Data I/O Corporation Aktie

Good afternoon, everyone, and welcome to Data I/O's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. At this time, I'd like to turn the conference over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Data I/O Corporation First Quarter 2026 Financial Results Conference Call. In addition to the earnings, we are also addressing the recently announced transformational acquisition and strategic direct investment of $9 million. With me today are the company's President and CEO, Bill Wentworth; and Chief Financial Officer, Charlie DiBona.

Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position, acquisitions, financings and capital markets initiatives, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, product releases, new industry participants and any other statements that may be construed 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 those expressed or implied in such statements. These factors also include uncertainties as to the impact of global and geopolitical events, international tariff and trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing and other activities by competitors and other risks, including those described from time to time in the company's filings on Form 10-K and 10-Q with the Securities and Exchange Commission in our press releases and other communications. The company may also reference GAAP and non-GAAP financial performance measures, including onetime items, which are intended to provide listeners with a means to better understand the company's performance. Please refer to reconciliations in our earnings press release issued today after the market closed. Finally, the accuracy and completeness of all discussions on this call, including forward-looking statements, should not be unduly relied upon. Data I/O is under no duty to update any forward-looking statements.

And now I'll turn the call over to Bill Wentworth, President and CEO of Data I/O.

Thank you very much, Jordan. As you heard from Jordan, we obviously have a lot of great news to talk about today, but I will start with kind of the low end of this conversation, which is talking a little bit about Q1 and talk a little bit about kind of what happened and what we did to pivot within Q1 to get the momentum that we now have in Q2 as the core business.

So we had some really good plans going into the year. They were well thought out. As you know, we have a very large installed base globally. And a lot of that equipment has certainly gotten an aged and some of it is aging out. So our plans were really around generating revenue through our existing clients first. Obviously, that's the easiest place to go. Things got off to a little slower start than we thought. So we made some pivots and really started to change a little bit of that messaging.

And you can kind of see through Q1, especially into March, where bookings really started to pick up. Now we weren't -- didn't get those bookings in time to ship, but they certainly came into Q2 strong, and that continued to accelerate. So I am -- this company in the past has typically not given any guidance. So this is something that somewhat new. I'm highly confident we be moving north of $5 million, both in bookings and revenue for the quarter. I won't go anything beyond that. This is really to give the shareholders an understanding of really directionally where the business is going on its own.

Obviously, we have an investment we're going to talk about an acquisition, but it's really important that the shareholders and the people on the phone understand that the core business is healthy. It's a slow start, but we've got new products rolling out in the second half, but we've got some really good momentum. A lot of it is actually in North America and Mexico. Asia is still a little bit slow. We did book 3 purchase orders, 4 systems in Europe, which is the most we booked more than the last 2 years combined in Q1. So we are seeing some good pickup. We also will land most likely -- we've landed about 3 net new logos since the beginning of the year. We've got 3 right now in the active pipe for this quarter that we have a good chance of closing. So the land 3 -- and these are not 3 site changes, not like another Jabil location or Flex. These are net new logos that we've never invoiced.

So that is obviously a big part of our plan was to diverse our customer base because we really were so heavily reliant on automotive. And I know in the past, those numbers were 58% to 63%. When I dug in during the year and especially in the second half, it was pretty clear to me a lot of the subcon that we had as kind of industrial were really automotive. So coming off a really tough time in the automotive industry. This has been a big transition overall for us. But we're seeing some of our automotive customers come back. We happen to be riding a few of the right horses there, which is always good. But we feel really good about Q2 and where we're going with the core business. So that's -- Charlie will get into some of the details on the financials. We had some onetime write-offs. And as we optimize the business, that has been a big part of the last 2 quarters.

I will tell you that going into this quarter, our breakeven for the overall business starting April as a clean month going forward is less than $22 million a year overall. When I started, it was close to $27 million. And I will tell you, AI has been a big part of that ability to get more productivity, but also save money. And it's not just about saving money because we -- look, AI is impacting our lives everywhere. We all see it. We see it across companies and across every domain. CEOs are asked about how they're deploying AI all the time. And it has a real positive impact to the company and to companies and to productivity. We've seen a lot of that in different projects that we're working on, and I'll talk more about that in the Q&A.

I'd like to move on to the direct investment. This is something we've been working in and looking at the M&A pipeline that we started to build when we brought Benchmark on as an adviser, that pipeline has stayed pretty healthy, and it still is. But we're really looking for a transformational acquisition. I mean that's -- look, there's some small acquisitions we could do and that would kind of -- but we really needed something that was going to take us to the next step, the next level and give us some scale and scope and increase manufacturing capacity, things like that.

So we've been talking to a company over the last 3, 4, 5 months. And during that time, talking to some investors, -- and I'm happy to announce that we were able to bring in $9 million of proceeds in common stock, warrants, convertible debenture in support of our current M&A activity as well as future M&A. Fundamental institutional investor following our progress and met with us at least 3 times, maybe 4 over the last year. I think we've built a really good relationship with the investor and other investors that are looking. So I really like where we're going as far as bringing in new money. And it's time. This is a new day and age for Data I/O. So we're excited about the future. The team is excited. The companies we're talking to are excited. There's a very large growing market for us.

If you look at the overall semiconductor market, it has gone through the roof over the last several quarters. A lot of that has been in specialty parts such as GPUs and high-speed memory. But now you're starting to see the tide rise for everybody. And this is -- that is where we're seeing the activity as AI starts to get more pervasive across our infrastructure, there are other things that need to be built to support that or take advantage of AI automation. And we're seeing that in places like robotics, edge in the network, 2 of our new logos are robotics companies. You've heard me talk about this in the past couple of quarters, and it was definitely a target market for us. And so those are 2 of the new logos. So we're very excited about where we're going and where Data I/O sits in that supply chain, but as well as getting into services.

I'll talk a little bit more about the acquisition a little bit later. But if you followed us in our launching of our new website on April 10, it was a dynamic change in this company's history. You could see programming as a service, and we are in 4 or 5 very deep conversations right now with significant large subcontractors that want to move from doing it themselves, in-sourcing to programming as a service on-site or regional.

My expertise is services, so this falls right into a comfort zone of mine. And I'm really looking forward to getting back into the services business. It's a great industry. It's recurring. It's got a higher quality of revenue, improved cash flows. It kind of takes out that lumpiness of the CapEx business. I'm sure that -- I know Charlie is going to enjoy those new cash flows as we start to expand that business and the services. And so we're focused on developing the software to also run our products in a multi-tenant environment. And all that leads to better revenue, better recurring revenue and a more predictable business for the future.

I'll move on a little bit to the acquisition. I do want to save a good amount for the Q&A, I hope you guys are ready because we're certainly ready for your questions. As I said, we've been working on this acquisition for quite some time. I will tell you that the team is very excited and what this acquisition does for the company. It's going to help us accelerate our growth. It's going to expand our scale and scope and manufacturing capability. It is truly a transformational acquisition. It will double the size of this company from a run rate perspective post first quarter that we close or when that close happens. I do expect that to happen by the end of Q3. So stay tuned.

And I think at this point, I'd like to hand this over to Charlie and let's see where we go. Yes, I think at this point, Charlie, if you're ready.

Good afternoon, everyone. I'm going to cover 4 areas today. First, I'll walk through our first quarter financial results. Then I'll move on to our updated business framework and second quarter revenue guidance because I suspect that's top of mind for everyone. Third, I'll discuss the $9 million direct investment and what it means for our balance sheet and capitalization. And finally, I'll walk you through the transformational acquisition that Bill was just discussing.

So let me start with the quarter. Net sales in the first quarter were $3.3 million, down from $6.2 million in the first quarter of 2025. The reduced revenues in part reflect lower bookings and backlog coming out of Q4, which was a function of the broader industry dynamics we discussed in prior calls. In addition, as Bill noted, we saw a slower-than-expected ramp of our new sales initiatives. That said, we experienced positive acceleration of traction and momentum through the quarter.

First quarter bookings were $4.2 million, which was a meaningful improvement from the $3.1 million in the fourth quarter of last year, though it was still below the $4.6 million we booked in Q1 of 2025. We're encouraged by the sequential improvement both quarter-over-quarter and through the course of Q1 and importantly, by the composition and quality of the interest in bookings we're seeing. Regionally, first quarter bookings were strongest and most notably improved in Europe, as Bill mentioned. We saw especially late quarter growth in Europe, which is very encouraging. Revenue mix was 47% adapters and 34% software and services, representing 81% of total first quarter revenue, providing a very stable and recurring revenue base with capital equipment making up the remaining 19%. We do expect that capital equipment sales, though, with the strong strength in bookings will rebound in Q2. Backlog as of March 31 was $2.6 million, up from $2.3 million at the year-end, and deferred revenue was held consistent at $1.5 million as of both quarter ends. Gross margin was 49.5% in the first quarter compared to 51.6% in Q1 of last year. The decrease reflects lower absorption of labor and overhead costs on the reduced revenue base. Direct material costs, however, remained relatively steady, and the teams have continued to actively mitigate the impact of tariffs and other inflationary pressures. Operating expenses were $4.75 million for the quarter, of which approximately $1.2 million was onetime expenses. The onetime items were primarily related to the optimization of our German operations, ongoing investments in core programming platform information systems and our ERP -- ongoing ERP transition. Excluding the onetime items, operating expenses were approximately $3.55 million, which is in line with prior year despite the additional operating complexity of the transition we're executing. I want to emphasize that point. Ongoing operating costs are being managed down even as we invest for the future. Bottom line, net loss -- the net loss for Q1 was $3.2 million or $0.34 per share compared with a net loss of $382,000 or $0.04 a share in Q1 of 2025. The increased loss reflects both lower revenue and the onetime expenses. Adjusted EBITDA, excluding equity compensation and onetime items was a negative $1.75 million for the quarter compared to a negative $98,000 a year ago. Both periods include elevated overhead for annual public company expenses that are generally paid in the first quarter. On the balance sheet, cash at the quarter end was $5.7 million compared with $7.9 million at year-end. The decline reflects cash expenses paid annually in the first quarter, including public company compliance costs and insurance renewals, along with onetime items, platform investments and a temporary increase in inventory as we built ahead to satisfy the demand we saw through the end of the quarter. Net working capital was $9.3 million, down from $12.3 million at year-end. Importantly, we continue to have no debt on the balance sheet as of March 31. And today, we announced a private placement resulting in aggregate proceeds of $9 million, which I'll discuss in detail shortly.

Before I get to that and the strategic transaction, let me address the forward outlook because I know near-term trajectory is top of mind for many of you. Our framework for 2026, which we discussed in the last quarterly call, is built on the following pillars: organic revenue growth for 2026 over 2025, and we continue to see good demand signals for that as well as strength in our recurring revenue base and new sales models we're implementing. Acceleration of recurring and services revenues, including the launch of our on-site programming as a platform service as we move forward; entry into the programming services market, which represents a meaningful opportunity to expand our addressable market and our addressable market in which Bill has particular expertise. Operational optimizations driving improved gross and operating margins. As revenue increases, we expect not only better absorption of labor and overhead, but mix will also continue to play a role as we introduce higher-margin software and services. and expense reductions totaling approximately $1.8 million in annual run rate from operational optimizations implemented since the beginning of 2026. That's over the last 5 months, including the German restructuring and broader structural cost improvements. These are already in place, and we expect to see -- reap the benefits of these as we go forward.

And finally, as Bill mentioned, AI is deeply ingrained across all functions and driving productivity gains in engineering, operations, customer support and administration and finance. Now for the second quarter, we are providing revenue guidance of $5 million to $5.4 million. That implies a minimum of approximately 20% sequential growth from the first quarter. I want to be very clear that we are providing this guidance and the context around it. As we saw the sequential acceleration of sales activity within the quarter, we also saw some revenue recognition slippage of bookings that were processed but pushed into Q2 based on the timing of rev rec. The Q2 guidance includes these delayed first quarter sales as well as solid new activity early in the quarter. The demand did not disappear. It shifted. The combination of the late Q1 momentum carrying over and customer engagement building in Q2 gives us visibility to provide this range. I also want to be equally clear, we do not expect to be providing revenue guidance or other specific forward-looking guidance on a regular basis going forward.

This quarter is an unusual circumstance as we saw such rapid acceleration from a weak start of the year. We believe it's important and appropriate to share that with investors in this instance, but this should not be taken as a precedent for ongoing quarterly guidance. On an organic basis, the combination of revenue growth and cost discipline gives us line of sight to positive operating cash flow on an organic basis by the end of 2026. And that organic basis does not yet include the strategic acquisitions that we're going to talk about today or other ones that might come through the course of the year.

So let me turn to the $9 million direct investment, which we announced today and which we expect to close before the end of May. We entered into a securities purchases agreement with a single institutional investor for an aggregate gross proceeds of $9 million. The structure, as you can see in the press release is as follows: investment includes the issuance of approximately 870,000 shares of common stock, a convertible debenture in the principal amount of approximately $6.8 million and warrants to purchase up to 1.08 million shares of common stock. The warrants carry an exercise price of $3 per share and are exercisable for 5 years from issuance. The convertible debenture is unsecured and bears and is convertible into Series B preferred stock, which is nonvoting and convertible into common stock at an initial conversion price of $2.50 per share. The debenture will automatically convert upon receipt of stockholder approval pursuant to NASDAQ rules.

Let me explain why this is the right transaction for the company. First, it validates our strategy. This is a sophisticated institutional investor, making a significant commitment to Data I/O at this stage of our transformation. They will become our single largest shareholder. That kind of conviction from an institutional source, particularly at this inflection point is a strong signal. Second, it strengthens the balance sheet. $9 million in gross proceeds provides us with additional working capital and financial flexibility without encumbering the company with traditional secured debt. The debenture is unsecured, and we anticipate its conversion to preferred stock. This gives us room to operate and invest. Third, it enables our M&A strategy. Combined with our existing cash and the deal structure we've negotiated for the acquisition, this capital positions us well for the transaction and to continue to invest in the organic business. Fourth, the terms are reasonable and aligned. The coupon of the debenture is modest. The conversion and exercise prices reflect -- the conversion -- excuse me, the warrant exercise prices reflect a premium to where the stock has been trading and the investors' willingness to take a large position at this stage speaks to their confidence in the combined organic and inorganic plan. The investment strengthens our foundation.

Now let me tell you what we're building on. We executed a letter of intent to acquire a leading manufacturer in our space. The total consideration is approximately $23 million. And upon closing, as Bill mentioned, this acquisition is expected to nearly double our annual revenues as well as be immediately accretive to both earnings and cash flow. Let me start with the strategic rationale. Well, actually, let me leave that for the Q&A later, okay?

One notable part of the structure, though, I do want to mention is that of the purchase price, about $3 million is going to be in the form of equity. The fact that the current private equity owners have agreed to take roughly 15% of the consideration in our stock is meaningful. These are people who know the business best and they are expressing confidence in the value of the combined enterprise. So let me leave you with this. The first quarter financials reflect where we've been. a business in transition with costs coming down and customer activity building. The Q2 guidance of $5 million to $5.4 million revenue reflects where we're going on an organic basis. The $9 million investment gives us the balance sheet to execute and the acquisition that nearly doubles our revenue is accretive to earnings and cash flow. It signals the transformation of Data I/O in action. We're incredibly excited about what lies ahead, and we look forward to updating you as we move through the closing process and begin integration planning.

With that, I'll turn it back to the operator for Q&A portion of the call.

The first question today comes from David Kanen with Kanen Wealth Management.

Congratulations on the transaction. Very exciting. First question is for Charlie. Bill, you called out -- Bill called out a breakeven of $22 million with the restructuring. So in other words, Charlie, just to clarify, you're saying at $5.5 million per quarter, you'll essentially be EBITDA neutral. Is that correct? And then what is the...

Assuming gross margins stay roughly in line with where they've been. Yes. Which we should see...

There's a slight improvement on some of the changes. We'll see more improvement with the acquisition, but yes, that's a bright state.

Okay. And then, Bill, you alluded to this will roughly double the size of the company. So let's say, for example, that number is $20 million in services. is this a double digit? Is this like a 15% EBITDA margin business? How should we look at that in terms of modeling going forward?

Yes. I think it'd be a little early to model that just because there is a lot -- there are some significant -- there are some solid synergies. I'm not going to say significant. We still have some investigation to do there, Dave, during the due diligence stage of this, which we just kicked off yesterday. So I'd probably hold that back.

And it's not all services. It's probably like a, call it, 60-40, right? So it's not all services. There is CapEx in there. But the services that come along with this company are much more, I would say, recurring nature than even our recurring on the adapters and things more supply chain business and things like that, that are pretty consistent. Whether the side goes up and down, there's always some consistent level of revenue and fairly predictable regardless of what's going on market-wise.

So again, it's -- it will double the size of the company, certainly accretive. There's a lot of work to do between now and when we try to get this thing closed. But there is certainly upside across the board and improving gross margin for both companies, honestly. I mean when I talk -- when I think through AI and what we've done here and the significant productivity improvements we've seen and taking projects that have taken years, and we're actually starting some of them over to reduce our technical debt.

And Dave, you've been with the business for a while. We've got a lot of antiquated equipment and software and hardware out there, and we're finding ways to literally cut the time by 70%, 80% walking through their factory and looking at what they do, there's clear signs in where we can reduce design times by a couple of -- 4 or 5 weeks and certainly bring AI in to get them more productive. So there's just a lot of upside across the board. But from a revenue perspective, yes, you should definitely think kind of 40-plus.

Okay. And then in terms of the capacity to grow organically with the existing footprint or facilities that they have, what is the opportunity of that $20 million or so in revenue, where do you think you can grow that organically with the current facilities that they have?

Yes. It's a great question, Dave, and thanks for asking it because taking a tour of the facility, I was like, yes, we now have expansion capabilities to scale because if you think about where we're going with our core capital CapEx business, we have a fairly tight production floor downstairs. And as we get into Programming as a Service, I'm going to be building even more equipment for our own long-term contracts around programming on-site as a service. So that will increase the need to build more. We would not be able to do that here. I can tell you that. So this allows us to accelerate Programming as a Service because they have plenty of manufacturing space for us to grow into as well as their core business.

Okay. And then final question before I go back into the queue. My apologies for monopolizing. I'm just [indiscernible] questions...

No worries. We love the multiple questions today, Dave, there's a lot going on.

Okay. So Bill, you alluded to potentially the market coming to you. I forgot the exact phraseology, but there's increasing urgency around edge AI infrastructure build-out, security provisioning. So can you talk a little bit about that, the -- let's call it, this AI build-out and exactly where that intersects with programming and what this opportunity is over the next 12 to 24 months?

Absolutely, Dave, another great question. And as we talked about this in previous quarters, and we've just been kind of waiting for the wave to come. And we saw signs of this in Q4. It's why we really thought Q1 would really get out to a faster start than it did. Those conversations obviously accelerated towards the end of the quarter, and now we're deep in discussions and getting POs and booking new logos from those business. But it's really products that surround or utilize AI, such as robotics and automation in cars. We've got a new client that we should be announcing soon that has a very large business in both of those sectors.

So when I look at what AI is doing in our overall economy and across every domain, that automation is going to drive other products that need to be automated or the ability to accept that automation and those AI signals. So as you say, like if you look at Avnet and Arrow's quarters, the last 3 quarters, I mean, their numbers have gone through the roof, right? And they're a great barometer because they're really kind of what I would call supermarkets of the world as far as semiconductors. So if you ever want to look at really what are the trends, they're a great barometer for that. And I segregate that from like the Microns of the world and NVIDIA's the world that have just gone in a stratosphere with their numbers. I mean I've never thought Micron from 4 years ago will go from $56 to almost $700 or more. But the overall semiconductor industry is rising with it because there's needs for like more photonics inside the cabinets and just a little discrete power management chips and all these things. So granted those aren't programmable, but there's a lot of automated solutions needed for these things.

So I think overall, the push is here, and it's starting to drag other industries and semiconductors with it. So that's what we're seeing. That's what we're hearing, and that's what customers are telling us. And I will tell you, the OpEx model, customers love it. And the great thing about programming as a Service, the signatory stage for an OpEx contract isn't at the VP of Finance level. You're at director, manufacturing manager, these decisions can be made at lower levels, which means we can execute multiyear contracts and services, including a managed service fee that we'll have on top of a multiyear contract with guaranteed volumes and minimum monthly revenues that they have to meet.

So that's what really -- I'm really looking forward to that. And also opening up regional programming centers for -- look, like I said, we've got a huge installed base out there. We've got a lot of customers that bought one system and they never really bought again. And maybe they thought their business was going to go one way and it stayed flat. But those customers probably still have a good amount of programming business that we can take back from them regionally. And the advantage we have, Dave, is that we can give them a little bit of value of that equipment, even though it may have aged out or also there's no depreciation left on it because it's still the programming ads and the adapters. So we're in a great place to give customers real value even in old equipment to move to a new model. So I hope that answers your question.

The next question comes from Jon Hickman with Ladenburg.

So I'm new to the story, and I'm sorry if this is naive of me or so. But could you elaborate a little bit more on the -- it says that these guys do semiconductor handling and packaging. Why -- with what's all going on, why is the seller wanting to sell?

Well, it wasn't a company that was in a process, right? And so when I think of M&A, and I've done a lot of M&A over my career, when you're looking at transforming a company such as Data I/O, you're looking around for strengths and weaknesses, right? Where are we strong, whereas a company that might be a great target because they're in an adjacent market or they have some of the businesses in a core part of your market and you put those 2 companies together and can help accelerate growth, scale and scope and revenue.

So it wasn't a question that they had to sell or like obviously, I understand your question because you're thinking why would anybody sell in this market right now because it's so robust, but not everybody's benefit. But their business has definitely strengthened over the last 1.5 years, and they're going into this year strong, and we like where their numbers are going as well as ours.So I think it was more of a you never know when you're going to get a dance partner in life, right? And sometimes timing is everything. I think the match between me and the other CEO, we felt strongly that this was a good idea. And quite frankly, if they were going to go to market at some point, we were definitely one of the companies that would have received the book. But look, we both decided that we felt that this would be a good time for us to merge the companies. We both saw the great opportunities for both firms and the strengths and weaknesses. And so that's why we have come to an agreement.

Who from the other companies are with you?

I can't really get into those details. We just kicked off early due diligence. We'll be getting more on that once we close and talk through really what the -- not only the strategic rationale, but how we're going to lay each other strategy and how well they fit together in the future, the team members and things like that. That's a little way premature.

Okay. And then I missed one thing. How many warrants are going with this deal?

1.08 million.

The next question comes from Howard Root with Fairhope Capital.

Congrats on the next step in this transformation. It's good to see. A couple of questions. First, a little one. Of the $5 million in Q2 that you're kind of guiding toward, is any of that your programming as a service? Has that started to kick in yet? Or when do you see that kicking in? And what's kind of the scope of the size and ballpark and you see that hitting your revenue?

Yes. Great question, Howard. No, it does not include any of that. I can tell you that we are deep in conversations with 8 clients. These are existing customers that already have our equipment, but were looking to buy more. Their businesses are expanding. Some of them are just looking to maybe move to an OpEx model because of all the benefits that you get from an OpEx model, and there are many of them. So no, I would expect that I'd be shocked if we didn't have at least 1 to 3 contracts signed by the end of Q3.

Now so none of that revenue is really built in our current model. There's a little bit in Q4. But I will tell you the conversations are accelerating far faster than even I thought. So no, none of that revenue is in there.

And in terms of...

Like size of revenue or contract may vary. So kind of the rule of thumb that I've used over the years in doing because even at source, we had 4 on-site programming centers with clients. We typically minimal -- the minimum part of annual volumes are usually around $1 million to $1.5 million. From there, that's a machine or 2. You typically look at a big contract would be 5 million, 10 million parts a year, obviously, can find $20 million plus, and they're out there. I mean we have one subcontractor that is talking to us about giving us space in one site and servicing 6 others from that site. So those deals can get big quickly. And if you look at 10 million-plus parts and an average programming price of anywhere between $0.09 and $0.14, $0.15, and that does not include security provisioning, it's pretty good revenue. And obviously, there's a managed service fee in there for things like sockets and maintenance and software. So you add that into the total equation. And then multiyear contracts, these will be 3-year minimum contracts. So very dependable, reliable revenue.

The other note that I didn't get to kind of touch on, which I think is important to everybody is that security provisioning, and I know Data I/O went through this for -- with SentriX for many, many years. There's the CRA Act, which is the Cyber Resilience Act, which is coming out from the EU, becomes mandatory September of 2027. So we're starting to see security provisioning start to become more of an important thing to get taken care of going into 2027. So we are in discussions to have some defend the strategic relationships in that area with both semi houses and contract manufacturers.

I just want to -- because that was a question Dave kind of talked a little bit, I want to get back and get that answer. But it's important for everybody because security provisioning can be kind of 2x the programming charge. We've got 3 opportunities in India right now. And one of them, there is an on-site programming center, and they're just not happy with their services. So we've got some opportunities to really just lodge some competitors as well.

Great. Great. And in terms of the acquisition, if I do the numbers, $23 million, basically $20 million of that in cash. You're raising $9 million gross, you've got $5 million on your balance sheet. That still leaves $6 million, $7 million kind of unaccounted for. How are you going to finance the rest of the acquisition?

I'll turn that over to Charlie.

We're looking at sort of a combination -- potential combination of other sources of cash, also potential debt or assumption of debt. They do have some debt on their balance sheet as it is right now. We may just bring that over. That might be the most expeditious way. But we're -- I think we're very confident about the ability to raise this to secure the rest of the financing.

So you need to raise more money in order to close the transaction? Is that one of the conditions of closing?

No, not raising -- we don't need to raise more equity. We think we can do it most likely with debt or absorption or assumption of their debt.

Okay. Okay. Then finally, in terms of the big, big picture, is this acquisition kind of a next step in the process? Or do you see this as kind of the step and now you've got to kind of -- you've got your 3 legs of the stool, if you will, from what you have, this programming as a service and then this and then you've got to integrate and go forward? Or are you still looking at doing other acquisitions in the next 6 months to a year?

Yes, it gives me the second leg. We still need to go up to the third. But the second leg, obviously, is in -- it's my background. That's why we launched services in early this year, obviously, in March or actually April 10 is when we launched the new website. So services is always going to be on our schedule, whether organic or acquisition. Obviously, doing both accelerates everything. And there are a lot of other service-only providers out there that will be worth taking a look at. This is the first step in that. but it really gives us a great foothold along with what we're already doing organically.

[Operator Instructions] The next question comes from Robert Anderson with Penbrook.

I'm having a little trouble understanding what this acquisition actually does. On the one hand, you suggest it's a manufacturing company, somewhat similar to what you do. So I get the sense that they're right now a competitor, but then they also provide programming as a service. So help me to understand, broadly speaking, what this company does.

Yes, sure. I mean they're in a couple of different markets that are complementary to ours. I wouldn't say they're a direct competitor, Bob. I've talked about buying other -- and they are -- there are other programming companies that would be interesting to look at. I'm not saying that's off the table. But we're looking more in the adjacent plays and services. So complementary to us. I wouldn't say not competitive directly. But the other attributes of this business is that, as you know, we've been so -- holds it on to automotive.

One of the other attributes of this business is there are various different domains that they have. Less than 10% of their business is in automotive. So they do service a lot of semiconductor companies, which we can latch on to those relationships and expand our technology into those companies. They're military, defense and aero kind of a hotspot. We'd like to get there as well. So when you think about the domain barriers that are broken down right away because the customer relationships that they have to leverage are pretty significant. And so we both benefit from some of that. I would say on our side, there's obviously -- when you think through when you're mapping out what your strategy is once you get through a transformational deal like this, you start looking at who are the people that are going to help you execute all this, right? So I've been planning that for probably at least the last 3, 4, 5 months of the people that can come in and help. And I've come across some wonderful people that have been in this industry that can help both companies grow. So there's only so much, Bob, I can share right now, but stay tuned. I think you'll get a much clearer picture post close.

This concludes our question-and-answer session. I'd like to turn the floor back over to Bill Wentworth, Chief Executive Officer, for closing remarks.

All right. Well, I want to thank everybody for the time today. It was -- this is an exciting time in Data I/O's history. I can tell you the team -- there have been people here, and thank you, operator. The team, we've got members here that have been for 20, 25, 35 years. And I can tell you from the energy inside this building right now, they are all extremely excited to -- for this next chapter. There's a couple of people here that were supposed to retire 6 months ago, a year ago. I don't see them going anywhere. They are really excited about where we're going. And these are key, key contributors that have been with this company for a very long time. And they're like this is something that we've been looking forward to for over a decade.

So the energy here and just utilizing the new tools and we've done -- we've really started to really work on graduating from within. If you want to build a great culture, lean on the people that have been here for a while, but give the younger generations and the talent here that didn't maybe get the opportunity they should have had in the past and giving that to them now. And we are really grooming some really great leaders for the future. Very excited about the future.

So we still have a lot of work to do. This is where the real work begins. -- although it feels like the last 3 months feels like 10 years. But look, I've done enough M&A and integration in my time across my own business and larger companies. Charlie has also done the same. We've also brought in some talent that's on the executive team now that also has a significant amount of M&A experience but as well as more importantly, integration. And it's really how you handle the people during that. And when I look at acquisitions and M&A, culture is a huge part of that, if not number one. But on top of that is being able to bring stakes and weaknesses together that complement each other, which in my -- at least in my experience, accelerates growth. So looking forward to all of this, and I'd like to close out and thank everybody for their time today, and we're really looking forward to the next several updates over the next months and quarters coming. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good afternoon, everyone, and welcome to Data I/O's Fourth Quarter 2025 Financial Results Conference Call. Please note, today's event is being recorded.

At this time, I'd like to turn the conference over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Data I/O Corporation Fourth Quarter 2025 Financial Results Conference Call. With me today are the company's President and CEO, Bill Wentworth; and Chief Financial Officer, Charlie DiBona.

Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position, markets, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, product releases, new industry participants and any other statements that may be construed 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 those expressed or implied in such statements.

These factors also include uncertainties as to the impact of global and geopolitical events, international tariff and trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing and other activities by competitors and other risks, including those described from time to time in the company's filings on Form 10-K and 10-Q with the Securities and Exchange Commission, in our press releases and other communications.

The company may also reference GAAP and non-GAAP financial performance measures, including onetime items, which are intended to provide listeners with a means to better understand the company's performance. Please refer to reconciliations in our earnings press release issued today after market close.

Finally, the accuracy and completeness of all discussions on this call, including forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any forward-looking statements.

And now I'll turn the call over to Bill Wentworth, President and CEO of Data I/O.

Thank you, Jordan, very much. Thank you for everybody dialing to the call. And I want to start off, obviously, this is a Q4 earnings call, but obviously, there's a lot that transpired over 2025.

It was certainly a little more difficult of a quarter than we planned. There were a lot of things and headwinds that still continue with tariffs. But I want to assure everyone that, that did not waver us from the continuation of our transformation. You have to get through these tough times and you can't stop the transformation in this company needed. Data I/O had some transformation work that was fairly heavy. We did invest a lot of money into the business, specifically our platform. And I'm pretty proud of the team, very proud of the team and how we ended the year and how we've teed up this year, which I'll talk a little bit about shortly.

The setup, our mission throughout '25 was to transform Data I/O for long-term growth. That plan proving to be approximately 1 year ahead of schedule. I've been through personally quite a few transformations in my own business and with other companies. So this is something I'm fairly good at measuring. I'm pretty -- I'm very confident that we are ahead of schedule. There are things that could even speed that up throughout '26.

We executed against 6 strategic priorities, modernizing the go-to-market, which you'll hear about a little bit later, investing in our core platform. That was #1, then we started that early in '25, strengthening customer relationships. We have really got out in front of customers myself personally, probably really extended more of our employees into talking customers, which is so important in order for transformation to really occur because our team needs to hear from all of our customers and suppliers in order for those transformations to really take hold and for everybody to get energized around those.

Optimizing business operations, IT infrastructure. We went through a fairly sizable cyber attack. We made it through that. I felt extremely well. We were up and running within 11 working days. So we found out a lot about our infrastructure, too, and some of those things that we needed to button up. And that also continues as part of the transformation. We've made great strides there.

Moving to the cloud, that offers obviously additional security, getting things off-prem into the cloud, moving data into more secure applications that are also in the cloud. And again, that continues, improving operational processes and deploying AI company-wide, and you'll definitely hear more about that later in this conversation.

Over the last past 18 months, we have made deliberate changes to the Board and executive suite to ensure that we have the right team in place. Boards -- we've added a Board member and the executive team, obviously, has been -- you have some pivots here and there. I think we, for sure, have the right team on the field to execute the plans this year and return Data I/O to revenue growth and cash flow neutral to positive throughout the year.

Again, transformations take time. And I've been through these and they're not easy. I can tell you that the team has put in a ton of time. They've really stepped up and really have positioned Data I/O for a great 2026.

Our new direction, we're expanding our addressable market. Data I/O is shifting from our traditional programming CapEx market to servicing a broader data provisioning market, a significantly larger opportunity for the company. We're leveraging our platform to reach into 2 adjacent markets, programming services and programming and tests with activity building for both. Yesterday, if you've seen the press release with IR, this is one of the -- this is one of the -- what we feel is going to be a significant opportunity this year and going forward. I've been a big believer in partnerships ever since I've been in the business and been in this business in particular. It's really important. We're a small company. You can't just go it alone.

And being able to forge a relationship and a really strong collaboration with IR really combines their security expertise with our provisioning expertise to create a very comprehensive device support model for security provisioning in the industry. They have a significant algo library aligned with our algo library. We feel the solution is frictionless, fairly easy, and I won't get into the details of how complicated security provisioning could be, but it's very difficult. We presented at a few of their conferences. It's gone really well, and we have business opportunities that we're now talking through with them and our collective customers.

I would say the interesting opportunity I've had from shareholders and other meetings and podcasts conversations around, well, how does AI help Data I/O? Well, I would say during the year and have -- you've heard me make this comment many times, it doesn't really help us now. That has changed. If you remember back in the mid-'90s, the Internet boom and obviously, that went through its change, but it continued even through that pause, and it continued to grow our industry. AI, with the build-out with the hypervisors, that continues and will continue. But what it's doing is these AI models are starting to really gain traction. And I'm sure we all see it in the news -- what this does is now create the need for the build-out of the Edge AI, which is the edge of the network. You can't have autonomous cars and robotics and IoT devices that are fairly -- have a high level of technical capability without expanding the edge of the network. It's just not possible.

We have had conversations with new customers this year already, which was not part of our revenue plan coming into the year of significant build-outs around this Edge AI. This is something that, look, I've been in the technology industry for almost 40 years. And this build-out is something that I think is going to dwarf what the Internet build-out was back in the late '90s. And I don't see this pausing because AI is changing things so fast. There's just -- to keep up with it, I can see that edge of the network continuing to grow.

So we're very excited about the setup, the tailwinds, the new drive and demand for semiconductors as we see things start to pick up across the board. I expect this to be a multiyear growth cycle and new revenue opportunities for Data I/O. New and existing customers are confirming that Edge AI build-outs are real. Early customer alignment and interest validates our strategy and the framework for the company. As we enter 2026, we are poised to deliver organic revenue growth this year with very encouraging customer activity in Q4 and into 2026.

And now I'd like to hand the rest of the conversation to Charlie DiBona, our CFO.

Thanks, Bill, and good afternoon, everyone. I'll take this time now to walk through our fourth quarter and full year financial results, covering revenue and bookings, our revenue mix, margins, operating expenses, bottom line and then also some balance sheet items.

Net sales in the fourth quarter were $4 million, down from $5.2 million in the fourth quarter of 2024. For the full year, net sales were $21.5 million compared with $21.8 million in the prior year. Similarly, fourth quarter bookings were $3.1 million, down 25% from $4.1 million in the prior year period, while full year bookings were $18.6 million, down 17% from $22.5 million in 2024. Regionally, 2025 bookings and revenues were strongest for customers throughout Asia as North America demand remained consistent with the prior year, but Europe declined.

Moving forward, as a global company headquartered in the Western Hemisphere, Data I/O is well positioned to support customers migrating manufacturing facilities to the Americas.

In terms of mix for 2025, consumables and adapters and services represented 58% of total revenue for the year, providing a stable base of recurring revenue. As a result, deferred revenue rose to approximately $1.5 million on December 31, 2025, up from $1.4 million as of September 30 of the year.

Capital equipment sales represented the remaining 42% of 2025 revenues. Demand for capital equipment continued to be negatively impacted by the realignment of technology spending with AI-related data center investments at the forefront. In particular, reassessment of EV capacity and manufacturing impacted the company's largest end market, the automotive electronics sector. Notably, sales to the automotive electronics sector represented 52% of 2025 bookings compared to 59% in 2024, while backlog -- overall backlog as of December 31 was $2.3 million, down from $2.7 million at the end of September. All that said, as Bill mentioned, we've recently seen very positive indications of demand for our products as the build-out of Edge AI is beginning to ramp up.

Gross margins as a percentage of sales was 43% in the fourth quarter compared to 52.2% in the fourth quarter of 2024. Full year gross margin was 49.3% for 2025 compared to 53.3% in the prior year. The decrease in gross margin reflects some mix shift as well as lower absorption of labor and overhead costs. Direct material costs remained relatively steady and consistent with prior periods as the company continued to actively mitigate the impact of tariffs and other inflationary pressures.

Operating expenses for the fourth quarter were $4.2 million, which included approximately $312,000 in onetime expenses related to SEC filings, restructuring work and the initial phases of our transition to a new ERP system. This compared to $4 million in the fourth quarter of 2024. Full year 2025 operating expenses were $15.7 million, of which $1.4 million represented onetime expenses primarily related to the company's leadership transition, investments in the core programming platform and information systems, again, SEC filings and the remediation of the cybersecurity incident first identified on August 16, 2025. This compared to $14.6 million in 2024, wherein there were no onetime operating expenses recorded.

Net loss for the fourth quarter was $2.5 million or $0.27 per share compared to a net loss of $1.2 million or 13% -- $0.13 per share in the fourth quarter of 2024. For the full year, net loss was $5 million or $0.53 per share compared to a net loss of $3.1 million or $0.34 per share in 2024.

Adjusted EBITDA, which excludes equity compensation, was negative $2.5 million in the fourth quarter compared to negative $1.1 million in the fourth quarter of 2024. Excluding onetime expenses of approximately $312 million in the fourth quarter -- $312,000 in the fourth quarter, adjusted EBITDA would have been a negative $1.9 million. For the full year, adjusted EBITDA was negative $3.9 million compared to negative $1.4 million in 2024. Excluding the onetime expenses of $1.4 million, full year adjusted EBITDA for 2025 would have been negative $2.6 million.

The company's balance sheet and liquidity remains solid. Cash at the end of the fourth quarter was $7.9 million compared to $10.3 million on December 31, 2024. The decreased cash balance reflects onetime expenses, technology platform investments and IT spending through the year, partially offset by reduced inventory levels and increased accounts payable. Net working capital was $12.3 million on December 31, 2025, compared to $16.1 million on December 31, 2024. In addition to cash, inventories reduced by about $0.5 million as the team implemented programs to become leaner and more efficient. Finally, the company continues to have no debt on the balance sheet.

Before wrapping up and before we turn to questions, I'd like to provide a framing or framework for thinking about 2026, which is based solely on organic growth. First, we are targeting organic growth for 2026 over 2025, supported by early demand signals we are seeing from Edge AI infrastructure and continued strength in our recurring revenue base.

Second, we have a growing pipeline for entry into the programming services and programming test markets, which represent meaningful opportunities to expand our addressable market.

Third, as revenues increase -- as revenue increases, we expect improved absorption of labor and overhead costs, which should drive improved gross margins relative to what we've experienced in 2025.

Fourth, on the expense side, we are targeting an additional $1 million in run rate reductions beyond the benefit of previously implemented structural and operational cost improvements starting in early 2026.

Fifth, Edge AI is becoming -- AI itself is becoming deeply ingrained across all functional departments in the organization, driving efficiency and enabling us to do more with less.

And finally, the combination of revenue growth and cost discipline gives us line of sight to positive operating cash flow by the end of 2026.

Again, this preview only addresses organic operations and does not include the inorganic initiatives, which we're actively pursuing to accelerate our growth and build out.

With that, I'll turn back to the operator for Q&A portion of the call.

[Operator Instructions] Our first question comes from David Williams with Benchmark.

So, Bill, good to hear from you, and thanks for all the updates. I guess maybe first, can you maybe talk a little bit about the semiconductor manufacturing and maybe what the reshoring does, especially as we come back to the Americas regions. What do you think that means for your revenue opportunity? And is that an area of growth and opportunity for you in the near-term?

Well, Dave, thanks for the question. Great to hear from you. Semiconductor manufacturing coming back to the U.S., I mean, it's great. Obviously, it creates a lot of jobs, which creates growth in other domains and things like that because of factories being built. I wouldn't say the semiconductor manufacturing coming back to the U.S. directly impacts us. What is impacting, again, as we talked about AI build-out, and that's not at the hypervisor level. This is the edge of the network, right, to be able to have all this automation that's coming our way that's going to be AI-driven and AI-enabled.

What we're seeing though is, sure, there's some reshoring going on. That's the other thing that we're seeing is not the semiconductor side, but just products being built and brought back to the Americas. We're seeing things like factories kind of spinning up and activity that we really didn't think that would happen until second half of this year, starting early in the first half.

It's been a little slow out of the gate, but the conversations are definitely picking up. We've got a lot of -- we've got conversations with quite a few clients and new logos that were not in part of our revenue plan, and they're very definitive about when their production is going to start, when they need systems. And I will say the plan that we put in place, our strategy, we've been displaying to these customers, existing and new. The comments are things like you're exactly the supplier we're looking for. You're hitting all the areas that we provision data and need to provision data. And in the past, we were in 1 box. Now in the 3 box, we'll get there. Obviously, that's part of the plan that we'll execute this year inorganically and organically. But it's to be able to be in a position to address the different areas of data provisioning.

The great thing about the strategy is, David, is that we have the platform. It's not like I have -- we have to go out and buy a new technology or make some other investment, which does create risk when you do M&A. We get to use exactly what we've been investing in last year. Going into this year, we're just putting it in other areas of the data provisioning like security.

I hope that answers your question.

Yes. Great color. And then maybe just speak to the AI-assisted software development. And maybe what that means...

Yes, absolutely. [indiscernible] huge evangelist of this, right? So I can tell you personally, I probably watch AI way too much on TV and not shows. I'm talking podcasts, educating myself. When I first became a Board member, it was one of the things we created as -- one of the first couple of meetings was getting AI to just search the technical documents that come from semiconductor companies. These would normally take the engineers 3 to 5 days to read through to get all the information that's important to load the table up to create an algorithm as an example, that would take 3 to 5 days.

Now the Doc AI that we created 8 years -- 18 months ago, almost 2 years now, it costs them in the project, the POC and to get it to work and function probably costs $120,000. I can tell you today, if we did that same project today, it would cost about $100. That's how far AI has advanced.

So to give you an example, we are now creating a CI/CD process, and I know this might be over a few people's heads, but that stands for continuous improvement, continuous development. That's what you have in every software process. It's important to have that built into your DevOps and Agile. So what you do is, when you're writing code, you automate all the functions and what it takes to write code and get software tested and then more importantly, released.

So for the first time, we have AI that we built in our process that actually released production code this week. So meaning like very minimal human intervention. That's how far it's come. And so we're adopting -- we've mainly been using Quad. It's in -- we're using it across every department, but we're creating teams around bug fixing and enhancements and then other teams to just do the new software that we have that's going to be coming out this year that's going to start to retire technical debt, which will further reduce our costs. I can tell you, David, the AI advancements are just amazing, and they are making a huge difference in our company and the ability to produce new products faster and get to market faster.

But on top of it, I've done a lot of M&A in my career. I can tell you, looking at synergies when you do M&A, you have your standard that's 10%, 20%. You can carve out of the back office when you consolidate roles and jobs and things that overlap. AI brings a whole new component to that because you can look at the company and go, if they have not deployed AI, for example, the many places that they could that would advance the optimization of their business. So not only for what we're doing today, but also when we look at inorganic growth as well. I think it's going to accelerate that. It's going to greatly help us get our new ERP online far faster. I mean the things we're doing now with AI before we start the actual process of the transformation of ERP is setting enough to make it. I don't want to say easy for Charlie because he's heading the project. But I can tell you it's had a huge -- it's filled some huge gaps that you would normally be concerned with an ERP implementation.

If you want to comment on that, Charlie?

Yes. I mean...

I could go on and on about AI.

I won't take open objections to the word easy. But it's certainly the speed at which we're doing what are fairly time-consuming tasks like mapping your old chart of accounts to the new chart of accounts, creating new chart of accounts, putting in new policies. The speed at which you can do that with assistance from AI, obviously, overseen by people, making sure everything works. It's just accelerating and derisking the process. And I think it's probably the biggest impact on ERP is going to be the reduction in implementation costs as we go forward. It's just amazing how quickly we're getting the ball in place.

We have a current example. We just launched Salesforce Service Cloud 2 weeks ago, right? Actually, soft launches 2 weeks ago. Formal launch was last week, a week ahead of schedule, which is rare when you're implementing new software. This is -- Service Cloud is going -- is now what we use for taking ticket information from customers when they have a challenge with any of our equipment or software, and that's where they enter the tickets. That project originally was scoped at, and this is only 8 months ago was scoped at almost $250,000 with AI and with some other things that we did to maximize the process and make it easy. We did this for $100,000, and we were on time with the project.

And I can tell you after 5 days, typically, you'll see -- you'll hear a lot of issues with changes substantial as that. I just talked to the Head of Service out the park lot before I went and ran an errand. I said, how is it going, Sam? He's like 5 days in, we're good. Like no noise, no challenges. There haven't been any problems with the customers being able to answer tickets. I mean -- and AI was a big part of that.

Great. Really fantastic color there. I appreciate it. And maybe, Charlie, just one for you. Just kind of thinking about the balance sheet and where you are, how -- what's your level of comfort, I guess, with the balance sheet given the strategy and kind of what you see out in front of you?

Yes, I'm comfortable with it. Obviously, we did drain some cash last year. That's sort of the inevitable outcome of making the investments and the transformation that we were undergoing. But we do see that there is a turning point through the course of the year here as we -- we are very focused internally on controlling costs. We're making moves that we -- like I said, we expect to be at least $1 million of run rate savings, and that will happen through the early part of the year. So we'll realize a lot of that through the course of the year as well.

This is, I think, a very solid. We're a debt-free company right now with decent cash on hand and in a good position to sort of execute on the strategy we have, both organic and -- organic and inorganic, excuse me. And I really don't have any -- it doesn't -- certainly, the balance sheet does not keep me up at night. ERP transformation is keeping up at night.

But I would say in that to add to that, David, is that going back to AI, and I'm sorry to go back to this, but the transformations do cost money, right? And the thing is that coming into the business over 1.5 years ago, this company was very thinly threaded, whereas you were going to need additional resources to do transformations. They don't happen on their own. I can tell you that AI has an impact in lowering the cost of the transformation, especially where we are today and moving forward, then I don't have to hire a bunch of resources to continue the transformation because AI is picking up a lot of the slack and creating product -- huge productivity increases, especially in engineering and software development. So it helps in all areas and will create new sources of revenue for us.

Our next question comes from Michael Legg with Ladenburg Thalmann.

I wanted to dig a little deeper into the M&A pipeline and where you are there. Could you just give us a little update on how that's going?

Yes, absolutely. Mike, as we've talked about, that was certainly a big part of my charter and strategy. And this goes back to October of 2024 when we laid out the original strategy of the Board to get into these other capabilities. We have -- we are in a data room was just opened up on one of our opportunities just 2 nights ago. We have another one being opened up most likely tomorrow. I got a call from a CEO in one of our strategic initiatives to meet at APEX to discuss a serious discussion around acquiring their business, and we have 2 other irons in the fire. So it is a quite active pipeline. More in there -- probably a little more than I'd like, but at least it gives us choices, and that's great.

I fully expect something to happen this year. Obviously, we wouldn't be having these conversations. But everything, again, is directly tied to the strategy that we discussed. So very active pipe, Mike. And there's more behind that once we get through a few of these that fit exactly where we want to fill and the holes we want to fill in our strategy. And then we will refill that pipeline, and we will take another pass at it next year.

And Mike let me just follow-up on that. I do want to emphasize that both Bill and I are very disciplined acquirers. We have already walked from a couple of transactions, and it did not make sense once we got into looking at the financials. We are not going to be -- we're good stewards of the capital of the company. We have very exciting targets that we are looking at. We're enthusiastic about them, but we're also not in deal heat.

And they're day 1 accretive. That's the important thing. I mean, really accretive in a couple of cases. And the important thing, too, Mike, is I've done a fair share of M&A activity. And I can tell you, it's really important. Look, there's things like roll-ups and things like that, that the private equity firms have been doing from day 1 with their LBO funds. There's not a roll-up. This M&A strategy is a place where you have a company that has vertical capabilities and a business that has horizontal. When you put those types of companies together, it accelerates growth because you're filling each other's gaps. And that's where M&A really makes sense, logical sense, but good financial sense as well.

Okay. Great. And then obviously, we have some headwinds in the industry right now. You talked -- you mentioned in the fourth quarter, you saw a lot of good customer activity. Can you just expand on that customer activity and what you're seeing?

Yes, sure. I wouldn't say Q4 had a lot of customer. There were some conversations. A lot of it was tailing off like we'll talk to you in Q1 and Q2. So those were good conversations, trying to get an idea. You're always trying to set up next year, right? So you do a big push, trying to find out when budgets expire, what's left, what's the budget going to look like next year? What are your projects you're working on? A good amount of our pipe this year that are opportunities that are in our pipeline, revenue plan, 75% of them are new from last year.

I mean, so we've had conversations throughout the year, and they're not all new logos, but just new activity, right? Some new logos, it's a big push. It's the reason why we developed the manual product line. We've got reps ready to set up orders in Q1 for our manual systems, which we should start to see next month and to get those manual systems both here in North America and China. I just came fresh off a trip from there, met with one of our largest customers that's a big supplier to BYD. We have new products coming. As a matter of fact, they brought up and asked for a solution just so happens, we're already working on it. And so they offered to be our beta client. And so that's in our pipeline for the second half.

So a lot of exciting things across the board. But yes, those conversations are starting to now look at -- turn into purchase orders as we get into the end of Q1 and definitely into Q2. I mean there's a lot of -- and I think the tariff thing recently pulling that back, there's some pent-up demand back there. I can't tell you how much. I think that will have an impact and give us a little bit of a tailwind, but we'll see. But outside of that, the build-out of Edge AI, our existing customers, the solutions we're bringing them, the new plan that we have to be in all areas of data provisioning, the customers love the story.

Great. And then you mentioned you're a year ahead of plan since you took over, Bill. Can you just kind of give us some of the thoughts you have on 2 years ago, what you thought versus what you're seeing today, some of that why you're ahead of plan, what positive upside you may have seen that you might not have thought of a couple of years ago?

Yes, absolutely. It's a great question. And it's a hard thing to measure, obviously. But in year 1, there's always a significant amount of investment because you're going to have to maybe kill old contracts or you're going to have to swizzle the management team. You're going to have a bunch of onetime costs. We're paying for things that weren't fixed in the past 3, 4, 5 years ago, right? So a lot of that was really all in 2025.

We're still investing in '26, but the investment right now is directly in new products. It's directly in areas that are going to drive revenue. So there's no more -- I would say the cleanup is pretty much completed. I would have thought it would have taken longer. But as I said, the tools we're using and the technology we're using to get there faster has paid huge dividends, and that's only going to accelerate.

So yes, I think we're probably -- typically, transformations of this nature are 2, 2.5 years, we're a good 6 months ahead of schedule, could be more. But easily 6. So that's why we feel really comfortable with the revenue plan this year and get to where we've articulated.

Our next question comes from George Marema with Pareto Ventures.

So Bill, as you guys are moving into physical AI and kind of in-line programming, what are you replacing out there? What are you competing against? And just internally as a company moving into these new areas, what kind of changes in distribution and sales and marketing motions need to happen to fully realize this?

Yes. The great thing is we don't have to change anything. These are existing customers and some new logos that are large contract manufacturers that we call on globally. They're now obviously been tasked with new projects to build out the edge of the network, the products that fit that. There's one campus we went to 80 acres. And next to them is Google, Verizon, a bunch of other companies that have created products that they're going to build for this build-out. This is a massive campus, massive.

And that's -- so it's really -- we're not changing channels. I mean we are handling more of this direct, George. I will tell you that's one of the things that -- look, the reps we've had in the past, the good reps and there's reps that, quite frankly, are old and tired. And so we've been revamping that slowly. We changed all their contracts this year. We're very specific in what they need to do. And if they don't, they know that we will go into these accounts direct. I want to make sure we control our revenue this year. And in the future, it's important. And there's no reason to -- look, nobody is going to sell your products with passion than the people that work for the company. It's just not.

And so our team is very passionate about what they're doing. They're very knowledgeable. Most of them have been in this industry for quite some time, and that's the new blood we brought in. So people like Monty and Dean and others. And again, we're looking to add more sales resources through this year. So that's where the investment is going to be in revenue and growth.

I hope I answered your question.

Yes. And then on the cash flow flipping positive, what kind of revenue do you need to achieve that?

Well, it's tough to say. I mean, obviously, we're reducing and optimizing the business monthly, honestly, and there's some significant optimization that's coming, some we've already done in Q1, which we'll talk about after Q1.

Charlie, I don't know if you want to comment on that.

Yes, obviously, we can't give -- we're not giving specific guidance on revenue, but we believe between the upside on revenue and the cost containment and the cost reductions we can implement that we are pretty comfortably. And you can see what we did last year. You can sort of project from that and say if the 2 lines are moving in opposite directions, both in a positive way, there's a point at which they cross pretty close to where we were.

Okay. So perhaps back half '26, you can flip it.

I think that's probably a reasonable type of...

I think that's fair.

Our next question comes from David Marsh with Singular Research.

So your predecessor was pretty heavily focused on electric vehicle market. You talked a lot about that. And we are starting to see some new products come out and start to take a little bit of market share and starting to see that evolve a little bit. I just wanted to get a sense -- I mean, is that -- clearly, you guys are focused on new and different markets. But can you talk a little bit about activity in that market specifically? And if that's something that's still a revenue driver for you guys?

Oh, yes, absolutely. Automotive will still remain a pretty strong market for us. Obviously -- actually, some of the customers we talked to, I'll give an example, a large German automotive company, Tier 2, actually had told us at Productronica, this was in November. And they had said, we're not going to buy any CapEx for all of 2026. Well, we just presented to their larger team down in Mexico. And after we presented where we were going, so they want us to actually present to their global tech council next month because they were so impressed with the places we're taking our technology and solves a lot of problems that they've had on their board to figure out how to manage data provisioning.

Data provisioning because there's so much content in cars and other products, it's a larger conversation nowadays. It was still 52% of our bookings last year. So it still remains a strong market. The customer I was talking about for beta-ing are -- one of our new solutions is an automotive client. And they're the provider -- one of the largest providers to BYD, which is an EV company. So no, none of that changes or stops. If anything, we're trying to bring new solutions to them, which we are, that will gain more market share for us, but also provide them solutions that they don't currently have today. So kind of that expands the -- it's kind of a market expansion as we drive these new solutions. So no.

And in the other case, we're looking forward to that meeting, but the person who actually said that they weren't going to be buying any CapEx is actually on that council. So we're looking forward to that conversation. So -- but no, I will tell you the strategy we have is spot on and it's crystallized and the customers are 100% nodding up and down.

Got it. And the agreement with IAR, I mean, it's really -- it seems like a really tremendously positive step for you guys. I mean are there other agreements that you could potentially look to ink with some other folks that might be able to provide you those same types of opportunities? I mean I know you have a pretty long history with some of the major electronic component suppliers out there, you had similar conversations with any of those that you might be able to allude to?

Absolutely. And that's -- I'm a big fan of partnerships, like real partnerships where both people win. And IAR, that took a year, right? These things do take time. The great thing about IAR is this was a company that was fallen out of favor with Data I/O. And it actually started at an embedded conference in Nuremberg, Germany, and I'm with my team and they're like, I'm walking towards their booth. I like where are you going? I'm like, I'm walking over there. They're in security, large company, we should partner with them like you do know that is -- the company bought Secure Thingz, and we had fallen out of favor with them.

So I walk in, "Hey, I'm Bill Wentworth." They're like, well, they don't really like us. I said, they don't like you. They don't know me. So walk into the booth, right, completely oblivious and start up a conversation. The first guy I run into actually worked at Arrow before he joined the company, and we knew all the same people. So it broke the ice right away. We had a conversation. That conversation led to this agreement. And look, people like Monty Reagan, our VP of Sales, drove this relationship for the last year and ended in this result. They have a huge algo library. We have one. You combine those 2 with a frictionless solution, we will be the choice in security.

I mean I know that might be a bold statement, but their software development kit is one of the best in the industry, if not the. But your point to, can this lead to other relationships? Yes, because guess what? Their relationships are with semiconductor companies. So as our relationship grows, I'm sure we'll get opportunities with their relationships because as we've created this collaboration, the one thing I say in partnerships, look, we won't both always win. And it's okay. But I'd rather have a ton of at bats than none at all. And so that's the type of real true collaboration partnership you want. And yes, David, we're going to look for more and more of those. Absolutely. It's how this company will grow organically and take share.

[Operator Instructions] Our next question comes from Casey Ryan with WestPark.

Great update. We've kind of picked over the bones here in this call.

You got to get first in line.

I didn't realize it was going to be such a bum rush tonight.

I love it.

Yes. No, it's fantastic. Well, so one question just about the gross margin dip, I think, obviously, tied to revenue, we all understand that. But what do you think is the rebuild? Is it sort of over all 4 quarters through the year? Or can it bounce back a little faster to that? And is like 51%, 52% kind of the right normalized rate in some normal quarter down the road?

I'll let Charlie take that one. He's been studying hard.

I think it will sort of be through the course of the year, though not necessarily purely linear. I think it will come back a little bit faster than -- again, it is tied to volumes, a big part of it at least. And there's a mix shift issue. So there's some of the new products that we're going to be selling, particularly in the back half of the year, higher margin, that will help certainly. Again, we're not giving firm guidance, but I think that if you sort of look at historical levels, that's probably a reasonable starting point. And then mix will play a big part.

And great question. Margin is always on everybody's mind. As we build more value in our software, one of the things that we've done and we'll be releasing, you'll see probably a release next month of a piece of software that really brings a tremendous amount of value. We've been demoing it already with customers. This is the other thing that's gone really well with these customer visits, and they see the value. But what it's going to allow us to do is increase our attach rate on our software for on our equipment. And as you know, that's highly profitable revenue. We have -- I would say our attach rate is probably at 20%, 30%. We should be able to double that throughout the year. And that's a significant boost.

It will both increase the attach rate and the retention rate. So we're looking at boosting, not only helping the gross margin, but helping the overall margin profile of the company and then having sort of a repeated -- contractually repeated revenue source.

Because a lot of times, they would buy these interesting. And this is -- look, the programming industry, I know, has been in it for a very long time. And look, we take advantage of the rules that they didn't have in place, like we would get a software agreement and then we would use it on other machines because they just weren't that sophisticated. It's happened in this industry. There's a way to close that off.

And it's one of the things I said, look, we should not have a customer running our equipment without a software contract. I want to get it to the point where none of them can, and they shouldn't be, honestly, because it's not good for their business and induces risk, especially because one of the things we're going to build in our software stack is the ability to do things like have security built in, like recognize illegal handshakes between our equipment and their network because we don't know where that security breach could have came from. And these are things that are very important to IT departments, CIOs, chief security officers across the board. It's been something that's been ramping up over the last 12 to 18 months anyways.

So as we build more value in our software stack, it will force them to have to have their machines under contract, which -- it's one of our initiatives this year.

Right, right. Okay. And then just one quick question about the concept of maybe some acquisitions to maybe to add services. Beyond being accretive, are you sensitive to the size? Like is there sort of a minimum size that like you're thinking about? Or is geography relevant? Like does it need to be a U.S.-based service sort of for...

Yes, it's a great question. It's a little bit of both, honestly. Geography, that to me is definitely strategic, right? I mean we do have obviously a significant operation in China. It would be good to derisk that a little bit in Asia, right, because Asia will continue to be a strong market. And it's a market, quite honestly, we're weaker against our competition. So my goal is to strengthen that, right, especially with our new products, but also with a footprint. So that's important.

In the U.S., certainly easy to do transactions in the U.S. So those are not only geography friendly, but also strategically friendly as well.

So services is a very fragmented industry. I know I was in it for a long time. It's as fragmented as ever. So there's opportunity there. And so we're going to take advantage of that.

Both Bill and I have experience doing international transactions as well as domestic. Obviously, there's complications that come with international, but there's also opportunities that come with international because we are comfortable trading where other people might not want to walk.

We have time for one more question before concluding the call. We will now take Howard Root, retail investor.

I'll keep it real short after delay. But 2 little quick things. One, Bill, when you stepped in, you really had 2 sets of challenges. One was the market, the other was the product, kind of the platform in that it wasn't integrated. You didn't talk anything about the product status. Has that work all been done to integrate automatic and manual programmers?

Yes. Yes, it has. And so that software, we now can run both our manual engineering units and our automation units on the same software. There's still some cleanup to do, especially in the handler side of things, but we're probably 3 months away from cleaning that up 3 to 4. But as far as that integration, yes, that unified platform is what we talk about a lot with customers because that platform, again, is also will be used in services and at tests when we get there.

So fully integrated, fully compliant, forward compatible with algorithms. Obviously, we still got a -- we do have a legacy product that we're going to start to migrate from. That also is a revenue opportunity in the next 2 to 3 years and starting this year as we start to get customers to migrate to our LumenX platform. So that's the thing. We're out talking to customers that have been with us for quite some time, talking about kind of where FlashCORE is today, how long it's going to be along and that we need to start migrating to LumenX. So that will also be a revenue boost for us over the next 2 years.

Okay. Great. And then in terms of cash flow, just to follow-up. I mean, you ended the year a little under $8 million in cash. Near-term positive cash flow you're saying, but that looks like second half of the year, not first half. And then you're talking about the acquisitions and then you've got the shelf that you filed out there. Obviously, the stock being depressed to use that as a currency is dilutive. Can you do the acquisitions and run your business without issuing any more shares in order to accomplish that? Or is that going to be -- you're going to need a financing here in order to accomplish what you want to do?

I know. If you want to take it...

Yes. I mean there are alternative sources that we're exploring, and we're building some -- we have -- I have some relationships as is Bill to look for nonequity sources of cash. Would there be -- I'm not going to say that there wouldn't be any component of equity in the transaction, but I wouldn't expect it to -- I don't think we're looking at a wholly equity type of acquisition. And then some of it depends on the scale. We're looking at a couple of different things. They are of different sizes. The size obviously plays some role in how much would be...

And how the deal is structured, too, right? So there's been a lot of different options on deal structure. There are some that are very favorable to cash. Like you don't need much of it.

Yes. There's a lot of -- there's a couple of different permutations, but I don't think you're going to look at us just issuing stock for a company. I don't think that's what you're going to be seeing.

Okay. And the reason for doing the shelf registration?

I'm sorry?

The reason for doing the shelf registration.

What was the reason for -- yes, for the shelf.

Well, it is to have that flexibility. I mean there's not many public companies that don't have some kind of shelf registration because it affords you flexibility if there is -- if an opportunity that's sort of uniquely strong comes along. And as I said, I don't think that we're looking at not -- we may blend some equity component into some of these acquisitions. So we would need some flexibility to issue stock. But I don't -- again, I don't think we're going to see 100% stock.

No. Definitely not.

Yes. [indiscernible].

Sorry, Howard, you broke up there. We couldn't hear it.

I'm saying there's no near-term -- there's no present need or desire to tap into that shelf.

No, no, we're not going to just issue shares right now.

No.

That's not our plan. Operator, is that our last question or...

They all hang up.

Did they? Hello?

Yes. Bill, would you please...

Ladies and gentlemen, at this time, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any closing remarks. Bill Wentworth, Chief Executive Officer.

Thank you, operator. I really appreciate everybody jumping on -- the people that jumped on the call and really appreciate the questions. I can't tell you that's far better than reading a script, and I get to talk from the heart and where we're going with the company. I'm very proud of this team. And I'm really looking forward to this year. It was a tough, tough 2025. But those things are never easy. But I can tell you the lack of anxiety that's happening right now, granted, we still have a lot of work to do. And that pace will not stop.

If anything, I would expect the pace to up. The team is ready for it, and we've had a lot of meetings over the last week or 2, getting people prepared and the team prepared for what we're going to embark upon this year and into '27.

So thank you again, all of you for your time. I'm always available for a conversation. Jordan knows that. So if you want any additional conversations, please reach out to Jordan. Happy to talk about the business anytime. Thank you, everyone, and have a great day.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good afternoon, everyone, and welcome to Data I/O's Third Quarter 2025 Financial Results Conference Call. Please note, today's event is being recorded. At this time, I'd like to turn the conference over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Data I/O Corporation Third Quarter 2025 Financial Results Conference Call. With me today are the company's President and CEO, Bill Wentworth; and Chief Financial Officer, Charlie DiBona.

Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position, markets, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, product releases, new industry participants and any other statements that may be construed 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 those expressed or implied in such statements.

These factors also include uncertainties as to the impact of global and geopolitical events, international tariff and trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing and other activities by competitors and other risks, including those described from time to time in the company's filings on Form 10-K and 10-Q with the Securities and Exchange Commission in our press releases and other communications.

The company may also reference GAAP and non-GAAP financial performance measures, including onetime items, which are intended to provide listeners with a means to better understand the company's performance.

Please refer to reconciliations in our third quarter earnings press release issued today after market close. Finally, the accuracy and completeness of all discussions on this call, including forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any forward-looking statements.

And now I'll turn the call over to Bill Wentworth, President and CEO of Data I/O.

Thank you, Jordan, for that introduction. I want to thank the people that have taken the time to -- out of their day to listen to our earnings call and look forward to the conversation and specifically the Q&A after. I spent the last week thinking about the last year since this month marks the year that I started as CEO of Data I/O.

And one of the things that I noticed as a Board member that the company was certainly doing well in the automotive industry, but it was also a fairly high concentration in that business. And it's still a great business for Data I/O and has continued even in this softness, it's still driving quite a bit of our revenue, but it's also one of the things that needs to drive us to get to new markets, but also new businesses.

So what we've done and I look back at the year and look at where we've invested in the first couple of months of discovery, was looking at the team and kind of what the members brought to the party and really where were the strengths and weaknesses of the company from a people standpoint. We brought in a new Director of Engineering, John Duffy, who's done a phenomenal job.

He started in January, getting our refresh of our manual product line and getting the development of our next-generation program, which will be introduced at productronica at the end of this month, which I'm very excited about.

We've won a couple of awards already at some shows with the new reskinned LumenX, which has made the ability for us to really go out and pitch the platform and really get back into the engineering communities, which has been exciting and started to drive some ramp in our manual systems and started to look at some preorders as well, which will really start to kick off in Q1.

Rounding out the product portfolio is probably the most important thing we had to do this year outside of the people. Without the people, you have to have the right people to design the products and bring these things to life. And I have to say, if you look at our product portfolio from a year-ago and look at it today, it's night and day. It's really what Data I/O stands for, and that's what we're excited to bring to market.

We are starting the next generation already of our long-term platform, which started its design cycle this quarter. I would kind of call it Data I/O's AI moment at the end of next year when that product gets released. That doesn't preclude us from driving revenues and new revenues this year with the reskinning of the LumenX and getting to the new platform that we're launching at productronica.

We're also starting the refresh cycle of our automation. We've also noticed some gaps in the solutions area of automation for processing programmable technology. So we're pretty excited about rolling out some new automation platforms sometime around the middle of next year. And that leads to kind of process.

And Charlie is going to get into some of that process and how we're going to be managing margins and look for margin expansion throughout next year quarter-over-quarter, there are some areas that we can definitely improve there. But really, the exciting part is getting into these new businesses in adjacent markets. The market we serve today is $100 million to $200 million at best.

Services definitely needs to be a pillar of this company, and we are starting those conversations now. But that's a $1 billion-plus market that really brings in recurring revenue, not necessarily always contractual, but you're always managing a supply chain and those consistencies take out a lot of the lumpiness of the CapEx business, but it's a directed case at play.

It allows us to drive very competitive pricing in the market. It puts us in a position to really drive that business, both for partners that we may partner with to provide them services or OEMs that decide that they don't want to buy CapEx and they need a service for Gartner instead. So it gives us an opportunity to have both conversations. We are in conversations now about embedding our technology in testers, which is a big part of the market.

That's probably a multibillion-dollar market. Now we're opening up a market that used to be 10% to 15% that we could play in upwards of 60% to 65% of where data gets provisioned. And that's where Data I/O is going to be able to finally grow. These activities are going to have traction next year. I can't tell you when these revenues will start. I just know that we're in conversations, and we're actually in them earlier than I thought.

I really didn't think that we would -- the company would be engaged in these conversations until Q1. So the great thing is that we're out of the gate pretty quick. And then there's some vertical integration that we're going to be doing. People on the phone know the company, Cohu, they invested in sockets years ago. It's a big part of how they go to market with their technology with testers and handlers.

It's a big part of -- and a very important part of our business because the second most important thing to a programmer is being able to make contact with the device. And it's something that Data I/O should have expertise in. It's a $7 billion market. And so it's a business where we can make a small entry into a small player here in the U.S. or even abroad, have that expertise internally, lowers our operating costs, but also gives us a secondary offering, but also as a lead generator as well.

All three of these new business units do drive revenue for the other. And that's the great part about being in adjacent markets, you can leverage your core, which is exactly what we'll be able to do next year. So I'm excited about 2026 because we can finally start to drive the growth engine. We're going to have the products and the people and the services to be able to go do that.

And that's what we're investing in between now and the end of the year, and we'll continue to make those investments next year. We've invested also in the engineering department. We've brought in some additional algo writers to drive our algo migration from our older platforms to the new platforms. So we're getting ready for that growth.

I'd like to -- that's all I have for now. I look forward to the Q&A session. I know there's some coming. So I look forward to this Q&A. I'll hand the rest of it over to Charlie. Charlie?

Thank you, Bill, and good day to everyone. It's a pleasure to speak with you all today, which is my first call as a CFO of Data I/O, and I'm excited about the prospects of this company and of this role in particular. In my remarks, I'll address our recent financial performance in more detail. My comments today will focus on key points of interest for the third quarter of 2025, recent trends and our outlook.

Net sales in the third quarter of 2025 were $5.4 million, down from $5.9 million in Q2 '25 and flat from the prior year period. Bill mentioned some of the pressures that continue to drag on our current performance, revenue performance. These include the temporary realignment of tech spending related to AI and the changes in the global EV landscape for manufacturers and the impact on automotive electronics generally.

Global trade and tariff negotiations, which had been a gating factor earlier this year, remain but are now tertiary concerns. Automotive electronics as a primary business segment represented 78% of our third quarter of '25 bookings compared to 59% for all of 2024. For the third quarter of 2025, consumable adapters and services represented 24% of total revenue, providing a base of reoccurring revenue, while capital equipment sales represented 76% of total revenue.

Similar to the second quarter, Asia was led by customers in China and Korea for a relatively strong third quarter in the region, particularly within the EV sector of automotive electronics. Europe, however, remains pressured with capital equipment spending impacted by tariff and trade uncertainties as well as EV disruptions in the regional market. The Americas bolstered by systems to be deployed in Mexico has been relatively flat.

Global bookings for the quarter were $5.2 million, up over 7% from $4.7 million in the third quarter of 2024. New bookings activities were driven by demand for the PSV7000 automated programming system. A total of 8 of PSV7000 systems complete with LumenX programmers were booked in the third quarter of 2025. Backlog on September -- as of September 30, 2025, was $2.7 million, down slightly from $2.8 million as of June 30, 2025.

Three systems were booked and shipped within the third quarter with 7 systems remaining in the backlog. Gross margin as a percentage of sales was 50.7% in the third quarter of 2025 as compared with 49.8% in the second quarter and 53.9% in the prior year period. A higher margin product mix and configuration of automated systems driven by demand for the PSV7000s led to the improved margins on a sequential quarter comparison. Direct material costs remained steady and consistent with prior periods as supply chain planning and other actions have mitigated the impact of new tariffs, trade and inflationary pressures.

The third quarter gross margin benefited from this positive product mix and configuration of automated systems, as I mentioned. We've begun a thorough review of gross margin enhancement strategies. Some of these initiatives are already underway and should support our gross margins this year. We expect other aspects of this plan will lead to higher sustainable gross margins in the longer term, meaning next year and thereafter.

These strategies are likely to include pricing modifications and new pricing models, labor and costing efficiencies, supply chain optimization and a focus on more direct sales engagements with key customers, particularly in the Americas and Europe. Moving back to my review of third quarter performance. Operating expenses for the third quarter were $4.1 million, up from $3.8 million in the second quarter of 2025 and $3.3 million in the prior year period.

Third quarter 2025 spending tracks closely with the company's operating expenses early in the year after excluding approximately $585,000 in onetime expenses. $200,000 of these expenses were related to the investigation and remediation of the cybersecurity incident first identified on August 16, 2025. $130,000 are related to executive transitions and another $130,000 are onetime expenses tied to technology and IT-related growth initiatives.

For comparison, total second quarter 2025 onetime expenses amounted to $480,000. As with cost of goods, we are undertaking a thorough review of operating expenses to find opportunities for savings and efficiencies. Q3 '25 onetime investments and expenses reduced our profits, adjusted EBITDA and cash in the period.

Backing out those onetime expenses in the third quarter of 2025 would have left us with an operating loss of $808,000 versus the reported third quarter operating loss of $1.393 million and the third quarter operating loss of '24 of $325,000. Again, backing out onetime expenses, adjusted EBITDA would have been $563,000 versus a reported adjusted EBITDA loss of $1.15 million and a positive adjusted EBITDA of $37,000 in the prior year period.

Our cash balance, absent the onetime expenses would have been approximately $600,000 higher or just over $10.2 million as of September 30 versus the reported amount of $9.7 million and the $10.3 million as of December 31, 2024. The company's continued discipline in spending and cash management reflect an improving -- constant cost structure as well as investing in our Unified Program platform and other new products and fortified our IT systems, both of which allow for greater top line growth and scaling of the business.

Data I/O's net working capital of 14 -- just over $14.4 million as of September 30 was slightly lower than $16.1 million as of the end of last year, in part reflecting onetime spending through the three quarters of the year. Finally, the company continues to have no debt. This concludes the remarks for the third quarter of 2025.

Operator, would you please start the Q&A portion of the call?

[Operator Instructions] The first question comes from David Williams with Benchmark.

Congratulations on the progress here and just the confidence in the tone. Certainly good to hear. Yeah, so lots of exciting things going on. And I guess maybe first, I wanted to touch on, Bill, you and I have talked before about just the technology and progressing that and taking it into the future.

And outside of maybe what you discussed just now, what do you think if you look out maybe two years or three years from now, how do you envision just the platform overall? Do you think that all of the growth and the areas of growth that you have that you're looking towards, can you do that, I guess, and still maintain kind of your focus on the core business?

Yeah. It's a great question, David, because I know it sounds like we have a lot going on, which we do, which is great. But it all revolves around the platform. That's the beauty of it, right? So when you think about the platform that we're building that we're in design now, that's really going to be a platform that will last a good 10 years.

We had to kind of round out the existing portfolio of platform that we had and just kind of filled some small gaps until we could build this next gen. But that platform will be the platform we move algos on to and they'll be forward compatible to the new real -- our long-term platform, which will be released at the end of this year. So it kind of fills a gap, but then gets that product.

And it also in the design of this will be designed for the things such as the embedded opportunities we have with some very large test companies, global test companies. Can't disclose any names or really describe what they do, but it's certainly a large opportunity for Data I/O. And it's a part of the data provisioning market that represents probably 25% to 30% or 35% of the overall data provisioning.

And then there's the services piece where we would also use our platform. And the great thing about providing services is you get to test your technologies on these services. So instead of the customer finding some of the problems, we get to find them upfront as a service provider. But that's also a market that's $1 billion-plus market and really hits all domains, right?

And the great thing about some of the partners that we're -- we will be talking to about providing these services and generating these services for is that they serve multiple markets. So it does insulate the company in the future from any domain concentration like we're dealing with now. And then thirdly is the automation that we have today.

We need to be a little more specific because we do program various different types of technologies, from microcontrollers to programmable clocks to sensors all the way up to large density UFS flash. And the platform has to be able to handle all of that. But the solutions you provide need to be a little more specific to the technology, such as microcontrollers typically be programmed in less than a few seconds.

So it doesn't make much sense to program a lot of microcontrollers on a huge 7000, right? So we're looking at providing and generating newer handler technology that is faster -- it's more functional. It's made for very fast programming times, and it's more economical. You get a lot more value. So we're getting very specific.

And then there's also been a gap in the services space, whether it's an OEM that wants to do their own programming in-house or a services provider that needs to provide services for their OEM customers is like a tabletop automation, something that can go tray to tray or tray to tape. It's been a huge gap in our industry for many years.

It's never really been addressed very well. Data I/O did try to address this back in 2008 with what they call the FLX500. It was a great machine. It was just overengineered. And so we're kind of -- the good thing is we still have a lot of the specs and the drawings and software for it.

So we're digging that out of engineering, and we're going to rebirth that machine. We do believe that's going to be a great seller for the company. And it's also something we'll consume internally as a service provider. I hope that answers your question.

No, that was fantastic color. And then maybe secondly, just thinking about your customers and how they're viewing some of these changes, obviously, in a positive way. But do you feel like you're gaining traction there? And I'm assuming that your customers are really leading the way in some of these new technologies. But just anything on the feedback or traction you're seeing, I think, would be very helpful.

Yeah, sure. As a customer myself, these are some of the gaps I've seen for years. So it's easy for me to look through their lens. But we've got a customer here this week that's been a long-term customer of Data I/O. And the great thing about having them on site is you get to share a lot of information. They can share with us.

We share with them what we're thinking and they kind of like say [ and they nod ] and say, yeah, that's a great idea. And so customer has been here all week. It's a customer that's in the automotive space. Meetings are going great and getting that feedback directly from customers is nothing better.

So yeah, I think we're building the things, the products that they need today going forward. When we introduce them to our new manual program, they were like, oh, yeah, I need that. So I think there's no doubt in my mind, we're building what customers do want to consume in the coming years. And there's nothing better than getting direct customer feedback.

The next question is from David Marsh with Singular Research.

Bill, I mean, obviously, you're still -- I hate to say new to Data I/O, it has been a year. But I mean, given all the changes you've made, I mean, the product suite is pretty new, but you're certainly not new to the industry. So I mean, I would first offer congrats on the awards that you're receiving at the trade shows.

But my question is, just given your history in this business, I mean, what have you seen as typical kind of sales cycles from getting kind of critical acclaim at trade shows and getting -- generating that kind of customer interest and then actually getting the pull-through on the orders?

Yes. A lot will depend on the technology event. And the reason why I say that is that technology events, meaning silicon, right? A big change in silicon usually drives big spend. You reach certain technology hurdles. UFS has been one of those. The industry has -- our industry has struggled with getting to the yields that are necessary. We -- I thought we'd be past that for this quarter, and we're not.

And I mean Q3. We made some pretty big strides in the last four weeks. So I think we can announce some really good yield rates on UFS. That's a technology that's -- it's very high-density flash. It has to be programmed offline. You can't do it in line. It's just something that we need to do a better job of perfecting. And I think that would be an example of a pull-through, David, is that when you get that you get that technology conquered, they come to you.

The thing is that UFS was mainly used in automotive, which is fine, but that's also a market that's still relatively depressed. But at the same time, when that market picks up, they're going to be in a position plus a few years have gone by, they'll be refreshing and looking to advance that UFS technology with a company such as Data I/O that has a solution that can solve the problem.

And then you've got in the next year or two, 2027, you've got 1 terabyte flash coming out. And that's across UFS and NVMe will -- is capped out, but UFS will be driving those. We will have the technology available to program those high-dense flash. And it's one of the things when we look at our product portfolio, we're going to refresh the 7000, but that's mainly going to be a system, an automation system that's going to be made for programming high volumes of high-density memory.

The new system will be focused on microcontrollers. You can do both on both machines. They'll have the flexibility, but there'll be a main purpose for those solutions, which will drag our platform in with it. Does that make sense? So I see these -- our PSV line is over 10 years old now. So we are focused this quarter of driving a target list of accounts that have these systems that are 8, 9, 10 years old and going out and being very proactive to get them to refresh.

And the good thing is that we'll have the new platform for them to be able to refresh on. So there'll be a couple of reasons for them to really take a serious consideration of refreshing now even when times are a little slow because, look, this is the best time to invest, right? It's easy to adopt, adapt change or adopt a new platform when things are slow.

That's a great lead-in for my next question, which is as rates are starting to come down a little bit in the U.S., and we're starting to hopefully get some clarity on global trade.

I love your hope.

We got the President now making a lot of deals, hopefully.

That's right. Well, deal away. Good for all of us.

I mean, I guess it is kind of a real-time question. I mean, are you seeing any kind of optimism, particularly outside of the country in terms of the trade partners with some of the -- hopefully, some of this tariff stuff clearing up and giving us a little bit more clearer path forward?

Yeah. I'd say -- and I'd say this cautiously because this is not just the trade issues. I don't know if you read recently, there was a passive supplier that was technically owned by a Netherlands company that became Chinese-owned and the rare earth minerals were getting shut off to them, and they're in about 40% of the automotive products.

We had a call with one of our larger automotive customers early this week, and they said we're shutting our factory for three weeks. Now that can change quickly, right? Just like trade talks can change the tide pretty quickly so can things like turning that back up, right? And so you hope that these trade agreements that are evolving include things like rare earth minerals.

I know that's a hot subject, but it's one that does cause huge ripple effects through the supply chain. So with your hope, I'm hoping that, that's part of these negotiations. But for right now, it's still pretty shaky.

The next question is from [ George Marima with Pareto Ventures ].

Welcome aboard, Charles. A lot there. So let's pull on the partnerships and accretive acquisitions thread. What -- like what kind of hurdle rates are you looking at for that? And what sort of like categorically speaking, what sort of acquisitions we would be looking at in partnerships? What would that look like?

Well, partnerships, those are mostly going to be around the embedding of our technology, right, where our technology can fit inside somebody else's solution that gives them added capability for their customers and their customers are asking for that, such as app test. So those -- we've had some pretty significant conversations with one of the larger test companies in the world.

Those conversations are going to continue at productronica and will probably result in a contract that will start to drive our building of that technology for their platform. So I can't say when that's going to drive revenue. They're looking for a second half of next year release to give you an idea. So this is -- it's real. They have like a scoped release time second half of next year.

A lot will depend, George, on how much they put us in the driver's seat. We're pushing to be the actual provider of the technology from the ground up, meaning developing the whole product versus co-developing. You know how big companies can be. They're not going to work as fast as a small company can. We would like to have this early in the second half, not later in the second half.

So that's why we're pushing our own agenda. We'll see how that goes. They're open to it. There's just a couple of conditions that I need to make sure that our intellectual property is protected. That's the most important thing. As far as things like services, we're in some communication now with some potential opportunities that are really a carve-out.

There's not a huge cash need to bring that business over, could add some good revenue to the business, but get us more importantly into services, which we need to be in. So there's a couple of different methodologies. There are some smaller acquisitions we can do to get there, small acquisitions versus large acquisitions.

They're both the same amount of work. I prefer to do a larger one. So we're opening as many doors. We did hire a boutique advisory firm, by the way, last week, we had our first kickoff call. I've given them 25 targets. We've gone through that pick list, and that is an ongoing activity was just launched last Thursday.

On the services, are we talking about just programming services or beyond that?

No programming services.

And would this be -- kind of explore this a little bit. So let's say, a company hired you, what would this look like?

Well, it depends on the relationship, right? I mean some of it would be -- I mean, right now, because we don't have a programming services division, they wouldn't really be able to hire us right now. So we're going to get the programming services in there with the expertise and the software control system and things, which would come from an acquisition or a carve-out.

Once we get that, yeah, that's kind of the first domino that has to follow, George, because then at that point, then I can open up in somebody's warehouse, I could open up on the production floor, I could open up. Once I have that software control, I can parachute that thing anywhere.

The advantage of being the equipment manufacturer is, certainly, we make the equipment that needed to process the programmable parts. So that's the advantage we have. And that's why I've always thought services should be a cornerstone of a company such as Data I/O, if not the other way around. It's a bigger market.

So as we look out to next year, it sounds like the cadence of things would be your internal new product launches and then embedded applications and socket manufacturing and then later services kind of roll in.

Yeah. I would see services coming first, actually.

Oh really? Okay. And then when you talk about leading the semiconductor road maps, are we talking about just UFS flash or is there other things you're talking about as well?

No. I mean the important part is just staying connected to them because they're rolling out new silicon all the time and sharing road map. So it's more just engaging the semi houses. Like I said, we signed 6 or 7 information sharing agreements with various semi houses.

We need to do a better job though there and really engaging. I think at that point when we could start growing again, I'd certainly like to allocate a resource or two to be calling on the semi houses on a regular basis because they can also help generate leads, too.

Yeah. Okay. Well, I really like to start energy guys, keep it going.

No, pretty excited. It's finally, George, it's been a long year, as you know. So it's nice to start looking at execution of plans instead of just dreaming about them.

[Operator Instructions] The next question is from Casey Ryan with WestPark Capital.

Interesting conversation. So I'd like to ask about the EV, I guess, disruptions. I don't know if that's the word that was used in the press release, but you did sort of suggest Asia was sort of okay and then talked about Europe a little bit and maybe the U.S. and like kind of two things I'm interested in around EVs.

Is it kind of the headline thing where we see credits going away and there's some policy stuff impacting it or are there fundamental things with what the OEMs are thinking about those types of platforms, I guess?

Yeah. Well, I think, obviously, it's no secret that the Asian manufacturers are doing very, very well across the globe. I mean you've seen BYD move up the ladder in Europe as far as share. Domestically, they're doing very well, self-consuming their EVs. That's where we received a bunch of orders. South Korea, some of their automotive kind of parts manufacturers are doing well.

There's a company there called Bobis, who actually feeds into a lot of the different supply chains. So it's -- there's different pockets, I guess, is the best way to say that are pretty strong, and we play in not all of them, but some of them, which has helped this year. The European auto manufacturers are in a lot of hurt.

I mean we had a big call with all our reps. We had 95 of them on the phone last week and really talking about next year and where we're going. Just to get them all kind of geared up and excited about the new products coming, which they are. I will say they applauded the call.

They were like, finally, we have products that you're going to make that we can sell in our own geographical areas, which if you're not in heavy manufacturing, what are you going to sell, right? If you're in engineering and development communities, you need things like manual systems, tabletop systems to do low-volume medium production.

We need to help fill the gaps for them so they can address a bigger market that we haven't been addressing in the past. So they were pretty excited about that. So still, again, automotive is -- it's a little -- it's still -- it's fragmented in the way of the revenue is still in pieces across the globe. And some of it's just not buying anything.

I mean some of these reps came back from their August break, and they said it was -- their business was down 50%, 60%. This is Europe talking. U.S. has been -- and we had a good friend of mine that had a chance to talk to the VP of Supply -- Technology Supply Chain for BMW.

And his comment was, look, the loss of films, kind of inventory is kind of cleared out, but end demand is slow. And it's not -- if you take out the AI spend in the U.S., we don't really have much of an economy after that.

Well, and so I appreciate that, too. Is there some delineation between auto overall and EVs in particular? And does that distinction matter, I guess, from where you guys sit?

Not really because you've got so much technology in cars, honestly, as those markets tune back up, where we have customers that deal in all aspects of that, EV, hybrid and pure petrol, but -- and then a mix. So no, it's across the board.

It's just right now, the EV makers are doing -- and some of the key component manufacturers are still shipping a decent amount of product. Now automotive numbers could stay flat. Content will still be up 10% this year. So you're still seeing that content still drive. You can still have down years [ in that ] but the problem is that when they're not clicking on all 8 cylinders, [ excuse the pun ], but they have excess capacity of our equipment, too.

So when that fills up is when the next buy signal will happen. And I think next-generation products that are using high density flash is going to require more capacity. So as these things start to turn up their new revs, I think the sweet spot right now is 128 gigabyte on UFS for automotive. Those go to 256, 512, you're going to see a spend cycle.

Right. Okay. And then it looks like systems are pretty good in the quarter actually. I think if I just took 76% of revs number, it's like $4 million, $4.1 million. And so it's really consumables that were kind of challenged. And I guess consumable kind of related to units? And is that sort of how we're sort of seeing that inside of the numbers, I guess?

Yeah. We had some pretty good socket spends in the first two quarters. I wasn't surprised to see a little softness in Q3 in that. Always like it to continue. But as things slow down, people aren't processing as many parts, which means they don't have to replace as many sockets. So again, as volumes tune up, you should start to see that number come back.

It's off to a decent start this quarter. I wouldn't say it's flying off. But sometimes you've got CapEx budgets and they may start placing some orders at the end of the quarter. I don't know. I mean we don't get a lot of forecast in that. It's because -- it's not a long lead time item, we pretty much can spend those once they come in within 3, 4, 5 weeks and usually have some inventory going.

So it's -- look, the more you get your platform out there, the more that number goes up. And that's the reason why having the new product portfolio, driving that platform out to market, getting more sites out there means more sockets.

Yeah. Okay. Then three quick margin questions, I guess. Overall margins were pretty steady even though your mix changed quite a bit. So where do -- do systems and consumables carry the same margin? I guess in my mind, I was thinking consumables might be.

No, margins are much higher in consumables, probably 60% to 70%, sometimes a little bit more. But margins, look, we're carrying a little extra expense because we're trying to, again, scale the business, get the business in the right position. We've got some consultants that will probably take off the P&L during the first half of next year for sure.

But where margins are going to get better are going to be better pricing. I mean, honestly, we've just done a -- the company historically on the custom systems has gone off of a list price methodology. Every system we do is custom. I don't know why you go off a list. You should just custom build from the ground up.

We've done this a couple of times already in a couple of orders, and we've come out with not only capturing our costs better, but improved margins on top of it. And now we're getting the reps to do more -- add more value. I mean I'll give you 5 points, but go earn the rest. Why am I protecting your margin? I need to protect.

Well, right, sure. I mean, sort of what I'm drilling into here is that there is really good margin expansion opportunity that you guys are going through.

Absolutely. Yes.

Because mix was sort of off this quarter from a margin preference standpoint and you guys still were flat to up, I think, on gross margins versus last quarter.

Yes. We’re up sequentially. We do expect -- look, we're focused on opportunities, both of the -- on the cost of goods side and as well on the operating expense side, not just -- rooting out some efficiencies, but then as Bill mentioned, I mean, the opportunities on the pricing side for gross margin improvement are -- we believe, significant. We're exploring them. We have -- we still have to understand a little bit better what those dynamics look like. But there's opportunity there that's worth exploring in some depth.

And so Charlie and I and [ Monty ] are going to be digging into that pretty deep this quarter.

Okay. So at some point in the future, we'll say in the far distant future, if revs were split evenly, could you see 55% gross margins or something like that? In your imagination, you guys aren't guiding.

That's theoretically possible, yeah.

We've done that before so I don't see any reason why we couldn't get back there with better rigor around everything we do, expense control, but also more importantly, how we price our products.

Right. Well, like it sounds like pricing, understanding how to price better has a lot of leverage to it. And then as you say, as you grow systems and consumables go up and that's a margin adder to the overall. Just to refresh the last margin question, services, I'm thinking sort of range-wise is sort of a 30% business, but like tell me what you're thinking about its contribution to your margin.

I can tell you from my experience, we ran between 52% and 58%.

On services?

Yes. That's historically. Now obviously, with making the equipment, we have an advantage a little bit because, obviously, we have the margin in that. And we don't want to penalize the core business, right? So we'll sell it obviously at a competitive price. But we have the advantage there for service sockets, things like that. So no, I expect the services business to run pretty healthy margins, definitely not [ 30% ].

Ladies and gentlemen, at this time, we've reached the end of the question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

No, I just want to thank the people on the phone. Great questions. Always love the questions. It's always great to dig into the business. And it's been an interesting year, I have to say. The great thing about it is we -- I think we really have a great team now that we can build from, but we are more importantly, building out the products and the product portfolio.

I think we've got a great focus for next year to grow and grow into these new businesses. And we're initiating discussions with, I think, some really great future partners for our technology. So I want to thank everybody for logging on to the call today and those who are listening in and look forward to updating you next quarter.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good afternoon, everyone, and welcome to the Data I/O Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Data I/O Corporation Second Quarter 2025 Financial Results Conference Call. With me today are the company's President and CEO, Bill Wentworth; and Interim Chief Financial Officer, Todd Henne. Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial positions, markets, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, product releases, new industry participants and any other statements that may be construed 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 those expressed or implied by such statements.

These factors also include uncertainties as the impact of global and geopolitical events, international tariff and trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, 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, in our press releases and other communications.

The company may also reference GAAP and non-GAAP financial performance measures, including onetime items, which are intended to provide listeners with a means to better understand the company's performance. The accuracy and completeness of all discussions on this call, including forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any forward-looking statements. And now I'd like to turn the call over to Bill Wentworth, President and CEO of Data I/O.

Thank you, Jordan, for that introduction. I also want to thank the people that have made the call and took out the time to listen to what we're going to talk about today. As you can see, if anybody has seen the report, bookings were up sequentially from Q4 [ 401 ], Q2 [ 406 ] and Q2 [ 508 ] respectively. That's obviously been a focus for us is to get that booking number going in the right direction. It still hasn't settled in the backlog number. I see that in the second half, and I'll talk a little bit more about that and why. The large system order reflects our commitment to our core programming platform, the new universal platform we'll be rolling out between now and the end of the year.

And the reason for this investment is the complexity of programming technology, especially in memory, has gotten a lot more difficult. And so the commitment to that is we need to have a platform that can actually handle these new technologies and the complexity that come with them and the changing standards that really almost change, almost annually at this point, at least every 2 years. So this complexity has driven the need to obviously invest in our core platform, which we are doing. And that order reflected that commitment because one of those technologies was UFS flash memory. And both UFS and NVMe, which are 2 technologies we are focused on, not the only ones, but certainly not 2 of the core because they have the most complexity, have annual CAGRs between now and 2030 of 14%. That is twice the semiconductor market.

So obviously, there's a very good reason to be focusing in on these technologies, but also advance our platform in general for the wide range of products that we have to serve and eventually end up on one platform, which is our ultimate goal sometime the end of 2026, beginning of 2027, which will also help reduce a significant amount of technical debt the company has been carrying from the past. Second half, I can tell you the product mix looks better. We'll get into the margin discussion later and also look forward to any Q&A around that because, obviously, I'm sure there'll be some very pointed questions around margin, which I totally understand, and we're well aware of it.

We have 6 major events between September and November. This is all around our new product road map, but the products are actually going to be introduced at these shows. These are 6 of the largest shows in their territory from China to Germany, which is productronica. India now has productronica because their tech market has grown significantly. So actually, this is the first time we'll be showing at that event with our new products. China has their show in October, and there's a spattering of other events is also in Mexico, Guadalajara, they have their largest event in September as well.

So this should really pick up -- significantly increase the lead generation that we'll be doing. So these are big announcements that really drive a lot of value and understanding about where Data I/O was going with this technology and its road map overall. And these are road maps that were not just done on a vacuum. I mean they were done with sharing data with our semiconductor partners, which we established better, more significant partnerships in the first quarter of this year, which really helps us really look out 10 to 15 years about where we need to be because the technology is not going to slow down. So we have to be able to accept and be able to have room in our fabric of our platform to be able to absorb these new technologies, which we will have.

Everything from a milestone perspective is on track, which is great. It's a little tight that always happens, but we look really good for these launches for the second half. What else would I like to say? Now it's the product road map. Let's see. I think that's it for right now. I will now turn over to Todd Henne for our financial section, but really look forward to the Q&A. But we have plenty to talk about, and I'm excited to talk about it. So I look forward to your questions. All right. Todd?

Thank you, Bill, and good day to everyone. It's a pleasure to speak with all of you today. In my remarks, I will address our recent financial performance in more detail. My comments today will focus on key points of interest for the second quarter of 2025, recent trends and our outlook for the second half of the year. Net sales in the second quarter of 2025 were $5.0 million, down from $6.2 million in the first quarter of 2025 and up from $5.1 million in the second quarter 2024. First quarter 2025 revenues were elevated due to the completion of a large order received in the first quarter of 2024.

We were also awarded a large order toward the end of the second quarter 2025, which is expected to be shipped and recognized as revenue in the second half of the year. Automotive electronics as a primary business segment represented 66% of second quarter 2025 bookings compared to 59% for all of 2024. Asia, led by China, has been relatively strong, particularly within the EV sector of automotive electronics. Europe and the Americas continue to be pressured by pent-up capital equipment spending due to tariff and trade uncertainties.

Despite this headwind, consumable adapters and services provide a stable base of reoccurring revenue, which represents 50% of total revenue in the second quarter. Moving on to new bookings. The first 2 months of the second quarter carried forward similar activity from the first quarter order activity, which were impacted by the aforementioned tariff uncertainties. Conditions improved in June as evidenced by the large order we announced and have continued to remain active in the third quarter to date, even though certain of the international trade negotiations remain an issue.

Second quarter 2025 bookings were $5.8 million, up from $4.6 million in the first quarter of 2025 and $5.6 million in the second quarter of 2024. Backlog as of June 30, 2025, was $2.8 million, down $200,000 from March 31, 2025. Gross margin as a percentage of sales was 49.8% in the second quarter 2025 as compared to 51.6% in the first quarter 2025 and 54.5% in the prior year period. A lower margin product mix and configuration of automated systems driven by a large customer order led to reduced margins.

Direct material costs remained steady and consistent with prior periods. Ongoing supply chain planning and other actions have been mitigating the impact of new tariffs, trade and inflationary pressures, including shifting material sourcing and product manufacturing. While our top line performance was affected by tariff and trade negotiation pressures, we really have not been meaningfully impacted on the manufacturing side due to earlier mitigation and workaround strategies that are possible given our diversified supply chain and manufacturing operations in the U.S. and China. More recently, we are seeing some smaller items creeping in, like, for example, aluminum that have been hit with higher tariffs in certain parts of the world. We are not an aluminum buyer directly, but there is a small percentage of that metal in some of our system parts we purchase. We are taking steps to avoid this increase in price and note that it is currently in very small and limited amount within our overall cost of goods sold.

Operating expenses for the second quarter 2025 were $3.8 million, up from $3.6 million in the first quarter of 2025 and $3.3 million in the prior year period. Second quarter 2025 spending included approximately $480,000 in onetime expenses, which are part of the company's investments in the core programming platform and information systems as well as for leadership and other human resources transition requirements. While savings from prior improvements in operations and more recent investments are expected to continue to positively influence financial performance, the onetime spending items are being brought to light to provide transparency into what we are doing and where we believe we'd be under normal conditions.

For comparison purposes, first quarter operating expenses, including annual spending on public company costs pertaining to audits, regulatory fees and NASDAQ fees of approximately $300,000. The additional onetime spending in the second quarter of 2025 put us into a loss on operating income, net income and adjusted EBITDA basis. That said, and looking in the cash flow and the balance sheet, we used a very small amount of cash in the quarter, primarily for investments, as we've touched upon during the call and for the other onetime spending purposes. I'd like to provide additional color and perspective on these onetime items. We are making investments as well as critical enhancements to our technology platform and putting in place a road map for the future. These investments are onetime in nature, which amounted to approximately $165,000 in the second quarter of 2025. We also made the important decision to invest in the establishment of 2 other key functional areas: one, our new sales and marketing strategies; and two, the framework for ongoing growth and future business line expansion.

Additional onetime expenses included costs related to HR and the CFO transition for which we spent about $145,000 in the second quarter of 2025. We expect to make an announcement of a permanent CFO in the third quarter of 2025, but I remain on board for a brief period of time to ensure a smooth transition. Therefore, we expect some double spending in the third quarter of 2025 and possibly the fourth quarter of 2025 on the CFO transition. Onetime expenses in the second quarter of 2025 for technology and IT-related growth initiatives amounted to $170,000.

Total onetime investments and expenses in second quarter 2025 were approximately $480,000, which reduced our profits, adjusted EBITDA and cash in the period. Backing out onetime expenses in the second quarter of 2025 would have left us with an operating loss of $364,000 versus the reported second quarter operating loss of $844,000 and the second quarter 2024 operating loss of $566,000. Again, backing out onetime expenses, adjusted EBITDA would have been $43,000 versus the reported adjusted EBITDA loss of $437,000 and positive adjusted EBITDA of $3,000 in the prior year period. Working within this framework, it would seem that our cash balance, absent the onetime expenses would have been approximately $480,000 higher or nearly $10.5 million as of June 30, 2025, versus the reported amount of $10 million at the end of June 2025 and $10.3 million as of December 31, 2024.

Based on this analysis, we can see that our financial performance and cash management reflect an improved cost structure and effective handling of our inventory and other short-term assets, all while we invested for more productive operations and future growth and scaling of the business. Data I/O's net working capital of over $15.6 million as of June 30, 2025, was slightly lower than $16.1 million at the end of last year, largely reflecting onetime spending through the first half of the year, which also included public company and other annual costs paid in the first quarter of 2025. Finally, the company continues to have no debt. This concludes my remarks for the second quarter of 2025. Operator, would you please start the Q&A portion of the call?

[Operator Instructions] Our first question today comes from David Marsh from Singular Research.

I just want to start out, if I could, a quick housekeeping question. With regards to the $480,000, Todd, can you tell me how that hits the P&L in terms of SG&A, R&D, how it might hit the P&L? And how we could think about that going forward, in particular around the kind of double counting you were saying for CFO services in the back half of the year?

Yes. Really, David, it hits multiple areas. I mean primarily the area it's going to hit is going to be the G&A category because that's where the IT spending goes. That's where the finance spending goes, that's where HR goes. So a majority of that is going to be on the G&A line.

Some of the consulting is in there.

And some of it's -- and also the executive, there's some consulting in our executive group, and that's also in the same line item.

And that I would expect to kind of run out by the end of the year. So with the savings that we're seeing across, we did a lot of IT discovery in our infrastructure, and there was a lot of discovery to be done there. And so we identified all the spend. One of my -- the consultants I brought in is going through each vendor. We've already seen what we -- we've already identified about $512,000 worth of spend reduction in our IT annually. And so we're probably about halfway to that number I already implemented.

Expect the rest of that to be done by definitely before year-end, for sure. I can't tell you exactly when because some of it's got a lot of complexity to it. And we're trying to move as much as we can to the cloud, get more stuff off-prem, which then enhances our security. So there's a lot of -- we'll end up with far better infrastructure, far secure infrastructure and half the price. So I think it's been a great exercise for sure. And then I would expect the consultants that do run up to about annualized, if I use the number, some might have increased because of the work that they're doing specifically in IT. So that's going to more than pay for itself.

Probably about an annualized spend around $0.5 million, maybe a little bit more. There's a couple of people that we've extended that we're supposed to retire. I convinced to stay on board because of their 30 years of knowledge, and they've been super helpful in defining our new programming platform and looking at being more vertically integrated, which is one of our new growth strategies that we've now identified in Q2 and we'll be moving forward in the second half. And that's also expanding into services, which I've talked to some of the shareholders about. So sorry for that long-winded answer, but I just want to get all that out, Dave.

No, no, that's really helpful. I appreciate that color and detail. Hey, so Bill, I guess I kind of want to dial in here a little bit on UFS flash. You had a lot of commentary, obviously, in the press release about it. And obviously, great news on these new orders. But this is a part of the business that's been kind of challenged with kind of lower yield rates historically. Could you just talk about what Data I/O can do differently that might produce some better yield rates? And just talk about a little bit more about...

Thanks for the layup. I appreciate that. So yes, so UFS, when Luminex was first introduced, it was really introduced as a product, not a platform. And so through my discovery process, and this actually goes back to Q4, identified some of the technology gaps that were in the platform itself, and they were not small. And so I came back and started the year with a vengeance and just challenged the entire engineering team to say, look, we just need to reset here completely on Luminex. And so that's what we've done. And we brought in some outside consultants that there were some onetime charges in Q1, too that we didn't get a chance to talk about which I wish we did, and we give some reasons and more color for those numbers.

But the investment here, Dave, is going to do exactly that, is get our yields. We need to be at 99.8% or 99.9%. That's the typical yield for memory devices that has been ever since flash came out. UFS, you got to picture it almost like a hard drive. It's got multiple layers, just like a hard drive flatters. And there's also a small part of what's inside the memory that directs to each one of those slivers of wafer or memory section to basically land the data. And so it's like a mini hard drive in a way, but it just does it through flash cells and a small instruction code. That's why they have these what they call protocols.

These handshake protocols have only been present in UFS. They're not even in eMMC. eMCC is just a large piece of memory. That's it. UFS is a completely different animal. And so much more difficult. And if you don't preplan in your architecture for this technology, there's no way you get there. We had to invest in some [indiscernible] equipment to help us actually drive the ability to -- for the engineers to actually identify why it was not -- why we were not getting those yields.

I mean when I went to Asia in December, it was chaos there. And it was because driven by UFS, the yield the log files, the yields were all over the place. It would bounce -- each site would bounce around from failure rates and nobody knew why. And so when I came back from that trip and then I dove into the platform to find out why, it was evident as to why that happened. And so we've been working since January when [ John Duffy ] took over our hardware department in January, I said, John, welcome to Data I/O and you need to design a new platform.

So it was a pretty big introduction. He's done a phenomenal job of getting the engineers rallied around this. And I will tell you, testing on a certain contact that we're trying -- and it's an older contact technology, socket technology, but we've honed in some of the parameters of it. we're seeing 100% yield right now at test. Now it's a small sample size. So we're not ready to say we've won the war because we haven't. There's still a ways to go. There's still some intermittent issues that are happening, but we have line of sight.

And so we also are trying other socketing technology that I believe will actually offer better contacting capability because the next most important thing to our platform is the ability to contact the device. If you can't make that 100% perfect, it's very difficult to drive good yields. It just is. So it's one of the reasons why we're looking at being more vertically integrated around socketing and getting into that market. And it's not a bad market. It's $7 billion. So it wouldn't be bad for Data I/O to enter that market to get a little sliver, and it's a larger market. So it can increase our overall revenue over time. And the margins are pretty solid. So anyway, sorry for that long-winded answer, but that is our primary focus, is yield.

Got it. And then if I could just sneak one last one in here before I yield. Just gross margin, this is kind of a low watermark for the last couple of years that we've seen for the company. Can you just kind of -- obviously, Todd, I caught your comments on mix, but maybe you could just give a little bit more color on that? And kind of just what the expectations are maybe for the back half of the year, if you have any of that available?

We do. Actually, another way up. Thank you. So that order came in June, and we're actually able to ship a few systems out before the end of the quarter, probably 6 of them. That came from one of our larger customers. And the I/Os or the options, I would say, they don't put a lot of them in. They do load up on the programs. That was one of the reasons why we had to conquer this 4.0 because it was part of that order because they were putting LumenX heads in the systems, not as much as we would like, but enough. But they were the smaller systems, less I/Os and you've got 6 of them in the mix with a 7,000, couple of 3500s, it's going to end up putting a lot of pressure on that because the mix was just so pointed in one direction. So that's definitely going to drive down.

The second half, we have a broad -- we have a very broad mix of products on the system side. 3000s, 5000s, 7000s, all look very similar, equal weighted in Q3 and Q4. Certainly, with the manual launches, we should certainly get a lot more conversations around systems as we drive more value into the product line. But we also don't have any revenue in the second half for any of the manual system launches. And I will tell you from the early demos and conversations we've had with customers, they're literally waiting for that product to come out to buy. Like I think we've already got like 15 manual systems. Not a ton of money, but that will start to really build out. And we have a lot of low-hanging fruit with our system customers over the 500 systems that have been delivered over the last 10 years, every one of those customers could at least buy 2 of these manual systems.

So we really expect that to drive a lot more conversation with customers, but also get us more exposure into what they're thinking and where their businesses are going also for 2026. So that's the reason for the depressed margin. We also had some additional costs and cost of materials with prototyping for V1, reskinning V0. So that had a little impact on the margin as well because those costs were not connected to any specific revenue, just added cost to the supply side. So I hope that answers your question.

Our next question comes from Casey Ryan from WestPark Capital.

Real quickly, I think we've talked in the past about wanting to expand beyond automotive, and I know that this takes time. Would you be happy to give us sort of a qualitative view of how it's going sort of expanding and getting into new customers, right, and talking to people who maybe knew you but hadn't chosen me in the past because that feels like a big expansion area, right, long term?

Right, right. No, it's a good question. And unfortunately, right now, I would say the new conversations are really going to be driven by the lead generation from the 6 shows we have coming up in the second half. Right now, I wouldn't say that we're not out there selling, but certainly, we have these new product launches coming up and that we know is going to drive more value to customers than new customers. So we're kind of in that in-between moment. But certainly, on the customer side, yes, automotive continues to be a big because it's been very large.

And when you have these trail headwinds -- as an example, Korea, our Korea rep, South Korea rep, was one of our largest revenue-producing reps. And at this point last year, they had acquired. And when they forecasted for 2025, certainly, tariffs wasn't in the discussion at that time in December forecasting. But they were earmarked for $3.5 million of revenue. They've done 0. And it's a lot has been tariff-driven because in Korea, the customers we have there are tariff affected, their volumes slow down and they just put CapEx on hold. And so that's been a direct impact to our revenue for the first half. We would have a far better first half if that had not occurred.

March, April and May were scary months. best I could say. June was outstanding. So we unlocked some of that kind of CapEx spend that was out there. But again, it ended up being mostly automotive. So it went from -- we went from 59% or 58% to 66%. It's not the direction I want to go in. We definitely want to be more diverse in our domains that we serve because that obviously makes the revenue more stable and not as impactful if you have an industry event like we have had in automotive. which really started to affect the numbers early last year.

So absolutely, there's a continued focus. Monty and the sales team are all over that. We are changing almost monthly kind of our strategy. It's getting better and better as we fine-tune it. We're definitely being far more consultative. We came up with additional sales strategies that are going to help that. But on top of it, with the investment in IT infrastructure, mostly on the application side, we're adopting Salesforce Service Cloud. It's a great application. It ties directly into CRM, but it also will allow us to get the field service team to also be revenue generating. That group should generate revenue. through doing milk runs, health checks, going in and talking to the operators, offering training, but also identifying things that they may not know about our product line where they could get more throughput, better productivity, other programs, software that can help them identify issues if they have any, like really drive a lot more value.

And so -- and we're going to initiate that even before the implementation of Service Cloud, which should be about 12 weeks. I want to get at least the last 2 months fully under Salesforce Service Cloud. But we're going to start those milk runs this quarter, probably September. It's after the summer season, everybody is back into full work form. So after Labor Day, we'll probably start those. So we're identifying exactly the regions. We've got the team to go out. We're arming them with iPads so they can document all the data and enter it directly into Salesforce. And then when Salesforce Service Cloud comes online, that data will already be in there. There's not a whole lot of data we'll be able to pull from the old system because the way it was configured, but we'll be pulling over the meaningful data.

So yes, there's a total focus around enhancing our existing customer relationships, and a lot of this comes from contract manufacturers. I mean contract manufacturers have, as a service provider, have diversity built into their customer base already. We had a couple of machines go out to [ Jville ] end of last quarter, one going out this quarter. So when they use these machines in some of the plants that are somewhat universal in the markets they serve, some will be dedicated to automotive.

That was where one of these systems went because of the reason that, one, it's a platform they designed into their build plan. So once you set that in automotive, you can't make changes. So you're in. But one is more of one of the facilities that does a broad range of products. So we are even managing that to that level within the EMS world because you have to set up by domain based on compliance programs, regulation, things like that. So no, it's very much a focus. I do not like being focused. I mean, look, I learned a very hard lesson back in 2001 of being too focused on a domain, which was networking and telco back in early 2001, and it was devastating to the entire industry. So it's one of the things even as a Board member identified this is something that has to be changed.

Right. Okay. Good. Well, that's actually very helpful. overview.

We just can't get out of automotives way. They like us.

You're just too popular.

I guess so.

So the bookings growth was really good, right, quarter-over-quarter, I think 26%, I mean, which is a big number off a small number, so I understand that. But do you feel like we could continue to see bookings at this level? Or is it reasonable to think that bookings could actually keep rising as we move through the year not at all -- that they would be recognized?

They should and they will. I mean we're rolling out new products. The good thing about the booking numbers -- and so systems are a little more challenging, like depending on the system type, the fact that we -- they were 5000s actually was a good thing because we could build them faster. They're easier machines to make. China is -- I mean, the order was in China, the Shanghai facility built them and delivered them.

So that was a unique situation, super -- that's why we were focused so hard on getting over this UFS, not only just to complement or be able to show that we can actually do this and be able to get high yields on UFS technology because there are multiple protocols out there. The sweet spot right now for UFS is 3.1 and about 128 gigabytes. But there's already 256s out there, there's 512 coming and 1 terabyte coming in 2027. So the unique thing about this is we were able to book and ship within the quarter a decent amount of those systems to help the quarter. So yes, that was the big help there.

Okay. All right. Terrific. And then sort of getting to the gross margins, I guess I'm a little less concerned about it, but quarter-to-quarter. But tell me about the spread of the margins across your products. How widespread do we have to think about in terms of mix? I mean, are some at 70% and some at 30%? Or is everyone kind of in this 45%?

No, no. Like it's a good question. Actually, the Board asked that question yesterday. We need to do a little bit more homework on that so we can identify. One of the things that manufacturing implemented at the beginning of the year is that we didn't do a good job of true cost accounting at the labor level, right, to really understand what our margins are product to product. So I had Dwayne stood in. Dwayne Jones is our VP of Manufacturing. It's awesome for what he does. He's been here for 30 years. And he's been crying for this opportunity to be able to track the data as we build. And so they've been doing that, and then we'll start to be able to do -- we are doing true activity-based accounting on manufacturing. We understand the exact margins of those products.

And look, manual systems are going to have a much like sockets, very similar margin to sockets, maybe even more because as we build leverage on the platform, we can also increase our pricing and that increase in pricing. And as I looked at how we price things, we tend to mark up the things we don't make pretty high, and I don't think we mark up our core platform and where we invest our capital high enough. So we're going to start breaking some of this stuff out, just especially internally so that where we're spending the money accurately shows the generation of revenue and the gross margin contribution to the company.

And so then when I talk about investing at the core, people will get excited, right, because they'll see the real value that we drive by making those investments in what we do, which is building programmers, not analysts. We do -- the PSV line is kind of aged at this point. It's been over 10 years or around 10 years since the first PSV was announced. We are looking at new automation designs now, and we'll start hopefully a project plan by Q1. But we're going to simplify the systems.

And by simplification, it actually leads to a much lower cost, so we'll have increased margins, but we're also looking at the market a little differently than putting everything in one platform and one machine. We'll still make probably the 7000. We'll do some advances on it, change the smack heads, but it will increase speed and UPH. But when you have a large system that moves in multiple directions, they just will tend to break down more. And we try to give customers the right information on what to maintain, but they don't always do it. So by going to a single gantry and a very high-speed pick head, we can get probably a 50% increase in throughput in a machine that's far less to build and far simpler to manage. And so -- and it has a smaller footprint. So again, these are just design thoughts, but definitely doable. And what it does is it should increase uptime for our customers, but also lower maintenance costs and higher throughput. I mean that's a pretty large value that they get there.

And then the second part of that will be breaking off some of the IOs and put that in a separate system, meaning marking and tape and reel. Tape and reel will still be able to go tape to tape or trade to tape in the programmer platform, automation platform. But there's a real need for a system that just does those services, complementary to programming, but also individually in their supply chain. So I think we could put a package of 2 systems that marry up to each other that provide customers a wider variability to manage their supply chain, like if they had parts that came in and some of them were bent in the reels, they could run vision inspection on that machine and not do programming.

So I think it expands our market as well in automation in general. I mean, the whole purpose is on the programming side, but why not have a machine that's universal that's at a good price point that you can do other services on it. The programming houses will love it. The contract manufacturers will love it because they can build that into their supply chain.

[Operator Instructions] Our next question comes from George Marema from Pareto Ventures.

First, I just want to say I'm absolutely thrilled with the team's energy and the big positive cultural shift going on there. It's like an entrepreneurial startup, and I'm just thrilled about this.

It is. I will tell you, I changed the work-from-home policy a few weeks ago. Not everybody loved it. But I will tell you, in the last 4 weeks, it's amazing the amount of collaboration we have now. I've got the software team in here altogether. They're here on fixed days. You can see the collaboration growing, which is -- it will just extend into the value that we'll be driving in the second half. I mean some of the software team came out and fixed the old product. When we get this thing out there, it is the amount of value that it's going to give our customers is -- I was just blown away when they did the demo last week. I mean it's pretty special what's going on in the building right now.

That's great to hear. A couple of questions. One is on this $1.4 million EV order from China. What kind of penetration does this represent into this company? And does it meet all their needs? And what does this replace that they were using?

It didn't replace. It's -- obviously, the Chinese EV market is doing very well inside of China and also outside of China, where they don't have massive tariffs put on their cars and can actually sell them. So that is -- they were an existing customer already had 20 systems. So this was adding to their demand. So an existing customer. And that's why the configuration was what we expected from them and price point, we kind of knew and look, it was a great order to overcome. The UFS technology is something that they already use. It's also -- so that was 4.0 because they were going to make a new investment and those systems are on a product that's going to adopt the 4.0 protocols.

Like I said earlier, the 3.1 is the sweet spot today. They use that in our systems for that as well and have been dealing with the yield issue. It's why we were -- they were like, "Look, we're not going to place an order unless you can show us you can conquer this." And we did, and we got the order. I mean we work -- the engineers work literally 24/7 for 8 weeks. I mean it was it was hardcore. And so -- and they accomplished a phenomenal goal, which also gave them all the hope that we know we can conquer the 3.1. And all our competitors are having the same problems. Once we solve this yield issue, I believe there's pent-up demand in the sweet spot right now.

So I can't say that confirmatory with 100% confidence, it's just a feeling, but I think customers have also held back in general offline programming until this problem can be resolved. And they're just managing through. They can get enough yield to build the products. But if I was them, I wouldn't be happy either. But we're giving them a lot of hope that we -- not hope, we've shown them that we can fix this. And so we're pretty close on. I would say we're probably 4 to 6 weeks. Again, that's just a range, and it may be 8, but we will get 3.1 solved by the end of this quarter.

So let me go with that. So if you get that solved and then the 4.0, like can you sort of describe best you can sort of what kind of dollar market opportunity does that represent for you guys if you solve these problems? And also, does the profile of this solution have the same type of recurring adapter revenue? Or is it less or more or about the same?

No, no, it was same adapter revenue and all that. Yes, none of that changes. If anything, they probably would increase, obviously, as they move into more of using UFS across their entire platform. But I'll tell you, it's not just Asia, it's Korea, it's Europe. It's -- there's not much UFS, believe it or not, not a ton in Mexico, but it's coming. So as more and more adoption of the UFS and NVMe too, which is something we haven't talked about before, but it is a technology that also is growing at 14% CAGR. We actually, ironically, the bench equipment was already here to start working on it. It was just never implemented.

So it's hard for me to put in dollars because, again, like if I look at the Korea customers, they bought 7000s. They didn't buy 5000s. So they would load up because they're using a ton, especially in consumer, some in automotive. But on the consumer side, you're driving large, large volumes of UFS. So in Korea, they would configure those systems with pretty much all LumenX, no flash. So it's hard for me to give you a very direct answer because it's literally region by region, and it's also market by market. Does that make sense?

Yes. Suffice to say, it's a large opportunity, though, yes.

Yes. Well, of course. And like I said, 14% is twice the overall semiconductor TAM. So it would be crazy not to conquer this. I mean it's where literally a significant amount of our engineering time is being spent right now. We've really -- I dumped a lot of the programs that were in the business in Q4, pretty much all of them because, one, it wasn't investing in the core and it wasn't solving the problem. What I found was and as a Board member, just became recently aware of the UFS but until you get under the covers, you don't really know what's going on. I mean they can flash up a bunch of reports that says we've solved this, we've solved that. In reality, a lot of it was not solved.

And it's not because they were kind of guessing as to where they should focus the solve. And I will tell you from my experience of being intimately involved in this right now is that it's literally 4 or 5 areas of our technology and our automation, and socketing is a huge part of this, right? So contacting the device. And also, the LumenX platform is 8 sites. 8 sites was okay with eMMC, not okay with UFS. And so by the new platform goes down to 4 sites, which gives us much more power to every pin on the device, which you need to access multiple of these pins because you're dealing with such complexity in the device itself.

So we can solve it with what we refer to as M8, but M4 will definitely be which gets launched in November. But we've been able to do some pretty special things even on the existing platform like 4.0, which has fairly complex communication handshake needs. But I will say from 3.1 to 4.0, the suppliers themselves have gotten better because even some of them implement these protocols in variable different ways. That's the other complexity. It's not the same across all the silicon providers. Some they're really good at it, like Micron. And I won't call out the ones that don't do a great job, but there are some that it's a bigger area of gray. So you have to have the right bench equipment to do that and to identify that and understand it.

So the team is learning a lot. And I think through these challenges, we're going to up our ante in these consortiums. We're actually going to be a real member of these different committees, and we'll have representation at those large committee meetings when they start talking about the protocols and so. So we're ahead of this all the time in the future.

And ladies and gentlemen, at this time, we've reached the end of the question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Well, I just want to thank everybody for taking the time to listen to our spiel. We're very, very excited about where we're going. The team is as energetic as ever. I think it seems to be increasing week after week. We've got some people that retired and I put them on contract because of their knowledge and now they're thinking, "I don't know if I want to retire." I'm like, "Sorry." No, kidding. I mean, love to keep them around. These are people with 20, 25, 30 years of experience.

That's one of the other things that we're really going to start to drive in our customer presentations is why do you choose Data I/O? I can tell you, Dwayne Jones has been here for 30 years. That's 10 years longer than Dediprog, one of our competitors even been alive. So to not promote that educate the knowledge base that's in this building, it just needed to be unlocked. And that's what we're doing.

And I think it's obviously helping us solve these complex problems and get to where we need to go, but it's also driven a lot of excitement. And the collaboration, like I said, we've got some interns in here now that are learning and that they're loving doing the business. They're learning -- what they're learning they love. And some of our best hardware engineers were those very interns 5 years ago. So yes, I just think as we build more and more knowledge, we need to be viewed as the experts in this space, and that's what we're doing.

So I want to thank everybody. It was definitely a hard quarter. This was not easy. The first 2 months were ugly, and we had a great close to the quarter. My goal is to get through the first half a little unscathed, I guess, and not too many scars because I know the second half is going to be better. So thanks, everyone.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good day, and welcome to the IAccess Alpha Virtual Best Ideas Summer Investment Conference 2025. The next presenting company is Data I/O. [Operator Instructions] I'd now like to turn the floor over to today's host, Bill Wentworth, CEO at Data I/O. Sir, the floor is yours.

Thank you. I'd like to thank everybody for spending the time from the Best Ideas Conference. My name is Bill Wentworth, CEO of Data I/O. I became CEO around October 31 of last year. So why don't we dive into the presentation here. Here's our safe harbor.

The next slide, this is a slide that try to tell what we do is a very complicated process. And what we do is we take a technology and we take some of the most complicated parts of semiconductor technologies, programmable semiconductor technology and provision data. So this slide tries to simplify what we do, which is a very complicated, technically heavy process. So if you see under one, the design side, think of that as, say, the inside of an iPhone that has not been provisioned data. It's basically blank silicon that gets placed on the board. What we do is we take, say, a file from an OEM, say, such as Apple. And we take that data file and we wrap our software engine around that. Think of it as a delivery methodology and takes that file and delivers it into the silicon using the technology that's under label as 3, our platform, which is the hardware and software that we produce, which is our core IP.

That technology takes that software file and embeds it into the silicon. That silicon then gets placed on the board under 4. And once it's on the board, it basically has all the instructions and data files and the security and provisioning and things like that to make the product actually function for its intended purpose. So we're basically taking data and embedding it through embedded hardware and software through a platform, which is our IP to create functionality for the silicon, which comes out of factories blank essentially. That's kind of the simplest way to describe what Data I/O does. We do this for Fortune 500 companies all over the world. We have a significant amount of market share in automotive, IoT, industrial controls, service providers such as large distributors, which I'll get into later on in the presentation.

So Data I/O was founded in 1972. And this is -- in the '70s is when, let's say, integrated circuits, which were programmable type silicon, which first entered the market in the early '70s. So Data I/O was really born out of 5 engineers driven by the engineering community to find ways to deal with this new type of silicon, which was going to allow for more complex technology products to be born. So they developed a proprietary programming platform. Their first product was called the Data I/O 1. You actually punch tree tables and hexadecimal files into a keyboard and have printed out a paper tape. That paper tape was your master. So that's obviously going way back.

Since that point, Data I/O has become a global company with global service and support, over 100 employees. We have patents both in the U.S. and internationally. On our platform, there's probably been billions of devices programmed at this point. We have over 500 automated systems deployed across the globe, and those systems are very large automated systems for large manufacturing facilities and large volume of technology products. We also have a significant amount of manual systems that are deployed worldwide, mostly in engineering labs and preproduction and prototype facilities.

So here is kind of how we look at the supply chain of the silicon that we deal with across the global supply chain. The middle is our 2 platforms, FlashCore III and LumenX. That's what we deploy into engineering labs. It's also what we embed in our automated systems. So we look at this as kind of a full circle of how we support our customers. We've -- there's new technologies in silicon coming out every year. And what our goal is to obviously be ahead of that silicon. So when it comes out that our technology has support, both from a software standpoint, but also from a packaging standpoint. There are hundreds of different package styles of silicon from QFPs to BGAs and fine pitch. And so these are the things that we work with silicon providers such as NXP, Micron, Hynix, Samsung, pretty much all the support Microchip, the suppliers that make microcontrollers and flash memory devices.

So we have relationships with those suppliers, talk to them early and often. We review product road maps. We disclose our product road maps to make sure they're aligned with the silicon that's coming out today and also in the future. We have the global service and support. Data I/O has been around for over 50 years. I went to my first conference, which is our industry conference, APEX in March in Anaheim. And it was quite surprising to see how well the brand is still recognized. It was something as a new CEO, something, obviously, that we can continue to build off of. The brand has been around, like I said, for 50 years, and it's got a significant amount of recognition as we go out to market.

Let's see next slide. Here we go. This is one of the things that's becoming new CEO and a little bit of my background, I've been in this particular space at a fairly young age when Dad was an entrepreneur in the electronics distribution business. And actually, my first intersection with Data I/O was when I was a teenager working in my dad's business. One of the things that Data I/O was very good at was being embedded into the engineering communities from a design standpoint. And they had a fairly significant product portfolio of manual programmers that were used by engineers, both at OEMs and silicon providers. What I found when I came here as a Board member and then took over as CEO was there was a kind of a gap in the product portfolio.

So one of the first things we did was kind of reinvent the product portfolio and get back to being able to have a product that can be embedded and used in the engineering community. As we know that manufacturing has moved all over the globe, the U.S. has become more of a design community than a production community, although there are shifts in the supply chain coming back to North America, it's still going to be a global supply chain. So one of the things we've done early on late last year was reinvent the product portfolio and start with the manual systems, which is where technology is developed. So the importance of that is that we're designed in at the day of design of the product and that we're the reference products to be used as that product goes into production, which puts Data I/O in a really good position to capture the larger sales of systems -- automated systems that our technology is embedded in.

And that allows us to capture greater market share. So these products have been released. We introduced them at the APEX Show in March. We have a more formal release of 2 new versions coming out in September and November at both Productronica shows in India and the larger one in Munich. So the second half of this year is a pretty exciting time for Data I/O, especially with these new product introductions and a renewed focus on the entire supply chain of the technology that we support.

Next slide. Okay. This slide shows kind of that what I was just talking about at the beginning of the supply chain and the design and engineering and MPI communities. As you can see, the manual systems there on the left, this is where we control the data files and where first articles are done, MPI. It's also where we test out new silicon that comes out from the silicon providers and manufacturers. And from there, our product is then embedded in a system that we make, we created and sell the automated systems. And this is more for medium volume and high-volume production environments. And then from there, the -- after products are sent to the market, if there's any repairs needed or rework or there's changes in the technology and those products are sent back to the manufacturer, our systems can be used for debug, test, quality, quality assurance, rework, repair.

So we try to capture that whole supply chain and that whole evolution of the product from the beginning of the life of the product to the end of life of the product. As talked about earlier, there are -- the markets that we mainly serve, Data I/O probably since the last 10 years as automotive technology has gotten more complex. Obviously, we see in cars from entertainment systems, info systems to safety systems to engine control systems that embed or bring together electrical hybrid components and with combustion engines, there's a lot more complexity in cars. And with that complexity has driven the need for flash memories and microcontrollers. So that market has become almost 60% of our revenue. But one of the things that we've -- as myself and the new management team have come in to really diversify our revenue across a broader base.

As you see that top section, that's an area that deploys and consumes a lot of our technology, not just ours, but our competitors, but one of the -- it's a market that we have -- I would say, Data I/O has not served well in the last 10 to 15 years. So the service provider network that would qualify as global distribution companies such as Arrow or Avnet, contract manufacturers such as Flextronics, Jabil, Foxconn and also independent distributors and independent programming companies. That market is probably twice the size of the automotive industry as a whole. So it's an industry that we're going to have a renewed focus on. It's a little harder to service due to -- and I want to say hard, they require more services and more resources in order to serve that market.

So it's just a matter of resourcing that market segment the right way. And so that's one that we've invested in and have invested in heavily this year, and we'll continue to invest in and which will allow us to regain year-over-year growth in our market that we serve today. So some of the new focus that we have as a management team is focusing on our core competencies and expanding our addressable market. And we do this in a few different ways, going after, as I said, the service provider network, but also taking our technology and looking for places to embed it. Most programming today in our market is done offline. But the technology we have can be embedded in places like in-circuit testers at the end of the line of manufacturing lines or board testers in which you can deploy and provision data. That's another place that our technology could be embedded.

So we are looking for ways to expand our market. It's a very large market. If you look at the programmable TAM globally, it's doubled since 2001. It's almost 20% of the global silicon has some type of programmable technology in it, whether it's a microcontroller or embedded flash memory. It's embedded in a significant amount of silicon that we have access to based on our platform. We have a good balance sheet, about $10 million in the bank. We continue to be kind of cash flow neutral right now. We're looking at the second half as we see a return to growth. We're starting to see an uptick in activity across all regions as recently as last night, talking to some of our global GMs.

So we're starting to see that activity pick up after a fairly significant part of last year and probably the first half of this year. We continue to drive down our costs, use AI in certain instances. In engineering, we found ways to use AI to get through -- going through device specs, for example, when we get a device spec for a new piece of silicon, those specs have values buried in those specifications and once our engineers have to go through those and read those specs and some of them could be 300, 400 pages long. We created a document AI agent that can actually go and get those values within 3 to 5 minutes.

So using things like technologies such as AI and other automation allows us to really scale the business without having to hire a lot of human assets. So we'll continue to look at AI and other automation to improve the performance and expense management of the business. We'll continue to diversify our revenue mix, not away from automotive. Automotive is actually still strong in certain regions such as Asia, but diversify into the service provider network, which allows -- which has built-in diversification in the network itself as they sell to most all verticals -- market verticals globally. And evaluating organic and inorganic strategic growth opportunities. There are some M&A opportunities that Data I/O can entertain. We're looking into getting into services. It's something that the company has talked about over the years, but just hasn't pulled the trigger to get into that market.

Being in the CapEx market as good as you can be, it's always a lumpy market. It goes in probably 3-year increments. And one way that we're looking to smooth out our revenue and become a more predictable growth company to be able to predict where we're going, services will be an important part of that. It's a market in which my background comes from. I was in the service provider network for about 25 years. So we bring in -- and we have some new team members that also have a lot of experience in driving and selling services. So I would look to the future as something that's going to be a key part of our revenue growth in the future.

Let's see. I think that's the last slide, I believe. All right. Well, I appreciate the time this morning. I'm going to take some questions. I see there's 3 in the Board.

So let me get to those. So first question is, given your mix and growth forecast, where can you take gross margins to as a percentage of revenue?

Data I/O has historically been between 52% and 58% gross margins, which are pretty healthy, pretty standard, I would say, for the CapEx market. I do believe through a combination of services and improving parts of our supply chain and the efficiencies of the business, I believe gross margins could stay in the high 50s or get into the low 60s. That's going to take some time as we get through these economic times and get through the investment cycle that Data I/O has to invest in its core platform. But as we build that edge in our technology platform, that will also give us some pricing power.

So those -- when it comes down to technology, I do believe that Data I/O can return to higher margins based on having that leverage in our technology platform. We have new products, like I said, being introduced at the end of this year. And then our B2 design should be completed by the end of next year, which is where I believe we'll have some pricing power across our portfolio and have pricing power against our competition as well.

Next question is who are the primary providers in the service provider market that you need to beat out? The primary providers in the service provider, I'm not sure I quite understand -- that says beat out.

I would say that there are -- in the service provider market that we have -- that Data I/O has not serviced well in the last 10 years. The Arrows and the Avnet are probably the largest consumers of this technology. We do have ongoing relationships with them and have sold to them in the past, and they do, in certain regions, use our platform robustly. There are opportunities though in other regions where they do not. And a lot of that's going to come down to us having support -- service and support mainly in those regions, but also have the platform that can service the technologies that they'll be -- their customers will be consuming in the future.

So I think over time, regions such as Asia will be a big focus for us. We do have manufacturing in Shanghai, but Southeast Asia will be a focus for us going forward, especially as supply chains start to shift from China to Southeast Asia.

Let's see. Next question is, can you talk a bit more about new products coming this year and what areas they address in terms of customer requirements?

Great question. The platform that we have, which we'll be moving to, as you saw in the presentation, we have 2 platforms, one called LumenX, which is our older platform, which will be going probably end of life in the next 2 to 3 years as we build up the LumenX platform, which is the newer platform. That's the one where we're investing a significant amount of capital to release a new version at the end of this year called V1. That is going to address UFS flash, which is the highest growth market in silicon. For flash memory, it's about 14% CAGR over the next 5 years. There's a lot of complexity that comes with that technology. It's a multi-silicon layered stacked silicon inside a package. These pieces of silicon have a lot of technology that's buried within the silicon, almost like a mini hard drive.

And so that technology requires a lot of what they call handshakes and crosstalk, which allows that memory to deploy the data to the different levels of silicon that's inside the package. This complexity, I believe, is where Data I/O will gain a technology lead against its competition. But also the fact that, that type silicon, UFS flash silicon is going to density such as almost 1 terabyte, I believe, by 2027, 2028. That, I believe, in the market is going to increase organically the amount of technology of flash memory that's programmed offline. So for the first time since I've been in this market, which goes back to the early '80s, I see a path of organic growth for our platform over the next several years due to this technology advancement and the actual memory density of UFS Flash. So great question.

One of the things that this market hasn't seen is true organic growth in off-line programming. And with the densities of these flash memories coming online over the next 2 to 3 years, I do believe not only will we have growth in our own platform due to the technology, but also due to the organic growth of the amount of components that are going to have to go from in-line programming to offline programming.

I believe, let's refresh -- more questions. All right. Next question, how are trends in automotive semiconductor demand influencing backlog and customer order visibility for 2025?

It's a great question. Automotive has been in a little bit of a slump in '24. And then as the tariffs hit us in the end of Q1, a lot of some of that conversations as we saw some of the automotive companies start to come back online and start to reorder, pull back due to tariffs. Based on conversations I've had in the last week, we're starting to see that come back online. So I see the second half, especially in Asia, the automotive business start to pick up. We've seen -- as we announced in Q2, we had a significant order from one of our automotive customers in China.

And so yes, I see the automotive demand continuing to stay strong. Even if unit volumes don't go up as they change models, the amount of technology of programmable technology that gets deployed inside cars, automotive industry will continue to grow. The technology doesn't slow down as far as the advancement of silicon inside of everyday cars. So I see the demand of automotive continue to grow, and there'll be times in which it increases due to market demands, but also it's just going to -- it will just grow just due to the technology advancements in automotive cars. This is autonomous driving and other automated features.

Let's see. Next question. The semiconductor programming issue often thought as one that simply sells large capital equipment. Can you talk about your view of overall industry, various market segments, addressable market sizes in terms of dollars? And if services is included?

Well, capital equipment market, again, for us is, it addresses various different industries. I don't really see the large capital equipment machines. I guess the best way to answer this question, overview of industry market segments. I would say our market, it's been tough to determine because our industry as a whole has not done a good job of staying ahead of technology. And honestly, I don't believe -- whether it's been Data I/O or our competitors have not done a good job of staying ahead of technology. So in ways, I think we've suppressed our own market. So one of the things, as I said earlier, that we're staying engaged with silicon companies to see the technology that's coming out ahead of time so that we have the solutions ready. So I believe through that and through those relationships, we'll see organic growth in our overall market just by staying ahead of technology and not being reactive.

We're down to about 3 minutes, probably 5 to 6 more questions. So I'm just going to pick a few before we end this session, let me just get through -- what verticals do you see picking up in 2025 second half?

Well, based on the calls the past week with the regional presidents, I can see -- starting to see automotive staying fairly consistent other than the U.S., starting to see some upticks in Europe. I can't tell you any defined markets there, but just more, I would say, across the board, conversations about CapEx coming back online. IoT, definitely certainly seeing, I would say, just overall industrial starting to pick up as well. So I'd say it's still early, but I would say that most markets are starting to -- at least we're hearing more chatter across a broader range of verticals, not just automotive.

Let's see what question here -- with specific trends on standards -- explain.

All right. Let's talk about this question. This will be the last question. We got 2 minutes left. Can you explain what you mean by services? So my career started in actually providing programming services to OEMs. So we would buy equipment from companies such as Data I/O. OEMs would send us a file or a bunch of files for a product. And we would take those files and do what's called the first article. They would approve that first article and then they would send us product or silicon or we would buy the silicon either direct from a vendor such as Micron or we buy through distribution channel distribution such as an Arrow and Avnet. We would take that silicon and we would provision data and then do either other services after programming such as testing or packaging, such as tape and reel, mark the device with its new identity and ship that to the manufacturing location of their choice, either their own or a subcontractor such as a Foxconn or Jabil.

So that's what a service provider performs as a service in this space. So Data I/O is in a unique position as we build the CapEx, we build all the technology. So being a service provider or somebody who's provided services in the space, it was something puzzling as to why didn't we provide these services as a business. There are gaps and some people may say, well, wouldn't that compete with some of your customers such as an Arrow and Avnet? It could, but there are gaps in parts of the market that they don't serve, such as direct large volume customers that don't go through the channel. There are also capacity constraints they may have and may need a service partner to outsource. There are other technologies such as silicon vendors that don't have a channel that require or need services or need to require a service partner.

So there are gaps across the whole industry in which a Data I/O wanted to open up a services division, could service that industry. It's a far larger industry than the capital equipment itself, that part of the market. Services would allow us to diversify our revenue. It's higher quality revenue because it comes in kind of in a reoccurring event, which will allow for better cash flows. And also, like I said, it's a much larger market. I would say the independent programming service market from a dollars and cents is probably $200 million to $300 million worldwide, served by distribution, independent providers and other folks that are in that supply chain.

So I believe it's a great opportunity for Data I/O to enter into services, and it's something we're taking a look at for our future growth strategy.

I guess we're probably a minute by. I want to thank everybody for the time. Sorry for a chalk up. This is an interesting platform reading through all these questions. So sorry, I wasn't as fast as I'd like to be, but I appreciate everybody taking the time this morning to listen to Data I/O story and look forward to talking more about it in the future.

Thank you. That concludes Data I/O's presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.

Welcome to Breakout Investors. We are excited to be speaking with the management of Data I/O, ticker DAIO, specifically the company's CEO, Bill Wentworth. Joining me on today's call and leading Q&A is Breakout Investor, [ Florian Buschek ]. This call is being recorded on May 29, 2025, and will be distributed via the Breakout Investor YouTube channel and our sub stack network.

Supporting materials and post-call analysis will be posted on the Breakout Investors collaboration app available on the app stores and at breakoutinvestors.com. The application of much of the research content is free. We also invite you to join our WhatsApp community, which is linked in our YouTube profile.

So let's get the call started with me handing it over to Bill for a brief presentation with Q&A to follow led by Florian. Bill?

Great. Thanks, Josh. And thank you for tuning in. I'm Bill Wentworth, CEO of Data I/O. We'll go on to the next slide. Let's go to full screen here. All right. So our safe harbor. So Data I/O has been around and was founded in 1972. The genesis of what we do is we create embedded hardware with software that delivers and provisions data into silicon. So it does that through a variety of different proprietary programming languages and hardware, mainly through an FPGA.

So the company, again, founded in 1972, and this is around the time that integrated circuits forced hit the market and allowed engineers to be able to design products basically with unique silicon that allowed them to basically program data or through blowing fuses, have input and output desired outcome on the design, which allowed really the proliferation of a lot of electronics and technologies that we use today. And through that evolution, which we'll go through some of that in the presentation, has allowed the technologies that we use today such as cell phones and the technology that are in cars nowadays.

All of that technology was really driven by silicon consolidation, but also mainly by programmable technology. OEMs and service providers choose our platform for the quality of our algorithms, the extensive device support library that we have. And device support, and you'll hear me talk a lot about this, is really where customers really make their buying decision.

Data I/O has a great brand still in this field over 50 years. It's been known as the go-to provider for this technology, although we do have more competitors now that have scaled up a little bit. And I'll talk through how we're going to get back to gaining market share and evolving the business, not only in what we do today, but there are adjacent services that we're pretty excited about that we can add to the portfolio of products that we have. And I think that's really an exciting upside for the business as well as the technology hurdles that are coming such as UFS and MVE and other memory technologies that are causing -- not causing or creating, I would say, larger technology hurdles to get over, whereas where your people are going to make a big difference in how you lead through that and overcome those technology challenges.

We have about 100 employees, 50 of them in Redmond. We do have a manufacturing facility in Shanghai. That's proven to be a blessing given the tariff challenges that we've all experienced and actually an order that we just got awarded this a couple of weeks ago that we announced today publicly that was built and shipped in Mainland China. So that obviously had a -- it was nice to be able to do that in country. One of the things that -- my intersection with this technology actually goes back to when I was a teenager. My dad was an entrepreneur, owned an electronics distribution company that eventually was sold to Arrow Electronics.

And so in that time that I worked in my dad's business, it was programmable technologies were coming out at that time, and I actually was using Data I/O equipment at the young age of 14, 15 years old. So my history goes back with this brand quite a bit. From that experience, I actually started my own business at 21, and it was a programming services business. And Data I/O was my #1 supplier for the first 8 years of that business. We, over time, became the #1 global service provider, and I eventually sold that business to Avnet in 2008.

So I really come from this -- I really come from a viewpoint of what does the customer need, what do they want? What's important to them because I was a customer for those that -- for almost 30 years. And we consumed more of this equipment than any other company in the world at that time. And Avnet today, those same programming centers are in that -- a part of Avnet's portfolio and are some of the largest programming centers in the world. So one of the things I noticed when I came back to Data as a Board member is that I saw that the product portfolio was missing a few important links such as manual programming, which we have up here in the slide.

Those are newly reskinned that we reskinned back in December. We have some new product releases that we're going to be doing at the end of this year that are very exciting around this theme. And on top of that, we'll be rolling out our product road map next month sometime in an announcement. So coupled with the fact that we are realigning the business to really the supply chain in which programmable technology gets deployed, it's important -- this is a very important aspect of this because if you think about the U.S. market, it's an engineering community it's the same. There is some manufacturing still here in the U.S., but not like it was in the '90s. So it's important to have these types of products so that engineers can use them as they're developing new technologies and using the newest silicon out there. And we want to get an early -- we want to be in that cycle as early as possible because obviously, you get the device request, which then we have to write an algorithm and produce a socket in order for that part to be used and consumed.

But then when it gets pushed to manufacturing, you're already on the print as the approved supplier. So it's really important that you start in the beginning of that process as early as possible. To take that one step further. One of the things Data I/O did really well in the late '80s and '90s was they had real good alignment with the semiconductor manufacturers. Meaning they had people that actually called on them directly, and they would get these engineering units in their hands and at the silicon vendors can be early on in that product release cycle. So we've signed 5 formal contracts in the last 8 weeks to be part of that preproduction release of their technology so that we're upfront developing the algorithm. We understand the packages that they're going to be using in volume.

We can get the sockets tooled up and be ready for when that product hits the market. So a big part of our world is really that engineering community, both at the silicon vendors and at the OEMs as well. This enables us to deal with special features and settings and not be playing catch-up or being reactive to customers' needs when they've already designed their product with it. And historically, like the -- if you look at our -- I'll get into our go-to-market, there's 3 main markets that we serve. And there's different attributes in each one of those markets. And so it's important that you have a comprehensive product portfolio to address all those different needs.

So this goes into kind of our unified programming platform. As I talked about earlier, those -- the manual systems are the beginning of that. So if you think of those -- the boxes in the middle, those the manual systems, that is our intellectual property. That is what we create, and that's what we call our platform. And that platform can be surrounded by an automated system for pick and place. But the core of what we do is not [ handlers ]. It's the programming platform itself.

And so whether it's small, medium lot sizes or first articles or NPIs, the manual systems are used for that. Then the platform can get embedded into a larger handling system to do high-volume programming, marking, tape and reel, final packaging that would go into the manufacturing lines of those manufacturers or large contract manufacturers in Asia. And then at the end, the managed systems can be used for post-SMS estimate process test, rework, there's repairs. Things that they may have to do small lots or 1 or 2 parts to repair a board. So as you can see, our product can be used through the entire product life cycle of an OEM's technology. This is a look at our customer base.

As you can see, we do serve very large Fortune 500 companies globally. Traditionally, since probably about 2013, our business has been very focused on automotive. There was a reason for that when large memories came out such as eMMC, the management team at the time were able to develop a product that could address that large density flash at the time. And so thus, they ended up with almost 60% of their business being automotive. That also creates a problem because unlike companies can have customer concentration, you can have domain concentration. And that's the reason why the business really started to slide last year as the automotive industry went through its own little bubble.

EVs were obviously a big part of the automotive industry growth, and it still is, especially in places like China. That's why we awarded the award that we -- the order we got was automotive in China that we got a couple of weeks ago. So it's still healthy in some regions of the world. Europe is still fairly slow. A lot more competition there for EVs as well. But not all our technology just goes to EVs.

It's through combustion and hybrid engines as well and the parts that are used in DAS systems of safety and security and things like that. There's so much programmable silicon in cars nowadays. It's quite amazing. It takes almost 8 hours to code a BMW 750. That's how much coding there is in these cars nowadays.

So to talk a little bit about our go-to-market. So automotive is still strong. It's still a big part of our portfolio. I don't see that changing in the future. And it's great foundational business because unlike other tech industries, whether it's networking or mobile phones or data center equipment, they don't change that much. They build a model year and they pretty much know how many cars they're going to build a year-over-year.

And it's one of the reasons why I've always liked the automotive business, although they're a difficult customer to satisfy. But if you can satisfy an automotive customer, you can pretty much meet most customers' demands. That being said, the large, what I would call, service provider network, which would be the Arrows and Avnets global distribution companies, independent distributors, contract manufacturers, they're taking orders from customers that have already designed a product. So they're very reactionary in their needs when they come to someone like a Data I/O.

So it does require a slightly different business model to service their needs because they do send a lot of device requests, and they don't get every order. Sometimes they're in a bid process, but it's our job to service that client because, quite frankly, the service provider network has a much larger market opportunity for our technology than all of automotive put together. So for example, Avnet in their Singapore facility has 75 automated systems. Our largest direct customer has 20. So there's a lot of upside for us there. Traditionally, distribution probably accounted for 20% to 25% of the revenue of Data I/O, and it's less than 9% now. So we have some work to do there. The good thing is I have a good -- the company itself and the people I brought in have great relationships in those regions, those areas.

Some of them sold their services for years as business development folks. So we know the ecosystem and the culture pretty well. And then there's industrial, medical. And also, I think robotics is also going to be a significant amount of market. And I think there was a growth for us. We've got a couple of POCs and a couple of different robotics companies now as they start to build out that technology. I think there's somebody on CNBC said this morning that they thought within 5 years, it'd be 10 million humanoid robots out manufacturing. I'm not sure I trust that number, but it will be something in a significant growth market, I think, for our technology. And then also on top of that, in the '90s, there was quite a bit of silicon that was being consolidated from logic to programmable logic to CPLDs.

I see the same organic opportunity happening in 2027, maybe late '26, where we could see an expansion of our organic market. And so that's exciting because, one, as we roll out our new product road map, which we do believe will be the best programming platform, universal platform in the industry, definitely by the end of '26 is when our version 2 comes out. But also to couple that with being able to take market share because of our technology advances, but as well as organic market increases, I think, there's a really bright future for our organic business for growth. Let's get back here. And this is really where the center of this slide is really where that's our IP. We have 2 platforms today. We are moving FlashCORE III to LumenX.

That migration has already begun. The goal is to have one single platform that our customers can use across different solutions, whether that's manually or through our automated systems. Our version 2 will also have the capability to plug into board testers or inline where silicon is also -- data is also provisioned to the silicon. So that way, we can address a wider part of the market because offline programming is probably -- about 20% of the devices in the world probably get provisioned offline. It could be a little bit more, it could be probably not less, but a majority of them are still done in other techniques such as inline or at test. And we want to be able to take our platform and marry it up with those different types of technologies so that we can capture more market share. All right. That's all I have for the slide deck. I appreciate the time.

[ Florian ], I'll kick it over to you to kick off Q&A.

Awesome. Thanks for the overview. Maybe could you just -- you're in a very technical business. Maybe in 2 or 3 sentences summarize what you do, what problem you solve?

Yes. So the problem we solve is the silicon that's created by semiconductor companies such as let's say, a Xilinx or a Micron or an Intel or a Hynix or NXP or any of the Renaissance or any of these microcontroller companies. These parts come out with basically a blank piece of paper. And an engineer will take that device and say, I want it to do functions X, Y and Z, and they write code. And that code is written in a usually C++. And we take that code and we wrap our software around it and deliver that code through our technology into the device itself. And then that device is then put into a cell phone or a car or a piece of data center equipment or anything, industrial controls, things like that, mobile phones. And so that's basically what we do.

We take something that's fairly complex and you're right, I probably should have started with a blank forward statement as to exactly what we do because it is fairly technical, you're right. What we do is very complex, but we make it very simple. We take a complex technology, make it simple for our customers to use. So basically, we're taking that engineering file that was created during the design of that product, and we provision that to the part to allow that product to come to life essentially. Does that help?

That's awesome. Yes. And I think it's fair to say you are in a market that is secularly growing?

Yes.

Fantastic. What differentiates you from your competition? How does the competitive field look like?

Yes, sure. So the competitive field has changed a lot in the last couple of decades. Like I said early on, as a service provider myself and a customer, Data I/O was probably back then 70% market share. They were first to market. They had a great brand name, still do, known for high-quality algorithms. That's one of the things that people still come to us for. The people we have -- there's a lot of people that have been tenured here for probably 10, 20. There's people here that have been here for 30 years.

There's a lot of ingrained knowledge and domain knowledge across our technical staff. It's one of the reasons why we were able to get over the hurdle of this UFS technology that we were able to develop early in this year for that order. So I believe it's our technical capabilities and our engineering talent that definitely flows to the top when I think about whatever our competitive advantages are. I think, obviously, the brand helps that because people have worked on this brand.

I've run into investors and talked about where engineers are on their career and they remember the brand. So it's been around. It's stuck around. But I think at this point going forward, there's a renewed energy. And I think also with the challenges of silicon that are coming up, it certainly has our engineering staff pretty excited about developing new platforms and new capabilities within our platform. And I think our global reach, we've got a great footprint in Europe and in our German office.

We've made some great inroads since the early 2000s in Asia. We were building over there long before some of our competitors. So we've got an early good presence there. And here in the U.S., we've been a known brand. So I think through that and the fact that we have a pretty good healthy balance sheet. We've got $10 million or so on the balance sheet, we can invest that capital. And that's one of the things that the company has not done a lot of is really a good use of capital allocation. It's one of the things that is important to me is that we put a dollar to work, what are we getting back for that dollar.

This is a transformational year for us. I will say that. But the good time is it's a little bumpy, obviously, because the tariffs has caused some people to -- customers to kind of hold off on capital expenditures right now. They're not canceling them. They're just kind of holding off to see what happens. But I believe that this is a great time to invest because it's a lot harder to do it when you're -- when business is going -- is busy. It's harder to make change. So right now, we're making a lot of investments internally in technology and automation.

We started using a little bit of AI to do things in engineering a lot faster such as reading through documents of these programming specs. Sometimes they can take a day to go through. We can do that in minutes. So we're looking at ways to use automation to become more efficient across the entire business as well. I think we come out on the other side, that gives us a lot of competitive operational leverage, better margins and also through these investments, we'll have better technology as well.

You spoke about a couple of things that I want to drill deeper on. I will ask a bit later about capital allocation and your background. But since you mentioned tariffs in China, you also highlighted in the press release today that these will be manufactured at your facilities in China. So you have facilities both in China as in the U.S. and you are basically pretty flexible to manufacture for markets worldwide. And that should also help you with regards to tariffs.

Yes, absolutely. Such as that order that we received, there isn't a single component on that system that is affected by tariffs at all. So that is the beauty of being able to source both in China and also in the U.S. and share some of those vendors as well. Obviously, sharing is a little harder because of the tariffs. But we've been able to reclassify some of our -- when things like this hit, you tend to go through these exercises that you probably don't usually have to do and there are certain classifications that all your parts come under for shipping to other countries.

And so it had us go through that exercise, and we did end up having to reclassify some of our products, which actually made it easier to import and export and avoided the higher tariffs. So it was actually a good exercise to go through. So we feel pretty good. If this tariff issue continues, there are a couple of parts we do source from China, we can build in Germany, in our German location. We don't have to ship kits, but we could build there. And we're also looking to have a like a secondary plan in Asia, either in South Korea or Thailand to build there as well. So I've got a field trip coming up to do just that. We did go over recently to train our Shanghai staff to be able to build our premium unit, the 7000. So we're pretty well coupled there, both in the U.S. and Asia for building all machines, all models.

Yes. I think that's fantastic and really worth highlighting because there is a big push. Let's just use as one example in China, car manufacture EVs. And there's a big worry certainly in Germany that they are eating our lunch, right? And you are sort of independent of that because you can work with all of those manufacturers, be that in Germany, in China or in the U.S., it doesn't really matter to you.

No, it doesn't. And it's a great point because the UFS challenge that we overcome, UFS -- the automotive industry is a large consumer of UFS memory. It's multiple layers of silicon stacked on top with a small instruction set on how to parse that data across those levels of silicon. And this is kind of the technical premise of our engineering staff to be able to overcome those challenges and do something that our competition is struggling with. And as we roll through our product road map and allowing for newer and future technologies to be able to be consumed in our platform, allowing that platform to be able to run 10 to 15 years from now.

We've gone through product road maps with those 5 silicon vendors that we partnered up with, and they have on their product road map, a 1 terabyte flash product coming out by 2027, which is just simply incredible. That is 3x the density right now that it's kind of the mean density of UFS.

Those parts are going to take a long time to provision, which is why I believe our market -- our available TAM is going to expand organically because you're going to have to take those memories off. If you're doing them in line now on a test gig or at test or in line, you're going to have to take them offline because it's just going to slow down the manufacturing rate. So we'll have no choice but to preprogram those devices on equipment such as Data I/O.

Ben, you had a very nice press release today. You also just, I think, a couple of weeks ago, announced the largest order in the company's history. Can you talk a little bit about what is happening right now, how we should think about those orders and what they tell us about the future?

Yes, sure. That order -- the order a couple of months ago, a month ago was from an existing customer that was buying socket adapters. So they have a portfolio of products that their salespeople are selling into their customers and they looked across that breadth of product and said, you know what, we're going to make a commitment to Data I/O.

So they bought multiple sockets across multiple different silicon technologies. So what it does is it shows a commitment to our platform when a customer makes that big of an investment because sockets is what drives consumption. Consumption drives your platform sales. So the more sockets you sell, it's a good barometer for our business and where it's going is a direct effect and a direct correlation to the consumption of your platform.

So when you see large socket orders like that, and we've gotten a few over the last -- not any that I would make a big press release over, but that was such a large order it was worth talking about. But we've seen more and more of those. And when times are slow like this, you'll see customers try to just use the existing platform that they've already invested and the capital equipment that they've already invested in and maybe run an extra shift or 2.

So you'll start to see more sockets -- you'll see those numbers increase. But that's also a good thing because obviously, they are committed to your platform. So all in all, about half our business is recurring from sockets and upgrades. The other half comes from system sales and software and things like that software contracts.

Great. Ben, regarding capital allocation, what are you looking for? And maybe also touch a little bit on your background?

Yes. So do you want me to have -- obviously started my industry in tech and started in this space in particular. Started my own company in 2020. In 1988, providing programming services mostly to OEMs in the New England, Boston area. And then grew that business nationwide. We opened up in Fremont, California, started to service a lot of silicon vendors back in the mid-'90s. Then as manufacturing started to shift to lowest-cost regions such as Mexico, we opened up in Guadalajara. And that was around 2000. And then I sold 65% of the business to H.I.G. Capital in 2001, so we could expand internationally because we were mostly of asset lending banks. We can only grow so fast on their shoulders.

So brought in some outside capital, maintained a 35% ownership in the business. And then we expanded to Shanghai, Hong Kong and Singapore, which is Avnet's largest programming center today, expanded into Brazil and into Europe, one location in Eastern Europe. So I've been through global expansion, been through also some significant downturns in our industry. We sold to H.I.G. in 2001, it was March. The very next month, our WIP was 50% it was the month before.

So been through and had to steer a ship through some pretty tough waters, lived on cash month-to-month. I never want to do that again, for 3 years. But we came out the other side, and we were a completely different company. And so taking businesses that are struggling with their go-to-market and their product portfolios and services that they offer is something I've been conditioned to be able to manage. And I did the same thing at Avnet when I took over their services businesses. They had acquired 12 companies. I think 7 of them were losing money at the time. I got them to breakeven within 9 months.

So it's -- they're tough choices, tough things you have to do. There's a lot of cleanup work. And like I said, Data I/O is no different to that, no indifferent to that. So there are some things that we've changed. I've moved out some management that I felt didn't really understand the business as well as they needed to. So we've rolled some executives, consolidated some operations of the company. We're now going through an IT scan where we're consolidating our IT vendors and increasing our use of automation, which will allow us to scale the business and look at things like M&A.

I've done a lot of M&A in my time. When I left Avnet, I spent the last -- from 2015 until early 2022, working with private equity firms, building business, industry thesis mostly in tech, mostly in IT services, but finding a platform company add-ons around a certain thesis. So very comfortable with M&A. I have a lot of experience with it. There's an art to it. But there are some good adjacent plays, both upstream and downstream for Data I/O to look at.

Very nice. Do we have any questions from the audience? You can raise your hand. Until that time, let's talk about -- you mentioned the usage of AI and cost reductions. Can you talk a little bit about how we should think about your operating expenditures going forward?

Yes, sure. Well, given the AI and it's accelerating almost daily at this point, one of the things as a Board member is looking through engineering and writing code and the things that AI was bringing to the table. You could see where certain areas of the business could benefit from using AI. And like I said, in the engineering example that I used earlier, we have these documents that the engineers have, can scan through 500 pages of a spec of a device. And sometimes the silicon providers provide a very specific programming spec, but a lot of them don't. And so they have to scan through looking for those values that fill a specific table in order for us to write the algorithm for our platform.

So we did a POC, spent about $100,000 on that and came out with being able to save almost a day or 2 on reading those specs, which will allow us to take on more device support requests from our customers and produce more algorithms, which obviously then consumes our platform and turns into revenue. So things like that. I think at the coding level, it's still got a ways to go. I think we're probably 2 years away from using an AI agent and an LLM model to be able to start writing parts of our algorithms, but I don't think it's that far away. I think there's also places we can use it from analytics, but also from service. We're looking to move from our current service module to Salesforce Service Cloud.

I think we do a lot of field service, obviously, we got equipment almost 500 systems in the field. And there's a lot of things that come through those portals that tell us something. It tells the story. The customers obviously are putting in data and putting in for service requests, what is that data telling us? One of the things that I noticed in coming on board is we have a lot of data, but it's not very consumable.

So one of the things I also did was we signed up for Snowflake and have an instance of that. And we're starting to use our systems of record to move that data into Snowflake so we can better analyze the data. And sometimes that data can be monetized. And so we're looking to take that data, understand what can we learn from it. It will help us develop better systems in the future, service our customers, but also as that data gets collected, Salesforce has some AI models that can take and do Level 0 and Level 1 support calls, which also saved us from taking time away from an engineering staff. So I see a lot of productivity improvements in the out years across the board, both from our data and being able to look at it and use real good business intelligence, but also use AI to be more productive and scale.

All right. Once again, any questions from the audience? I'll jump in with one. Bill, just when you look at what the future holds, obviously, we can't talk about short-term guidance, but what does success look like from your perspective on a 3- to 5-year kind of horizon? What are you hoping to achieve?

Yes. And if I look at just the organic market itself, say, we're around $25 million, $26 million in revenue today, success organically just from kind of off-line programming, not inline, just offline, should be a $50 million to $75 million company, maybe larger in 3 to 4 years. But then if you look at [ ADAS ] and [ in-line ], tough to get some numbers around that because to understand how our technology will fit inside their technology as we deliver our service. But that could be another $25 million, $50 million or more. But then there's the adjacent plays, engineering, there's tools and technologies out there.

And I've seen companies anywhere from $10 million to $30 million, $40 million that would be worth buying and merging and offering a much larger suite of products. So if you start stacking that up, you could see sometime in the future, this could be a $125 million, $150 million, $200 million company going upstream, downstream and then obviously rounding out the core of what we do today.

Excellent. You touched on this earlier when you were giving your background a little bit, but I maybe want to just tap into a specific question. What specifically caused you to come to Data I/O, right? You obviously have a very impressive background. You obviously have the relationship to this company in the past. It almost seems like you maybe have the chops to be working at a larger company somewhere. So why Data I/O?

Yes, it's interesting you say that because I look back when I started Source, I'm trying to think when we cross that $25 million threshold, it was probably 1994 or something like that, right? So since then, I've run companies 100 -- we got Source got up to about $130 million globally just doing programming services. And that's the other thing I didn't mention. Services is also a place we could skate to. And so that's not something that I've laid out, but I can see a go-to-market strategy where we wouldn't compete with our service providers in that space, which would be an interesting growth engine as well.

And I went to Avnet when we sold Source and we combined Avnet's programming capabilities with ours that doubled the size of the business from the silicon that we touched. So if you looked at the average ASP of the part, the supply chain that was running through our business, it was about a $1.2 billion business that we started at $400 million.

So we tripled that business in 4 years inside of Avnet. We had the highest gross margin and highest net profit across the 43 P&Ls inside of Avnet. We ran about $8.6 billion, which is pretty healthy for a business inside a company of that size. They were $18 billion when I sold, $28 billion when we left. And then the services business I ran for Avnet was about a $0.5 billion global business across the Europe, U.S. and Asia.

So yes, I've run larger businesses, but I think the unique thing is I've also run smaller businesses. A small business culture is just far different than obviously a large corporate culture. And so I haven't forgot where I came from and a lot of values that my dad taught me, I brought forward into -- even into a large company culture and made some really good changes at Avnet that I'm proud of.

One of the things that Avnet bought, I think, over 120 companies in its history. And I remember one of the senior executives saying that a lot of the CEOs of these small companies that they buy, they don't stick around and they not commit. And it's a little drawing match, but I moved to Phoenix and I was committed to help them grow the business. Because when I sold Avnet, just like at H.I.G., it was right after that was a major financial event in the market. We hit the '08 financial crisis right after I sold Avnet.

So I guess 2 well-timed events, but I didn't leave. I mean, I could have left. It's not like I had to stay. I had a 2-year contract. But I'm proud of the business that we built and want to make sure that the money that Avnet and H.I.G. invested in me and the team that it proved to be a great asset. And in both cases, they were. I mean in H.I.G.'s case, our asset was written down to 0 in the fund, and we returned $62.5 million. So we take -- I take a lot of pride in that. And if shareholders want to invest in this company, my goal is to make sure they get a great return.

Fantastic. Going back to my prior question in terms of where you see the business in 3 to 5 years, you're talking about some pretty good upside. What do you think the biggest challenges, risks, hurdles will be to get there?

Yes. Data I/O hasn't done a lot of acquisitions. Last time they did one was probably back in early 2000s. So you've got a staff that hasn't really been through those. The good thing is I brought some people that have, on board. M&A is always a challenge. I mean, for any company of any size. So it's how you execute those. I think I've been through it enough now to understand the science.

A lot of people talk about you got to match up the corporate culture. But the big part of the art of M&A is really what are the strengths and weaknesses of each company and do they align, where 1 and 1 does make 2. So I think M&A, doing that in an accretive way, but also adds tremendous HR human resource value and technology value. That's always a challenge, but it's one I feel pretty good about being able to align ourselves.

And I think look, the industry as a whole, there are a lot of supply changes going on. I mean the more and more of this tariff stuff goes on, there is a significant amount of shift going on in Asia right now, out of China into places like India, Southeast Asia. We need to get well positioned there. So that's a challenge that I see right now that we're working on. And so those -- that decoupling of the global market, it is a concern, but it could be an opportunity as well. So I think it's just scaling, honestly, the infrastructure. That's always also a big holdback. If you look at a lot of acquisitions, as I have in the past, some of the bigger mistakes are not integrating your IT systems. Because you end up with not being able to really put to work what I believe is when you do acquisitions or even grow as best people and best practices. And if you live by that, you can build a great company.

So a lot of times, the buyer company feels like they always have the #1 position, but that's not always the case. It is something I learned from Avnet that they do very, very well. It's the reason why they've been very successful of doing M&A, but also controlling the organic growth because you can also grow too fast. And I've been through that. So I think it's really making sure you have the infrastructure and the right people in the right seats. So that you can control that growth and make sure you do it effectively and more importantly, profitably.

Excellent, [ Florian ] that's all I'll turn it back to you.

Maybe can you give a little bit more information about what you've changed since you arrived at the company?

Yes, sure. It's -- the previous administration, the CEO was running sales. I brought in a VP of Sales and Marketing that I used to -- actually used to be someone that covered my source as an account manager, actually VP of Sales at BP. Monty Reagan is his name. So he's been involved in this industry for many, many years, actually hired him at Source and then he came and worked at Avnet. So he's been on the equipment side of the business, but also the services side. He started the very first week I did.

I think as CEO to run sales is somewhat of a conflict, but also it's not going to get the right attention that it needed. So Monty has done a great job of really changing how we use Salesforce, CRM, really meticulous and really rigid around pipeline management, expanding the pipeline, holding salespeople accountable for their efforts and accountability and also really changing how we're going to market the business. But on top of it is that rigor in sales is what it really needed a lot of. And we've also changed the conversation.

We don't go and talk about part numbers and buy this automated system or that automated system. We talk more supply chain. We're much more consultative in our approach, and I think the customers really appreciate it. And that really showed up at the APEX show in March. Jennifer Higgins, who's been our marketing and been at the company for over 25 years. She's run the marketing for the last 10, at least the shows. And she said it was the best APEX show they had since 2013. Based on the numbers, qualified leads we got, new leads that we got. And it was the same attendance at the show last year as it was this year.

So I think changing the conversation and rolling out these new products has really changed. So Monty has been a great asset. And then also, we have a new Head of Hardware Engineering, John Duffy, who comes from a lot of VC start-ups. So he's used to that small company fast environment. The day he started on January 6 was the day I said, hey, guess what, we have to develop a new platform and we need it by June 1. So welcome aboard. He has taken on that challenge, and he's doing a phenomenal job. I mean we are on time with all our milestones so far. We've got our new V1 milestone being hit sometime in the next week or 2. So yes, he's done a great job picking up that team.

I've also moved the algo team over to him globally as well because that has -- that I felt needed to be coupled closely to the hardware design because it's such an intricate part of the embedded product that we make. We've got -- our CFO had retired, so we're on the search for a new CFO. And that's a really important role to me because I've always had the CFO as a very close partner, not just from the numbers, but also the understanding of the business. So we can have conversations like I'm having with you today. And so the CFOs in my past have always really known the business. Not adequately know it as well as I do, but know it well enough that we sit down and have a conversation, a strategic conversation. He understands where I'm going. I understand where he's coming from or she, and we can have that business conversation and it's fluid. So it's important that the CFO also is business like-minded as well.

So that's an open position we're in search right now. And we've really instituted some good, I think, rewarding programs internally for the company. I think the culture has really changed. The Board noticed that we're at last face-to-face Board meeting. It's become more of a team, much more. I was parachuted in last summer to look at a couple of the projects that they were working on. And I can tell you from firsthand, the culture has really changed for the better, and we're seeing a lot more productivity.

So I think that and then the adoption of some new IT systems are going to make some big changes. We've got -- we're paying a good amount for IT and the IT is not -- we're not getting what we pay for. So I think that those investments in both automation and Salesforce Service Cloud, those are all going to allow us to perform better for our customers and also allow our internal resources to be more productive.

So the capital structure is very clean. You're sitting on a lot of cash as well. So that's always good to see, especially in the microcap company. Can you talk a little bit about your shareholder base, maybe insider ownership in that regard?

Yes. So we've got some pretty long-standing shareholders. [ Dave Canon ] and his fund, they've been in the stock for a while. I think they were out for a little bit that came back in. I've invested my own capital a couple of weeks ago and bought shares in the open market just to show my faith in the business and where we're going. I'll probably be doing more of that. And I'm going to be in New York City, the week of the 16th meeting some new investors and existing investors to talk more about the story and where we're going, get them some updates.

So I think we've felt pretty steady. Some people have fallen out of the stock prior to my announcement. I'm going to be meeting with some of those folks, too. It's always good to go back and find out what they liked and why did they invest in the first place and why did they leave. And talk to them about it and to assure them like if you're going to invest now, these are the things we're doing moving forward and maybe you might want to take another look.

So I think that from a stock base, there's been some good foundation there that's been there for a while. And I think they've all liked the story, at least back when I was there in October. So we're going back to do kind of a refresh of those meetings and looking forward to them.

Yes, I did take note of your insider purchases because I think there is a worry out there that the tariffs, even though not directly, but certainly indirectly will hurt you in some way. And that may or may not be true. But over the medium to long term, it certainly seems like you are not really worried about it. Otherwise, you wouldn't take that date to go.

No, no, exactly. Well, look, it delayed some orders? Yes. I mean, at this point last year, we had shipped 3.3 million to Korea. We haven't shipped anything yet because the whole country has put capital equipment on hold for big companies, LG and others. But their forecast for this year going into this year was very strong prior to those tariff discussions. So orders didn't go away. They're just delayed. So the second half -- look, we've got a lot of product announcements coming out in the second half. We're going to create a lot of activity on our own organically. This tariff noise goes away and things come back down to a normal playing field, I think things could be pretty exciting in the last 4 months of the year.

Yes, I would agree. Last chance, any questions from the audience? Otherwise, we are almost an hour in. And I think you gave a really, really good overview. You gave very good answers to all of our questions. And I am excited to be part of the story going forward.

Great. I really appreciate the time, guys from the Breakout Investment Group. I was really looking forward to this meeting. And I'm glad I could share the story and glad to share that excitement.

Yes, you did not disappoint.

All right. Great. Thank you. All right. Well, listen, I hope everybody has a great day and look forward to the future.

Yes. Thanks again. Keep up the good work. Goodbye.

All right. Thank you. Bye-bye.

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