David Marsh

David Marsh (Singular Research) inquired about Data I/O's activity in the electric vehicle (EV) market and its continued importance as a revenue driver. He also asked about the potential for future partnership agreements, similar to the recent IAR collaboration, with other major electronic component suppliers.

Answer

President and CEO Bill Wentworth affirmed that the automotive market, including EV, remains strong, representing 52% of last year's bookings. He highlighted new solutions being developed for automotive clients, aiming to gain market share and expand the market. Regarding partnerships, he expressed strong belief in collaborations like the IAR agreement, which took a year to forge and combines security and provisioning expertise. He indicated that such partnerships, especially with semiconductor companies, are a key strategy for organic growth and market share expansion, with more opportunities being actively pursued.

David Marsh inquired about the IAR agreement and whether Data I/O plans to pursue similar partnerships with other major electronic component suppliers.

Answer

President and CEO Bill Wentworth expressed strong enthusiasm for partnerships, highlighting the IAR agreement as a successful collaboration combining security and provisioning expertise. He confirmed that Data I/O is actively seeking more such strategic partnerships, particularly with semiconductor companies, to leverage their relationships for organic growth and market share expansion.

Inquired about the P&L impact of one-time expenses, the company's strategy to improve historically low yield rates for UFS Flash, and the reasons for the low quarterly gross margin with an outlook for the second half of the year.

Answer

The one-time expenses primarily hit G&A and are expected to conclude by year-end, with significant IT cost savings identified. For UFS Flash, the company has completely reset its approach, investing in a new platform and technology to fix yield issues, with promising early results. The low gross margin was due to a specific large order with a less favorable product mix and some prototyping costs; the mix is expected to improve in the second half.

David Marsh from Singular Research asked for a breakdown of the $480,000 in one-time expenses, the strategy to improve UFS Flash memory yield rates, and the reasons behind the recent low gross margin.

Answer

Interim CFO Todd Henne clarified that the one-time costs primarily impacted the G&A line. President & CEO Bill Wentworth added that these investments in IT infrastructure are expected to yield significant annual savings. On UFS, Wentworth detailed a complete reset of the Luminex platform, including new equipment and a focus on socketing technology, to solve historical yield issues and target 99.8%+ yields. He attributed the Q2 gross margin dip to a large, low-mix customer order and prototyping costs, stating the product mix in the second half looks much more favorable.

David Marsh of Singular Research inquired about the Q1 revenue mix between recurring and capital equipment, the outlook for SG&A expenses after a significant reduction, and the company's progress in diversifying into the semiconductor market.

Answer

Executive Gerald Ng detailed that the recurring revenue mix was 46% in Q1, a slight decrease from 50% in 2024, which he noted was a positive sign driven by higher system sales. Ng also stated that while cost efficiencies continue, he does not anticipate similarly large expense reductions going forward due to the need for strategic growth investments. Executive William Wentworth added that new strategic relationships with semiconductor companies are progressing much faster than expected, positioning Data I/O favorably for future technologies, with more specific updates anticipated in Q2 and Q3.

David Marsh inquired about the current pace of activity and the expected recovery timeline for the automotive sector. He also asked about potential 'low-hanging fruit' opportunities for market expansion beyond the company's traditional segments.

Answer

CEO William Wentworth explained that the automotive market is currently at a trough due to an overestimation of EV demand and related infrastructure challenges, but he anticipates a gradual recovery starting next year. Regarding diversification, Wentworth identified a key strategy to partner with global component distributors and EMS contract manufacturers. He noted this would leverage their broad customer bases to naturally expand Data I/O's revenue streams into new markets.

David Marsh asked for clarification on the sequential increase in Depreciation & Amortization (D&A) from Q3 to Q4, its future trajectory, and the expected split of Catalyst savings between Cost of Goods Sold (COGS) and Selling, General & Administrative (SG&A) expenses. He also questioned the sequential decrease in interest expense in Q4 despite minimal debt reduction.

Answer

Interim CFO Brad Pearce attributed the D&A increase to the depreciation phase of recently completed capital projects and potential asset retirement obligations from the phthalic operation closure. CEO Leroy Ball added that D&A is expected to drop by a couple of million in 2026 and moderate further due to normalized CapEx. Ball stated that Catalyst benefits would be heavier on the COGS side, with some commercial benefits, as much of the SG&A 'low-hanging fruit' has already been addressed. Pearce explained that the lower interest expense was due to lower rates and overall borrowing, confirming no change in the swap profile.

David Marsh asked about the sequential increase in depreciation and amortization (D&A) from Q3 to Q4 2025 and the outlook for future D&A. He also inquired about the split of the $20 million-$40 million Catalyst savings in 2026 between COGS and SG&A, and the reasons for a sequential decrease in interest expense in Q4 despite stable debt levels, including the role of derivative contracts.

Answer

Interim CFO Brad Pearce attributed the D&A change to projects moving into depreciation and asset retirement obligations, while CEO Leroy Ball noted D&A is expected to drop in 2026 with normalized CapEx. Mr. Ball stated Catalyst savings would be heavier on the COGS side, with commercial benefits also playing a significant role. Mr. Pearce explained the interest expense decrease was due to lower rates and overall borrowing, confirming their swap profile remained unchanged.

David Marsh from Singular Research commented on the strong CM&C EBITDA performance and asked about potential incremental margins on a revenue recovery. He also inquired about capital allocation priorities, leverage management, and the potential for M&A opportunities, especially within the RUPS segment.

Answer

CEO Leroy Ball stated that a healthier market for the CM&C segment could drive margins back to the high teens, aided by operational simplification. He identified share repurchases and deleveraging as the top near-term priorities for cash flow. Regarding M&A, Ball noted that while the current environment could create opportunities, the company's primary focus for acquisitions is on expanding its Utility and Industrial Products business.

David Marsh asked about the sustainability of the recent sequential decrease in SG&A expenses, the potential impact of recent Fed rate cuts on interest expense, and the company's priority order for acquisitions across its different business lines.

Answer

CEO Leroy M. Ball affirmed that the lower SG&A reflects a sustainable focus on resizing the organization to align with market conditions. CFO Jimmi Sue Smith quantified the impact of rate cuts, stating they would affect approximately $500 million of unhedged debt. Ball identified the utility business as the top priority for acquisitions due to significant growth opportunities, followed by the Performance Chemicals business, with limited interest in expanding the Rail or CM&C segments via M&A.

David Marsh sought clarification on the revenue recognition timeline for Flexible Solutions International's new food contracts, specifically whether the January contract would begin realizing revenue in Q4 2025 or Q1 2026, and asked for an estimated annual run rate for all three food contracts (January, August, and wine) once fully operational.

Answer

President and CEO Daniel O'Brien explained that the August contract was already realizing revenue, while the January contract, requiring new equipment and a cleanroom, was possible for Q4 2025 but definite for Q1 2026. He reiterated the company's policy of not providing Q4 guidance due to its nimble nature. O'Brien projected that if all business is earned, the total annual run rate for the three contracts could reach $50 million to $60 million by 2027.

David Marsh from Singular Research sought clarification on the revenue recognition timeline for the two new food-grade contracts, specifically if the January contract would begin revenue recognition in Q4 2025 or Q1 2026, and asked for guidance on Q4 2025. He also inquired about the projected annual run rate revenue for all three food contracts (wine, August, and January) once fully operational.

Answer

Daniel O'Brien, President, CEO, CFO, CAO, and a Director, explained the confusing timeline: the August contract started revenue recognition in early Q4 2025 because equipment was ready, while the January contract, requiring new equipment and a cleanroom, is anticipated to begin revenue in late Q4 2025 or early Q1 2026. He stated that Flexible Solutions rarely provides quarterly guidance due to the company's nimble nature. O'Brien projected that if all business from customers is earned, the total annual run rate for the three food contracts could reach $50 million-$60 million, but this run rate is not expected until 2027.

David Marsh of Singular Research asked if the company is seeing asset flow from less traditional institutions like credit unions and inquired about Heritage Global's experience with bankruptcies in the solar industry.

Answer

CEO Ross Dove confirmed there is broad pressure across the financial industry, including regional banks and various fintech lenders, to monetize non-performing loans, creating a strong pipeline for the NLEX platform. He also affirmed that Heritage Global has extensive, long-standing experience in the solar sector, having managed dozens of projects from manufacturing plants to inventory liquidations, starting with the landmark Solyndra auction.

David Marsh asked about the company's exposure to the federal space and potential opportunities arising from DOGE initiatives. He also inquired if the company was taking advantage of higher interest rates on its cash balance and requested an update on the remaining capacity of the share repurchase program.

Answer

CEO Ross Dove highlighted the company's long history with government work and its recent high-profile role as the auctioneer for Twitter as evidence of its ability to pursue DOGE-related opportunities. CFO Brian Cobb explained that while they use short-term vehicles to earn interest, the primary focus is deploying cash into the business. Cobb also clarified that approximately $3 million remains available under the current share repurchase authorization, which is set to expire in June 2025.

David Marsh of Singular Research inquired about the drivers of SG&A expenses, the potential for AI to create efficiencies, and the company's confidence in its full-year revenue guidance.

Answer

CFO Mike Koempel clarified that Q2 SG&A included a $1.8 million one-time credit loss reserve, and without it, the rate would have been closer to 35%. CEO Michael Benstock and President of Branded Products Jake Himelstein detailed extensive AI implementation in contact centers for agent assistance and in branded products for automated product selection. Koempel affirmed confidence in the guidance, citing strong Q2 momentum despite some macro uncertainty.

David Marsh questioned if the large reduction in accounts payable was a typical seasonal trend, asked for more detail on the timing of SG&A savings, and inquired about the company's current appetite for M&A given market choppiness and its liquidity position.

Answer

Executive Michael Koempel confirmed the Q1 reduction in AP and liabilities is a typical seasonal impact from prior-year bonus payments and benefit plan contributions, with cash flow expected to improve over the year. He added that the $13 million in annualized savings measures were implemented in April, with the vast majority of benefits starting in Q2. Executive Michael Benstock stated that the company is currently conserving cash and has paused M&A activity until there is more clarity on tariffs, though he believes a rich field of opportunities will emerge later.

David Marsh questioned the company's comfort level with its current leverage ratio, inquired about the broader M&A landscape and priorities, sought more detail on the 'back-end loaded' cadence of the 2025 guidance, and asked for an update on the Healthcare Apparel online channel.

Answer

Executive Michael Koempel stated they are comfortable with the current leverage but have the capacity to increase it to a 2.0-2.5x range for compelling M&A, with a long-term goal of returning below 2.0x. Executive Michael Benstock described a rich M&A environment, noting they seek accretive, culturally aligned businesses, particularly in Branded Products and Contact Centers. Michael Koempel clarified the 2025 outlook implies a more gradual build than last year, still weighted to the second half. Michael Benstock declined to share specific metrics on the online channel for competitive reasons but confirmed its performance has been very favorable.

David Marsh questioned whether the Q2 shipping delays are fully resolved, if current inventory levels are sufficient for a potential demand surge, and asked about the company's acquisition landscape and priorities.

Answer

Michael Benstock (executive) stated that while the company has planned around logistics issues, global delays persist, but they are not expected to have a significant future impact. Both executives confirmed inventory levels are sufficient for Q4. Regarding M&A, Benstock affirmed they are actively looking at roll-ups in Branded Products and strategic geographic acquisitions for Contact Centers.

David Marsh from Singular Research asked for details on revenue growth drivers, the sustainability of SG&A cost reductions, and the company's confidence in covering the newly doubled dividend with its projected cash flow.

Answer

CEO Clint Stinchcomb explained that strong licensing growth, driven by a large content library, offset a slight dip in direct subscription revenue. He noted that cost reductions are sustainable, with declining content amortization and ongoing G&A rationalization, though marketing spend may be seasonally higher. Regarding the dividend, Stinchcomb expressed strong confidence in covering it, stating the intent is to use cash from operations but also highlighting the company's large cash reserve provides flexibility.

David Marsh of Singular Research questioned the 2025 pricing forecast for the Illinois Basin and asked what factors could lead to an upside surprise. He also inquired about the company's strategy for its growing digital asset (Bitcoin) holdings and sought color on ARLP's engagement with the new presidential administration regarding energy policy.

Answer

Joseph Craft, Chairman, President, and CEO, responded that any pricing upside would likely stem from higher spot market prices in the second half of the year, driven by favorable weather and strong demand, as contract prices are largely set. On digital assets, he revealed a shift in strategy to hold all mined Bitcoin, pausing the practice of selling to cover expenses, based on a bullish outlook. Mr. Craft described ARLP's engagement with the new administration as 'very active,' involving open dialogue on removing inefficient regulations, tax policy, and ensuring grid reliability, noting that utilities are already extending coal plant lifespans.

David Marsh of Singular Research asked about potential upside factors for the 2025 Illinois Basin pricing forecast, the company's strategy for its growing digital asset (Bitcoin) holdings, and the extent of engagement with the new presidential administration on energy policy.

Answer

CEO Joseph Craft stated that pricing upside depends on supply/demand, with weather being a key factor that could boost spot prices in the second half of the year. Regarding Bitcoin, he said the company is currently holding its assets, believing in price upside under a supportive administration, and will monitor policy to guide future strategy. Craft also described an active and open dialogue with the new administration, providing input on regulations to support grid reliability and the coal industry.

Questioned the significant reduction in revenue guidance for the second half of the year. Also asked for details on the timing and mechanics of recent financing inflows from the state grant and Constellation, and the remaining capital needed to complete Phase 2 construction.

Answer

The CEO attributed the lower guidance to the lack of a stabilized event portfolio and delays in the waterpark opening due to a difficult financing environment. The state grant funds were received in Q3, and the Constellation loan was a cash backfill for previously purchased equipment. The remaining capital needed is in the "tens of millions," with the final pieces being a senior loan and a bond purchase, which are complex to close but progressing.

David Marsh from Singular Research asked for clarification on the significant downward revision of full-year revenue guidance, the timing of cash inflows from recent financing, and the remaining capital required to complete Phase 2 construction.

Answer

President and CEO Michael Crawford explained the revenue guidance was lowered due to the company's early stage, a still-stabilizing event portfolio, and delays in the waterpark opening, which was previously factored into forecasts. He confirmed the state grant funds were received in Q3 and the Constellation Energy loan funds have also been received. Crawford stated that the remaining capital needed is in the 'tens of millions' and detailed the complexity of closing the final pieces of the capital stack, with a goal to secure funding by late Q3 or early Q4 2024.

Asked about the key events driving Q1 revenue, the outlook for sponsorship revenue for the year, clarification on a new balance sheet item (equity method investments), and the status of finding a partner for the retail sportsbook.

Answer

The executive highlighted a faith-based event with Tim Tebow as a key Q1 driver and noted that sponsorship revenue is expected to grow from the Q1 baseline as more assets come online. The balance sheet item was clarified as their 20% stake in the sports complex. For the sportsbook, it remains challenging due to the dominance of mobile betting, but they are in discussions with operators and regulators.

David Marsh asked about the key drivers behind the strong Q1 events revenue, the outlook for sponsorship growth, the nature of the new 'equity method investments' line on the balance sheet, and the current status of securing a retail sportsbook partner.

Answer

President and CEO Michael Crawford attributed the events revenue growth to new large-scale events, including a faith-based leadership conference, and noted that the Q1 sponsorship level should be a baseline for future growth as more assets come online. VP and Corporate Controller John Van Buiten clarified that the equity method investment represents the company's 20% stake in the sports complex. Crawford concluded that while securing a retail sportsbook partner is challenging due to market economics, they are actively pursuing several options and working with regulators.

The analyst asked about the timing of the 10-Q filing, the financial impact and contingency plan related to the USFL-XFL merger, the capacity and utilization of the indoor dome for events, and the status of the onsite retail center, including the plan for a retail sportsbook.

Answer

The 10-Q was planned for filing that evening. The company is hopeful the USFL partnership will continue but has a robust plan to backfill revenue with other large-scale events and their own tentpole events throughout the year. The indoor dome has a flexible capacity of 3,000-4,000+ for various events and is seeing high utilization. The retail center has about 9 open tenants with more opening soon, and the company is actively pursuing a partner for its prime retail sportsbook location while also exploring other high-profile operators for the space.

Asked about the impact of the go-private proposal on the company's ability to repurchase shares, the priority for cash usage, potential M&A opportunities, and sought confirmation on the $900,000 transaction-related expense recorded in the quarter.

Answer

Executives confirmed the go-private proposal supersedes their ability to repurchase shares. The priority for cash remains business-as-usual operations, including purchasing equipment with cash instead of leases. No M&A is actively being pursued. The $900,000 expense was confirmed, but future costs are unknown as they are controlled by the board's special committee.

Asked for an update on the share repurchase program, including remaining authorization and average price. Also inquired about industry verticals showing strength and the reasons for changes in lease liabilities on the balance sheet.

Answer

Executives clarified that about $9 million remains for share repurchases, with the recent average price being around $2.80-$2.90. They noted broad-based strength across most business verticals, especially retail, driven by increased marketing and trade show activity. The change in operating lease liability was explained as an accounting gross-up due to lease renewals, with no impact on annual P&L expense.

Inquired about significant customer wins, whether political advertising is a revenue driver, and asked for details on the balance sheet, specifically regarding share repurchases (average price and remaining authorization) and interest expense.

Answer

Executives stated they had wins across many sectors rather than one large one and that political advertising is not a significant market for them due to low margins. On the balance sheet, they repurchased about $1 million in shares at an average price of $3.46, with $9 million remaining in the authorization. Interest expense is already minimized by using cash to pay down the revolver intra-quarter.

David Marsh asked about a nonrecurring expense, the current pacing of the advertising market compared to the previous year's 'nuclear winter', the timing of political ad spend, and the future trend of gross margins given the increasing mix of partner screens.

Answer

The nonrecurring expense was a one-time cost from an unconsummated capital raise and is not expected to continue. The current advertising market is pacing as expected, without the severe downturn seen last year. Political ad spend is just starting to trickle in, with the majority expected in the second half of the year. The company is confident that gross margins can continue to improve and go 'north of 35%' as revenue scales, allowing them to better leverage fixed costs and negotiate better deals, despite the mix shift to partners.

David Marsh inquired about the financial impact of Salem's recent and pending asset sales, the specifics of the Sarasota land sale's rezoning process, and the status of the company's credit facility forbearance agreement.

Answer

Executive Evan Masyr estimated a $2-3 million EBITDA reduction from the asset sales. CEO David Santrella, Evan Masyr, and General Counsel Christopher Henderson expressed high confidence in the Sarasota land rezoning, noting pre-approval from the county and expecting a late 2024 close. Masyr also confirmed all land parcels are being evaluated for sale and that the company is working constructively with its lender on the forbearance while securing a new credit facility.

David Marsh of Singular Research asked about the current level of political advertising revenue, the outlook for its ramp-up, the total political revenue from 2022, and the potential for further asset sales to close within the current fiscal year.

Answer

CFO Evan Masyr and CEO David Santrella reported minimal political revenue to date ($0.3 million) but expect it to increase in late Q3 and Q4, especially in 2024. Masyr confirmed 2022 political revenue was $6.6 million and is expected to be higher in 2024. Regarding asset sales, Masyr stated that while several deals are in progress, it is premature to provide details, but he indicated more sales could potentially close before the end of the fiscal year.

David Marsh from Sanya Research asked about the current level of political advertising revenue, the expected timing for a pickup in political spending, the total political revenue from 2022, and the potential for additional asset sales to close within the current fiscal year.

Answer

Executive Evan Masyr reported minimal political revenue of $0.3 million to date but anticipates a pickup in late Q3 and Q4, with 2024 expected to be a very strong year. He confirmed 2022 political revenue was a record $6.6 million. CEO David Santrella added that while they are working on several asset sales, it is premature to discuss specifics, but he indicated that more sales could potentially close before the end of the fiscal year.

David Marsh of Singular Research asked for an update on the company's liquidity position, its strategy regarding potential asset sales, and for more details on its investment in an upcoming motion picture.

Answer

EVP & CFO Evan Masyr confirmed the company has its asset-based loan facility for liquidity and is exploring opportunistic asset sales, particularly real estate, based on a calculation of value received versus free cash flow impact. COO David Evans explained the motion picture investment is a partnership with Dinesh D'Souza for his next film, tentatively scheduled for early 2024, where Salem will be the executive producer and sole financier, similar to the successful '2,000 Mules' project.