take place. And that kind of trading is one where you have pre-arranged trading dates and/or stock prices and limitations according to those pre-arranged instructions. And we always file a Form-4 promptly after those traits take place. And that will be noted as a 10B5 transaction.

25:38 Thank you. Thank you for the context, and that's all the questions I had at this time.

25:45 Thanks, Jeff.

25:49 The next question comes from Orin Hirschman with AIGH Investment Partners. Please go ahead.

25:56 Hi. How are you?

25:58 Hi, Orin.

25:59 Hi. Two questions. Do you think that this is a low in the bookings for you this quarter or it could get worse next quarter?

26:10 We typically don't give a bookings forecast. The bookings on CapEx will be driven by customers perception of their silicon availability predominantly in the automotive space. And so I think our best estimate right now is what we heard from GM and Ford publicly today, but people have been saying for a while that they think the bottom for them was Q3. And they think it's largely resolved by the middle of next year. I don't know if there's a straight line from the bottom to the top or it gets better selectively. But that's the best industry information we have. On things like adapters, right, we've had unusual strength pretty consistently throughout the year. And on our services bookings, they've actually been up again year-over-year pretty nicely as well. And I don't think those will be too much impacted by the silicon shortage.

27:22 Okay. In terms of security, it looked like last quarter, you can't get some traction, what about this quarter, I didn’t hear much of that security or anything about security?

27:39 I think on the security side, we actually delivered the system we booked earlier that we talked about. And that was in our numbers for the quarter. We continue to build a pipeline on SentriX. We continue to work with customers on that. We continue to have meetings where we talk about security and interesting applications had one this morning in automotive. That just has to work through the system. We continue to build on the base we have with SentriX and we'll go forward from there.

28:14 So just one more question for let you go on SentriX. You had the big wins that you'd mentioned, anything to follow-up on those wins in terms of, anything additional from those customers and did that break open any demand from the additional customers rate when you highlighted those wins or it didn't have that effect yet?

28:38 I think or the big thing for us is when we have wins like that, we had the big win last quarter. We had our first automotive win earlier in the year. We continue to talk to customers about some very nice opportunities. So, I think the word is getting out on SentriX. We've clearly established the proof points of the capability, a security sell is a complex sell. That's definitely one thing we've learned over the past couple of years. And we're just trying to get more and more opportunities in front of us where we can sit down and talk to the customer in a very structured way and go forward in there. And we just have to continue to do what we're doing.

29:26 Okay, thanks.

29:31 Thank you.

29:35 The next question comes from Robert Anderson with Penbrook. Please go ahead.

29:40 Yes. Good afternoon, Anthony.

29:43 Hi, Bob. How are you doing?

29:44 And Joel, I'm fine. Thank you. As you said, sixty one percent of your revenues were automotive electronics what was the remaining thirty nine percent?

29:59 Joel help me up. I think it's about twenty one percent, twenty two percent industrial and then seventeen percent programming center.

30:04 That's almost exactly it. Yep.

30:05 Yeah.

30:09 Okay. And do we have any idea or can we indicate what percent of overall revenues is related to SentriX, my makes sense is it’s still pretty small number?

30:21 Yeah. We include the SentriX software and services in with the rest of the software and services. The system that we did sell to support SentriX actually got counted as a system. So that's in the capital bucket. So a system is a system, but obviously, the SentriX revenue that got wrapped around it and was the reason for the deal gets counted in the software and services. So, you'll see the pure SentriX revenue in the software and services line and then as we do things like sell equipment to support a SentriX deal, that would go into CapEx line.

31:02 And what was the size of the software and services line, Joel?

31:08 We actually have not published or put that information out at this point.

31:12 But it’s basically the…

31:14 SentriX software.

31:17 No SentriX is separate but the total software and service I think he's asking about.

31:20 Total software services was eleven percent.

31:25 Eleven percent Okay. Thank.

31:29 Thank you, Bob.

31:35 This concludes our question-and-answer session. I would like to turn the conference back over to Anthony Ambrose for any closing remarks.

31:43 Well, thank you very much, operator. Before we close the call, I'd like to let everyone know, first of all, thank you for joining us in the call today. We look forward to seeing you at the Productronica Trade show in Munich in a couple of weeks. I'll also be in Boston and New York in a week and a half. And we've also been invited to present at the Ladenburg, Thalmann Virtual Technology Expo on November eighteenth and the D.A. Davidson, Semi-Cap Laser and Optical conference on December fifteenth. If you like further information on that, please contact Darrow Associates and we look forward to seeing you. 32:22 With that, I'd like to conclude the call. Thank you very much.

32:31 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.