Michael Legg

Michael Legg (Ladenburg Thalmann) asked for an update on Data I/O's M&A pipeline, details on customer activity observed in Q4, and Bill Wentworth's insights into why the company is a year ahead of its transformation plan, including unforeseen positive developments.

Answer

President and CEO Bill Wentworth confirmed an active M&A pipeline with several opportunities, emphasizing a disciplined approach focused on accretive, strategic acquisitions that fill vertical and horizontal gaps. He clarified that while Q4 customer activity was mostly setting up Q1/Q2 conversations, there's significant new pipeline activity (75% new from last year) driven by manual product lines and edge AI build-out. He attributed being ahead of schedule (6+ months) to effective use of tools and technology, particularly AI, which lowered transformation costs and accelerated cleanup efforts. VP and CFO Charlie DiBona reiterated their disciplined M&A approach, having walked away from non-sensical deals.

Michael Legg asked President and CEO Bill Wentworth to elaborate on why Data I/O is a year ahead of its transformation plan and what positive upsides were unforeseen.

Answer

President and CEO Bill Wentworth attributed the accelerated transformation, estimated at 6 months ahead of schedule, to the effective use of tools and technology, particularly AI. He noted that AI has significantly lowered transformation costs and boosted productivity, allowing current investments to directly drive revenue-generating new products, completing the "cleanup" phase faster than anticipated.

Michael Legg inquired about the composition and concentration of the $137 million pipeline, asking for details on the number of customers, potential orders, and specific product lines driving this growth. He also asked for clarification on the recent headcount expansion, specifically where the growth occurred and how it supports pipeline conversion. Additionally, Legg questioned the impact of the government shutdown on current quarter revenues and whether these delayed deliverables would be additive to the subsequent quarter.

Answer

President and CEO Philipp Stratmann explained that the pipeline shows continuing diversification, with significant growth in demand from the U.S. government, particularly in homeland security and the Department of War, which has accelerated since the government reopened. He noted a balanced mix across product lines, with initial engagements often focused on broader solutions like border patrol or facility protection before specific systems are determined. International efforts in Latin America, the Middle East, and the Baltic Sea are also contributing. Regarding headcount, Stratmann stated that growth is focused on delivery functions, including USV operators for their new training school and a broadened commercial team of veterans to facilitate discussions and conversions with government agencies like the Department of the Navy and Coast Guard. On the government shutdown, Stratmann indicated an uptick in pace, with eight vehicles shipped for demonstrations and buoy assets being pre-built for anticipated orders, suggesting a push-out rather than a direct additive effect.

Michael Legg with Ladenburg Thalmann inquired about the composition and concentration of Ocean Power Technologies' impressive $137.5 million pipeline, asking for details on customer numbers, order magnitude, and product line focus. He also sought clarification on the recent headcount growth, specifically where new hires are concentrated and how they support pipeline conversion. Finally, Legg asked about the impact of the government shutdown on current quarter revenues and whether it would be additive to the next quarter or merely a sequential push-out.

Answer

President and CEO Philipp Stratmann explained that the pipeline shows continued diversification, with significant growth in demand from the U.S. government, particularly in homeland security and the Department of War, which has accelerated since the government reopened. He noted a balanced mix across product lines, with initial engagements often focused on broader solutions like border patrol before tailoring specific buoy or ASV systems. International efforts are expanding in Latin America, the Middle East, and the Baltic Sea. Regarding headcount, Dr. Stratmann detailed growth in delivery-focused functions, including USV operators for their new AUVSI-certified training school and a broadened commercial team of veterans to engage with government agencies like the Department of the Navy and Coast Guard. On the government shutdown's revenue impact, Dr. Stratmann indicated an uptick in pace post-reopening, with 8 vehicles delivered for demonstrations and buoy assets being pre-built for anticipated near-future orders, though it's hard to quantify if it's additive or a push-out.

Michael Legg asked about the opportunities in Amtech Systems' service area, following the company's balance sheet cleanup and cost optimization efforts. He also requested an update on the ongoing CFO search.

Answer

Chairman and CEO Bob Daigle explained that Amtech is focusing on high-value niche opportunities in areas like medical and defense, where larger players may not provide the same level of service. He highlighted leveraging the company's foundry service for contract development and product qualification to build sticky, high-margin recurring revenue streams. Regarding the CFO search, Daigle stated that it has just begun and is still in its early stages.

Michael Legg of Ladenburg Thalmann & Co. Inc. inquired about CPS Technologies' visibility into future revenues, the composition of its sales pipeline, and the typical sales cycle.

Answer

CEO & President Brian Mackey explained that the company's revenue visibility averages four to six months. He noted that customer ordering cycles vary, with some placing orders just a couple of months out, others in a four-to-six-month window, and a few up to a year in advance. Mackey confirmed that strong demand has continued throughout the year.

Michael Frederick Legg, Jr. of The Benchmark Company inquired about the strategic rationale for selling the Sierra ARC facility, the resulting financial runway, and the company's pivot towards co-locating new facilities. He also asked about the impact of macro trends like tariffs on customer demand, the drivers behind the product line expansion into LFP recycling, and the current status of discussions with U.S. government agencies.

Answer

Executive Stephen Cotton explained that selling the Sierra ARC is a pragmatic move to adapt to market conditions, saving $100,000 per month, retiring all debt, and providing flexibility to build near partners. He noted that while policy uncertainty exists, it has spurred a significant increase in partnership discussions. Mr. Cotton also detailed that product expansions are driven by both market responsiveness to partner needs and a focus on optimizing plant economics to ensure profitability. Regarding government talks, he confirmed active engagement with agencies like the DOD and DOE but advised that clarity on funding support may take a few more months. CFO Judd Merrill added that proceeds from the asset sale above the $3 million debt would directly increase the company's cash runway.

Michael Legg of The Benchmark Company inquired about the strategy for the new $50 million stock buyback plan and the historical indicators for a rebound in retail inventory purchasing.

Answer

Chairman and CEO Efraim Grinberg stated that the stock buyback is currently focused on offsetting dilution but could become more active as cash generation improves. He noted that retail inventories are at historic lows and typically rebound as the economy improves and retailers see lost sales, though the growth of e-commerce has slightly altered this dynamic.

Michael Legg of The Benchmark Company inquired about Movado's competitive positioning, the geographic scope of the new media campaign, the performance of the jewelry segment, assumptions behind the financial guidance, and the criteria for a more aggressive share buyback program.

Answer

Efraim Grinberg, Chairman and CEO, explained that while the overall watch category is challenging, Movado has gained share in the fashion watch segment and is seeing growth in markets like India and Latin America. He clarified the new Movado campaign is primarily for North America but will have some international presence. Grinberg noted that the jewelry business is outperforming watches and that the share buyback strategy is contingent on broader market confidence rather than a specific stock price.

Michael Legg of The Benchmark Company asked about the expected sales mix for the 'Free' brand's new lower nicotine strengths, potential supply chain limitations versus account acquisition challenges, and the comparative revenue opportunity of the alternative channel versus traditional retail.

Answer

Executive Summer Frein noted that the new 3mg and 6mg 'Free' products target nearly 70% of the category's volume and early results are encouraging and incremental. CEO Graham Purdy stated that manufacturing capacity is not a constraint, with the main challenge being the long cycle times for chain store onboarding. Summer Frein also clarified that the total addressable market and profit opportunity in the alternative channel is considered as large, if not larger, than the traditional convenience channel.

Michael Legg of The Benchmark Company inquired about the potential long-term demand impact from recent hurricanes and how the current weak consumer environment affects Havertys' store growth strategy.

Answer

President Steven Burdette stated that the company anticipates a sales lift from post-hurricane rebuilding, likely beginning in 3 to 6 months, with Florida expected to recover faster than other areas. Chairman and CEO Clarence Smith affirmed that the company is not altering its plan to open five to six stores annually, emphasizing that Houston remains the top priority for expansion.

Michael Legg sought clarification on the new acquisition's growth potential versus conservative guidance, inquired about customer concentration, asked about potential for EBITDA margin expansion, and questioned the dynamics between the electronics order book and pipeline.

Answer

CEO David Dunbar stated the 'mid-teens' growth forecast for the acquisition is intentionally conservative and will be updated. He confirmed there is no significant customer concentration and that margin expansion will come from operating leverage on growth, not cost synergies. CFO Ademir Sarcevic added that Electronics orders hit a one-year high at $75 million, supporting cautious optimism for a second-half recovery.

Inquired about the current state of the supply chain, the potential timing for announcing delivery schedules, and whether the current low levels of R&D and SG&A expenses are sustainable.

Answer

The supply chain is being re-harmonized following a strategic shift, with a recent supplier event helping to align partners. Capital will be deployed into the supply chain once high-volume customer specs are finalized. Delivery schedules will be announced at the discretion of customers, with some news expected in the current quarter. The company will remain disciplined on spending, though levels may vary slightly with capital inflows, as the focus is on efficient deployment.