Data I/O Corporation September 2018

Investor Presentation

Nasdaq: DAIO

Safe Harbor

The matters that we discuss today will include forward-looking statements that involve risks factors that could cause Data I/O Corporation’s results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release as well as our most recent SEC filings for a complete description. Additionally, those forward-looking statements are made as of today, and we take no obligation to update them.

2 Data I/O, LumenX, SentriX, ConneX , FLASHCore are trademarks of Data I/O Corporation. All rights Reserved

Supporting the Secure Digital World

Data I/O’s programming systems are used by the world’s leading manufacturers, programming centers, and contract manufacturers, to

securely program integrated circuits and bring their devices to life.

Circuits Need To Be

Programmed

End User Data I/O On-Line or Off-Line

Programming

Final Assembly

Options for Programming

(DAIO customers)

Programming Centers

Contract Manufacturers

OEMs

3

NASDAQ: DAIO

Headquarters: Redmond, WA

Established: 1972

Stock Price: $5.77

Market Cap: $49M

Diluted Shares: 8.5M

10-Day Avg. Volume: 57,800 shares

Sales (TTM): $32.5M

Diluted EPS (TTM): $0.45

Adj. EBITDA(3) (TTM): $5.5M

Cash & Sec. (6/30/18): $16.6M ($1.97/share)

Debt (6/30/18): $0.0

Company Snapshot

Committed to Growing Shareholder Value

Company Snapshot (1)(2)

• Focusing programmable core competencies on higher growth, higher margin vertical markets

• Differentiated market position through technology leadership and global support

• Approx. 9% of stock held by insiders so that management and Board are aligned with shareholders

(1) Stock price, market cap and volume as of 8/23/18; Source: Yahoo (2) Financials for the TTM period ended 6/30/18 or as noted (3) Adj. EBITDA is a non-GAAP financial measure. A reconciliation is

provided in this presentation 4

Recent Achievements and Trends

• 2017 best year in a generation

• 5 consecutive years of revenue growth; 4 consecutive years of profitability

• Strong momentum in Automotive and IoT devices

– 8 of top 9 Auto electronics companies are customers

– 5-year global supply agreement with Bosch

– Over 50% of revenue from Automotive customers

• Doubling of Served Markets: 2016-2020

• Puget Sound Business Journal’s Fastest Growing Public Technology Companies list – 3 consecutive years

• Industry and technology awards in 2018 and 2017 for LumenX, Universal Flash Storage (UFS),PSV Lines and SentriX™

• Over 200 PSV systems sold

• Building traction for SentriX Managed and Secure Programming Technology

Strategic Objectives

5

Long Term Growth Focus

• Growth strategy focused on Automotive Electronics and expansion into Security Provisioning for the Internet of Things (IoT).

• Expansion of addressable markets

• Technology leadership through continued heavy R/D investment in intellectual property portfolio

• Greater balance between capital equipment sales and recurring revenues

• Developing new partnerships for Security Provisioning Platform

• Deploying excess capital and other resources for opportunistic growth

Servicing Customers Globally in Growing Markets

Automotive IoT/ Industrial/Consumer

• Data I/O delivers cutting edge products and technology to hundreds of customers around the globe

• Global footprint with headquarters in Redmond, Washington and offices located in Shanghai, China and Munich, Germany

• 46% growth in Automotive electronics orders in

2017 with eight of the top nine automotive electronics companies buying from Data I/O

6

Programming Centers and EMS

Sample Customers

32% 39%

15% 14%

Wireless

$0

$5

$10

$15

$20

2013 2014 2015 2016 2017

Automotive Orders ($M)

How Data I/O Markets Grow

7

• IoT and Automotive Growth

– Devices Get Smaller

– Move towards Automation

• Products will increase their code size as customers want more features

• Products will be more secure, creating new opportunities

Unit Growth

Added Complexity +

Security Requirements

Bit Growth

Programming Demand = Units x Bits x Security

Market Forces Programming Impact

Market Leading Technology

Managed and Secure Programming Systems

Automated Handlers • Data I/O’s products are viewed as the “gold standard” for advanced programming equipment and IP management and security solutions.

• Research and Development focused on:

• Breakthroughs in programming technology to support explosive demand for automotive infotainment solutions using large FLASH memories and microcontrollers.

• Security Provisioning Platform technology for Internet of Things applications

• 2017: Introduced Universal Flash Storage (UFS) solution and SentriX™ Security Provisioning Platform

• During the past 15 years, Data I/O has been granted ~50 U.S. and International utility patents. Currently, Data I/O has ~20 U.S. and International utility patents pending

History of Innovation Industry Leading Products

8

Programming Engines

Razor/Razorblade Model

Capital Equipment Consumables

Adapters Software and Maintenance • Approx. 71% of 2017 Sales • Off-line and in-line

programming systems • Automated systems cost

$68,000 to $677,100 • Manual systems cost $10,000

to $52,000 • Usually last 5-7 years • Adapters fit to these products

• Approx. 22% of 2017 Sales

• Usually last 3-24 months

• Approx. 7% of 2017 Sales

• Annual software upgrades

• Consumables and equipment sales have similar gross margins • Installed base drives recurring consumables sales

• High customer retention

9

Financial Overview

Financial Overview

11

Second Quarter 2018 Highlights

• Net sales and bookings of $7.2 million • Gross margin as a percentage of sales of 59.0% • Net income of $486,000 or $0.06 diluted earnings per share • Adjusted earnings before interest, taxes, depreciation and amortization

(EBITDA), excluding equity compensation, of $1.3 million • Cash/securities of $16.6 million at end of 2Q18. No debt • Continued automotive electronics traction

• Automotive represented 56% of bookings year to date.

• Momentum for SentriX Security Provisioning Platform • Programming platform launched for Microchip Technology Inc. in collaboration with

Secure Thingz (now a part of IAR Systems) • Announcement from Arrow Electronics and NXP using SentriX platform for the A71

provisioning solution. • Key speaking engagements at IoT DevCon Conference including a presentation on

“Democratizing Security in IoT Devices” and a panel discussion with security industry leaders from NXP, DigiCert, Arrow Electronics and TIRIAS Research

Operational Performance

Long Term Performance Improvements through

Innovation and Operational Excellence

12

($10)

$0

$10

$20

$30

$40

2013 2014 2015 2016 2017

Revenue Net Income

2017/2018 Growth Drivers • Semi-cap equip. cycle • Automotive Electronics • Internet-of-Things • Recurring revenues from installed base

Revenue and Net Income ($M) Adjusted EBITDA ($M)

-$2

$0

$2

$4

$6

$8

2013 2014 2015 2016 2017

EBITDA adjusted for restructuring charges and stock based compensation

Balance Sheet and Capital Structure Overview

Enterprise Value ($K)

Balance Sheet Strategy

• Important to maintain strong balance sheet

• Financial flexibility allows the company to:

o Withstand downturns in semiconductor cycle

o Invest in organic and acquisitive growth opportunities for the long term

• Over $6 million returned to shareholders in form of 2012, 2016 share repurchase programs

At June 30, 2018:

• $16.6 million in cash and cash equivalents

• No debt

• $20.2 million of net working capital

• Total stockholders’ equity of $22.7 million, or approx. $2.66 per diluted share outstanding

• EV/Sales at 1.00x

• EV/Adjusted EBITDA at 5.85x(3)

• NOLs of approximately $13.0 million

Market Cap(1) $ 49,045

Plus Total Debt(2) 0

Less Total Cash(2) $ 16,634

Enterprise Value $ 32,411

Diluted Shares Outstanding(2) 8,500,000 (1) At 8/23/18; Source: Yahoo

(2) Weighted average for quarter or at quarter ended 6/30/18 13

(3) Sales and Adjusted EBITDA based on TTM through 6/30/18 financial results

0%

10%

20%

30%

2012* 2014 2016 2017

ROE ROA

*2012 ROE and ROA were -43.5% and -34.0%, respectively, but shown as 0% for illustrative purposes

Management Effectiveness

Market Outlook

Growth of Electronic Systems in

Automobiles

15

According to The Clemson University Vehicular Electronics Laboratory, a typical automobile on the road today has over 50 computer controlled electronic systems.

http://www.cvel.clemson.edu/auto/systems/auto-systems.html

16

The FLASH Memory Opportunity in Automotive Could Grow 20x in 8 years

20x: ~50GB today to 1TB by 2025

Data I/O Confidential

Semiconductor Content per Car Forecasted to Grow 20% in $ value, much more in ‘bits’……

IoT Market Drivers -

Multi-year Secular Growth

18

• The IoT is forecast to be bigger than the mobile internet and desktop markets

• ….But Security Issues are top of mind and must be addressed

“We believe nearly every single industry will eventually migrate to an IoT model yielding

50 billion connected devices by 2020.” Needham & Company, November 27, 2015

IoT Market Segmentation

IoT Device Security Threats

20

Security Provisioning Addresses IoT Device Security Needs

21

Security Must Become Ubiquitous

Secure Update Services

Secure Firmware Development

Secure Manufacturing

New Secure Elements, and Secure MicroControllers

SentriX™ Security Provisioning Platform

22

US and International Patents Pending

February 28, 2018: Best of Show with Embedded Award for the SentriX Security Provisioning Platform

New Partnerships for Growth

23

SentriX Plan • Development Costs: 2018 increased R&D expense with increased partners and support • First Products: additional investment for equipment; units in field during 2018 • Deployment in October 2017 of first SentriX Security Provisioning System • Additional Industry support announcements expected through 2018 • Revenue Recognition: scaling begins 2019 with multiyear ramp from win to revenue

2022 MCU Market

The Opportunity:

4B Units of Security Devices in 2022

24

“Traditional” MCUs

Smart Card MCUs

Standalone Secure

Elements (eg: AICs,

ESEs, TPMs)

“Secure” MCUs with

Embedded

Secure Elements

2022 Total TAM:

25.4 Bu

2022 Security TAM:

~4 Bu

Source: ABI

Investment Merits:

Positioned for Long-Term Growth

Stable Financially &

Positioned For

Growth

Global Sales and

Infrastructure

Market

Expansion in

Automotive and

Internet of Things

Strong Brand with

Leading

Products

Seasoned

Management

5 Consecutive

Years of

Revenue Growth

Growth in

Secure

Provisioning

Strong

Balance

Sheet and

Operating

Leverage

25

NASDAQ: DAIO

26

Appendix

Adjusted EBITDA Reconciliation – 2Q18

27

NON-GAAP FINANCIAL MEASURE RECONCILIATION

Three Months Ended

June 30,

Six Months Ended

June 30,

2018 2017 2018 2017

(in thousands)

Net Income $486 $1,206 $616 $2,185

Interest (income) (9) (6) (16) (13)

Taxes 42 86 87 99

Depreciation and amortization 277 165 506 328

EBITDA earnings $796 $1,451 $1,193 $2,599

Equity compensation 473 270 650 367

Adjusted EBITDA earnings,

excluding equity compensation $1,269 $1,721 $1,843 $2,966

Adjusted EBITDA Reconciliation – 2017

28

NON-GAAP FINANCIAL MEASURE RECONCILIATION

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2017 2016 2017 2016

(in thousands)

Net Income $1,536 $755 $5,449 $1,656

Interest (income) (10) (10) (29) (44)

Taxes (495) 24 (288) 36

Depreciation and amortization 188 193 822 602

EBITDA earnings $1,219 $962 $5,954 $2,250

Equity compensation 174 111 714 520

Adjusted EBITDA earnings,

excluding equity compensation $1,393 $1,073 $6,668 $2,770

Income Statement – 2Q18

29

CONSOLDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)

(UNAUDITED)

Three Months Ended

June 30,

Six Months Ended

June 30,

2018 2017 2018 2017

Net Sales $7,204 $9,135 $14,834 $16,359

Cost of goods sold 2,955 3,933 6,169 6,990

Gross margin 4,249 5,202 8,665 9,369

Operating expenses:

Research and development 1,845 1,771 3,724 3,316

Selling, general and administrative 2,158 2,163 4,351 3,981

Total operating expenses 4,003 3,934 8,075 7,297

Operating income 246 1,268 590 2,072

Non-operating income (expense):

Interest income 9 6 16 13

Gain on sale of assets 4 80 4 291

Foreign currency transaction gain

(loss) 269 (62) 93 (92)

Total non-operating income 282 24 113 212

Income before income taxes 528 1,292 703 2,284

Income tax (expense) (42) (86) (87) (99)

Net income $486 $1,206 $616 $2,185

Basic earnings per share $0.06 $0.15 $0.07 $0.27

Diluted earnings per share $0.06 $0.14 $0.07 $0.26

Weighted-average basic shares 8,356 8,104 8,321 8,067

Weighted-average diluted shares 8,500 8,408 8,521 8,367

Income Statement – 2017

30

CONSOLDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)

(UNAUDITED)

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2017 2016 2017 2016

Net Sales $8,096 $6,411 $34,051 $23,413

Cost of goods sold 3,363 2,802 13,992 10,545

Gross margin 4,733 3,609 20,059 12,868

Operating expenses:

Research and development 1,766 1,410 6,896 5,065

Selling, general and administrative 1,816 1,610 8,116 6,376

Total operating expenses 3,582 3,020 15,012 11,441

Operating income 1,151 589 5,047 1,427

Non-operating income (expense):

Interest income 10 10 29 44

Gain on sale of assets 3 140 366 140

Foreign currency transaction gain

(loss) (123) 40 (281) 81

Total non-operating income

(expense) (110) 190 114 265

Income before income taxes 1,041 779 5,161 1,692

Income tax (expense) benefit 495 (24) 288 (36)

Net income $1,536 $755 $5,449 $1,656

Basic earnings per share $0.19 $0.09 $0.67 $0.21

Diluted earnings per share $0.18 $0.09 $0.65 $0.20

Weighted-average basic shares 8,260 8,006 8,149 7,968

Weighted-average diluted shares 8,542 8,279 8,436 8,132

Balance Sheet – 2Q18

31

CONSOLDATED BALANCE SHEETS (in thousands, except per share data)

(UNAUDITED)

June 30,

2018

December 31,

2017

ASSETS

CURRENT ASSETS:

Cash and cash equivalents $16,634 $18,541

Trade accounts receivable, net of allowance for

doubtful accounts of $100 and $73, respectively 5,363 3,769

Inventories 4,320 4,168

Other current assets 528 708

TOTAL CURRENT ASSETS 26,845 27,186

Property, plant and equipment – net 2,109 2,458

Income tax receivable 598 598

Other assets 220 45

TOTAL ASSETS $29,772 $30,287

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable $1,238 $1,301

Accrued compensation 1,842 3,536

Deferred revenue 2,410 1,787

Other accrued liabilities 946 858

Income taxes payable 195 218

TOTAL CURRENT LIABILITIES 6,631 7,700

Long-term other payables 468 527

COMMITMENTS - -

STOCKHOLDERS’ EQUITY

Preferred stock -

Authorized, 5,000,000 shares, including

200,000 shares of Series A Junior Participating

Issued and outstanding, none - -

Common stock, at stated value -

Authorized, 30,000,000 shares

Issued and outstanding, 8,427,884 shares as of June 30,

2018 and 8,276,813 shares as of December 31, 2017 19,219 18,989

Accumulated earnings 2,705 2,089

Accumulated other comprehensive income 749 982

TOTAL STOCKHOLDERS’ EQUITY 22,673 22,060

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $29,772 $30,287

Data I/O: Turnaround in Review

32

Reinvigoration of the core business through new product development, cost control and global sales

• 5 consecutive years of revenue growth • 4 consecutive years of profitability • Success of new products, with focus on automated pre-

programming • Automotive growth: over half of new orders in 2017, largest

end market, double digit increases • SentriX Managed and Secure Programming Technology

platform buildout with target market for IoT/Industrial/Consumer

Financial Overview

Full Year 2017 Highlights

Financials Net sales of $34.1 million, up from $23.4 million Net income* of $5.4 million (including $531,000 net benefit from recent tax reform)

or $0.65 per diluted share, up from $1.7 million or $0.20 per diluted share Adjusted EBITDA excluding equity compensation was $6.7 million, up from $2.8

million Total bookings of $34.3 million, highest level in 17 years

Products Automotive orders increased 46% over 2016 to a new record level First order for UFS programming from automotive customer First revenue received for SentriX™ Security Provisioning Platform

Operations Ongoing cost improvement initiatives achieved savings of $1 million from cost of

goods sold and non-headcount expense reductions from the 2014 baseline by the end of 2017

Received ISO9001-2015 certification for US and China Manufacturing locations

33 *Gains on sales of non-core internet domain assets contributed non-operating income of $366,000 in 2017 and $140,000 in 2016.