Savvy Trades and Investments

[southacresdave]

Hweb2...DAIO Q3 thoughts.......

I've been shaking my head at this one since the earnings report and buying shares with the stock price gift. This company is in the right place at the right time with the right management focus. Embedded security on microchips and microcontrollers for the automotive industry and coming IoT world is only going one direction. The whole industry is expected to double in the next few years and you know it will only double after that and probably again after that. It's like a stock that could go to the moon and everyone complains that it didn't take off from the launch pad fast enough and sold??

Rough way to estimate quarterly earnings for DAIO to show what the deferred revenue of $2.8M means:

Take Backlog + Deferred Revenue + add in how much they will do in a quarter for adapters/software. It kind of makes sense. They take the backlog at the end of each quarter and make plans to deliver it all in the next 90 days. The deferred revenue is already in the process to being delivered so that gets added on top. Then take what they do in adapters and software upgrade for a quarter and add that in figuring those orders just roll in as a quarter goes by (yes, you can't know what this will be specifically for a quarter, but you can use the previous quarter's numbers and the trend).

ex. 1rst Q #s estimate: Backlog on Dec 31rst (= $3.20M) + Deferred revenue on Dec 31rst (=$1.90M) + we know for a fact they did $1.90M in adapters & software (from CFO Joel in the 1rst Q cc call). This adds up to $7.0M. They did $7.20M in reality. The method was short by $200K.

ex. 2nd Q #s estimate: Backlog on March 31rst (=$4.9M) + Deferred Revenue on March 31rst (=$1.4M) + we know for a fact they did $2.6M in adapters & software (from CFO Joel in 2nd Q cc call). This adds up to $8.9M. They did $9.10M in reality. The method again was short by $200K.

So now for a crude 3Q estimate...........

Backlog on June 30th (= $4.70M) + Deferred Revenue on June 30th (= $2.80M) + we will have to guess/estimate for adapters & software. I will use 2Q numbers of $2.6M. This adds up to $10.1M. I won't add in the $200K extra the other methods missed on. I will use that as a buffer in case adapters/software updates come in a little lower than my $2.6M number.

$10.1M x 57% margins - expenses expected to be flat with Q2 according to CFO in cc call ($3.90) = $1.86M net income. Even if there is a slight adjustment for taxes/currency, they are doing 20+ cents/share.

The only question is what are bookings for Q3? I'd be happy if they are flat with Q2. Q2 was a 17 year high. If they matched it in Q3, that's 35% better than a year ago. It'd set them up for a $10M and 20+ cent/share 4th Q. This is all good. The real plus is the new product line with the impressive list of partners will start to come into affect in late 2017 with the idea it produces (according to CEO) meaningful impact in 2018 and beyond.