Jordan Darrow - IR Anthony Ambrose - President and CEO Joel Hatlen - VP and CFO.

Robert Anderson - Data I/Okay. David Kanen - Kanen Wealth Management George Melas - MKH Management.

Ladies and gentlemen, thank you for standing by. Welcome to the Data I/O Third Quarter 2016 Conference Call. [Operator Instructions] And as a reminder, the conference call is being recorded. I'll now turn the meeting over to our host Jordan Darrow. Please go ahead sir..

Thank you, and welcome to the Data I/O Corporation's third quarter 2016 financial results conference call. With me today are Anthony Ambrose, President and CEO of Data I/O Corporation; and Joel Hatlen, Vice President 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, economic conditions, product releases, and any other statements that may be constituted 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 these expressed or implied by such statements.

These factors include uncertainties as to the 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 forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any of these forward-looking statements.

And now, I would like to turn the call over to Anthony Ambrose, President and CEO of Data I/O?.

Thank you, very much, Jordan. I'd like to comment on our 2016 Q3 overall performance, then I'll turn it over to Joel Hatlen for some more details on our financial performance. Third quarter highlights included net sales of US$6.6 million which represented a five-year quarterly high.

Total bookings for the quarter were $7.9 million which represented an eight year high. We saw continued strength across the automotive sector both through our OEM and programming center channels. Year-to-date almost two-thirds of our business has been to the automotive electronics end market.

Third quarter sales include initial orders are related to Bosch Car Multimedia five year exclusive supply agreement. I should say third quarter bookings included those orders. Overall our backlog increased to $3.1 million at the end of the quarter up from $2 million at June 30.

Over $1 million of that system backlog include systems that are scheduled to revenue recognition next year. In our product development updates we're recently awarded a 2016 global technology award in the category of programming for the LumenX programmer and that was presented to the company during SMTA International Conference in the third quarter.

This marks Data I/O's fifth industry award for the LumenX programmer since its introduction last year. We're continuing our strong investment in R&D with emphasis on expanding the LumenX programmer support.

Overall managed and secure programming initiatives are handler enhancements and operational infrastructure in support of our automotive electronics and Internet-of-Things markets. R&D spending was up in Q3 on intellectual property patent protection and engineering recruiting expenses.

The increased spending underscores our commitment to next generation products particularly for programming engines and the managed and secure programming platforms which are very important to extend our lead in automotive electronics and to enable the next phase of growth with billions of smart connected devices working within a global cloud ecosystem.

The Internet-of -Things market is a segment which will require robust security technology and we're investing today to participate fully in that market. On the sales and marketing update we commenced shipments relative to new five-year supply agreement with Bosch Car Multimedia.

We won this award as we recall last quarter based on the PSB7000 and LumenX technology, our global support and total cost superiority. We expect most of the systems revenue from that award to be delivered in 2017 and 2018. In the third quarter we also achieved a milestone by shipping our 100 PSB system.

And the PSB product family includes our PSV7000, PSV5000 and the PSV3000 systems of programming equipment. With our first shipment from that family recorded in Q4 2013 and now having sold over 100 systems, this is the fastest ramping automated product line in our company's 44 year history.

I also want to point out that we substantially increased our business of programming centers this year, build upon the capabilities of the PSV7000 and the strength in automotive end markets.

As we've said on many calls before the automotive electronics and Internet-of-Things are the focus markets for us, the rapidly growing industries and continue to be where we're keeping our eye in R&D and marketing and sales activity.

Automotive remains a driver for growth for the next several years with Internet-of-Things being our next wave of growth with the chip scale packages and managed and secure programming required.

Our wins with the PSV7000 LumenX programmers and Bosch in automotive electronics reinforce our belief that we're on the front end of a wave of new and exciting automotive infotainment and instrument cluster applications that favors Data I/O's approach to programming. Our wins in the Internet-of-things confirm our market opportunity there as well.

We believe that we're in the early stages of the Internet-of-Things opportunity and we plan to service those markets directly through our sales to OEMs, as well as through their programming center and EMS company partners. I’ll disclose by saying that the fundamental strategy for Data I/O remains the same.

We continue to focus on our core business of programming, continuing to enhance and extend our core platforms and programming technologies. We're putting increased emphasis on managed and secure programming including advanced data and security measures which are particular importance for automotive and Internet-of-Things.

We market and sell our products globally and we enhance shareholder value through intelligent M&A and return of capital. Finally we plan to meet with investors at the LD MICRO Conference in Los Angeles in early December. Should you be attending the conference we hope to see you there.

With that I'd like to turn the call over to Joel Hatlen, our Chief Financial Officer..

Thank you, Anthony, good day to everyone. Revenues for the third quarter 2016 were $6.6 million compared with $6.2 million for the third quarter of 2015 with again the growth primarily resulting from sales of our PSV Systems to the automotive electronics and Internet-of-Things markets.

This growth also reflects the strong bookings that took place in the second as well as here in the third quarter of this year. International sales represented approximately 93% of total sales for both the third quarter of 2016 and the third quarter of 2015.

On a regional basis, revenue increased in Asia 21% and in the Americas 32% and declined in Europe 20% compared to the third quarter of 2015. Adapters and consumable increased to $1.8 million from $1.5 million in the third quarter of 2015.

On a breakdown by type of sale for the third quarter of 2016, were 63% equipment, 28% adapters, and 9% software maintenance. Order bookings were $7.9 million in the third quarter of 2016, an increase of 34% compared to $5.9 million in the third quarter of 2015.

The variations in revenue percentages versus order percentages relate to the changes in deferred revenues, backlog and currency translation. Backlog at the end of the quarter was $3.1 million compared to $2.0 million on June 30, 2016.

Again approximately $1 million of the September backlog is for systems that are not scheduled to be recognized as revenue until early 2017. All of the bookings in the quarter are expected to be fulfilled no later than 12 months after the end of the reporting period.

Deferred revenue at the end of the quarter was $1.3 million compared to $1 million on December 31, 2015 and $1.1 million at June 30, 2016. For the third quarter of 2016, gross margin increased 15% in dollars due to the sales volume increase.

Gross margin as a percentage of sales was 55.3 compared to 51.5 in the third quarter of 2015 with the increase primarily due to a mix shift and favorable factory variances, as well as the leverage of relatively fixed factory costs with higher sales volume Operating expenses in the third quarter of 2016 were approximately $3 million as compared with $2.7 million in the year earlier period.

The increase primarily reflects increased spending on R&D growth initiatives including increased IP patent protection, recruiting fees for new hires and related compensation, as well as consulting commissions and incentive compensations. In accordance with U.S.

Generally Accepted Accounting Principles GAAP, net income in the third quarter of 2016 was 625,000 or $0.08 per diluted share compared with net income of 439,000 or $0.05 per diluted share in the third quarter of 2015.

EBITDA earnings before interest taxes, depreciation, and amortization was 755,000 in the third quarter of 2016 compared to 552,000 in the third quarter of 2015. Equity compensation expense and non-cash items in the third quarter of 2016 and '15 was 110,000 and 93,000 respectively.

Adjusted EBITDA excluding equity compensation charges was 865,000 in the third quarter of 2016 compared to 645,000 in the third quarter of 2015. Please see our press release for a discussion and reconciliation of these non-cash financial measures.

We have net operating loss, NOL carryforwards of approximately $19.5 million as well as other credit carryforwards in the United States that are available to continue to offset future U.S. net income and we will continue to analyze and manage taxes to take advantage of these tax attributes.

The Company's cash position at September 30 of 2016 was $9.7 million with $4.5 million located in the United States and the balance in foreign subsidiaries. The total was up from $8.8 million at June 30. The change in cash during the quarter primarily resulted from improved profitability and a working capital shift.

The company remains debt-free and has 7,980,000 shares outstanding at September 30, 2016. Under the $1 million share repurchase plan initiated during the first quarter of 2016, the company purchased 6500 shares at an average price of $2.61 during the third quarter of 2016.

Year-to-date a total of 80,345 shares were repurchased at an average price per share of $2.38. At this point I will turn the discussion back to Anthony..

Thank you very much Joel. At this point I'd like to turn the call over to the operator and we’ll open up the line for questions from our line..

[Operator Instructions] And we have a question from Robert Anderson with Data I/O. Your line is open..

Good afternoon, gentlemen. Nice quarter, thank you. My first question relates to the revenues and where they came from I think Joel noted that there was a 20% decline in revenues in Europe. Yes we know automotive is doing well and if I'm not mistaken they’re major automotive companies in Europe.

So how do we explain that?.

So the biggest thing on that is that, the number of orders during the quarter which are all going to be scheduled for delivery late next quarter and recognized in revenue for a lot of them in 2017. So it's really the fact that they had a slightly lower bookings last quarter turned into less revenue this quarter but they had a good bookings quarter..

But basically Joel you wouldn't read anything into that that's a quarterly. That's one of those things that happens Bob in the quarter when you're dealing with capital sometimes you get a number like that, it's not indicative of any trend..

Well so the point is that you did do business with European automotive companies during the quarter in spite of those numbers..

Absolutely and I think Joel we can go back and clarify - I think it was coming off with particularly good quarter but when you break it out by region like that you're sometimes going to see numbers go up go down where we are very comfortable with our position in Europe especially with auto makers and the programming centers..

Okay. Thank you..

[Operator Instructions] I will go back to Bob Anderson with Data I/O. Your line is open..

I was intrigued with your remarks about the future opportunity in the Internet-of-Things particularly with your reference to security and the Internet-of-Things and just as an example I was thinking in the future where for example my refrigerator might be hooked up to a computer system and so some rug falls around them, my refrigerator goes off, I'm not too worried about that.

On the other hand if my heating system is hooked up and it causes a fire in my house, I might be interested in.

Am I moving in the right direction in terms of bringing security to the Internet-of-Things?.

Yes Bob, I think you bring up a really important point and I would just go back to the news item we all heard about last week where it was reported that there was a significant denial of service attack launched from things that were not properly secured, they were connected, they were Internet-of-Things, devices but they were not properly secured in there, they were then turned into agents of a denial service attack.

We think going forward that the Internet-of-Things represents a fantastic opportunity but in order for it to be fully realized there needs to be a substantial improvement in how devices are secured and we are working on interesting ways to approach that problem right now.

I'm not going to go into too many details on this call but it's under our set of thinking that we call managed and secure programming..

Okay. Thank you..

Thank you. We’ll go next to David Kanen with Kanen Wealth Management. Your line is open..

Good afternoon, guys. Congratulations. My colleague Bob Anderson, beat me to it but a follow-up on the reference to managed and secure programming platforms. Can you give me a sense as to whether or not this is an incremental opportunity where it expands or tame and we can potentially grow incrementally beyond our core equipment business.

And how far away is this opportunity? Is this something 3, 5 years away or is it more of a 2017-2018 time horizon. Thanks..

Dave I think with regards to the whole Internet-of-Things opportunity I think we've talked about the forecast there and in our belief in earlier my prepared remarks I think automotive is driving the business today and IoT represents a great opportunity for us.

I'll probably have more to say about this on future calls but for now I'd like to just keep to the points I made in the prepared remarks..

Okay. Good luck guys..

Thank you. And our next question is from the line of George Melas with MKH Management. Please go ahead..

Good afternoon, guys, congratulation as well. A lot us heard - great results so thank you very much. I have a question Joel on bookings.

Now the bookings of systems because in China computer bookings to the sale, and that confused 7.9 to 6.6 [indiscernible] $4.6 million in system sales?.

So George you broke up there a little bit.

Are you asking breakdown of the bookings by pipe?.

No.

I’m trying to understand the bookings right, in computer bookings to system sales, or to other computer bookings to total sales?.

Bookings are actual orders that we received. Sales are actually orders that we’ve shipped..

No, I understand that Joel but I’m talking is it systems, booking, is it just systems?.

No bookings includes everything George..

Okay. All right. So that was my question. Thank you very much..

[Operator Instructions] And we'll go back David Kanen's line with Kanen Wealth Management. Your line is open..

A follow up on the R&D the slight increase in R&D spending.

Is that specifically related to this security managed and secure programming initiative?.

The increase in the R&D spending Dave really in a couple of areas there is the intellectual property patent filings, as well as we hired some folks and we had some recruiting expenses associated with that.

In general I'd say that that is for - most of the hiring was for our programming and managed and secure programming initiatives the LumenX family and other software related activities..

Okay, that's about it. Thanks again..

Thank you. And we have no additional questions at this time. Please continue..

Okay. If there are no additional questions, I'd like to thank everyone for joining the conference call and I remind you again that if you happen to be in Los Angeles with LD MICRO, we'd love to talk to you then. At this point operator I'd like to close the call..

Again ladies and gentlemen this will conclude our teleconference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. And you may now disconnect.