Data I/O Corporation Stock price
Is Data I/O Corporation a Top Scorer Stock based on the Dividend, High-Growth-Investing or Leverman Strategy?
As a Free StocksGuide user, you can view scores for all 9,127 stocks worldwide.
StocksGuide Premium
StocksGuide Unlimited
Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $30.88m | Revenue (TTM) = $17.78m
Market Cap = $30.88m | Estimated Revenue = $22.38m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $26.24m | Revenue (TTM) = $17.78m
Enterprise Value = $26.24m | Forward Revenue = $22.38m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net Margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Data I/O Corporation Stock Analysis
Analyst Opinions
9 Analysts have issued a Data I/O Corporation forecast:
Analyst Opinions
9 Analysts have issued a Data I/O Corporation forecast:
Data I/O Corporation Events
Past Events
|
AUG
12
Q2 2026 Earnings Call
about 2 months ago
|
|
MAY
14
Q1 2026 Earnings Call
5 months ago
|
|
FEB
26
Q4 2025 Earnings Call
7 months ago
|
|
OCT
30
Q3 2025 Earnings Call
11 months ago
|
StocksGuide Free
Data I/O Corporation — Q2 2026 Earnings Call
1. Management Discussion
Good afternoon, everyone, and welcome to Data I/O's Second 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, [ Aksha ], and welcome to everyone to the Data I/O Corporation Second Quarter 2026 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, acquisitions, financings and capital markets initiatives, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, foreign exchange fluctuations, 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, 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. Appreciate it. All right. We've got a lot to talk about. There's a lot to unpack here. So I'll try to make sure I hit all the points. And as you know, all of you are aware, obviously, love to take questions. So for those who -- if I didn't explain that you need some clarity, please hang on and ask away.
So first, the Q2 highlights. Results midpoint of our revenue guidance, which was $5.1 million to $5.4 million, we achieved $5.2 million. Gross margins obviously had a significant improvement. This is the highest level since Q2 of '23 and 30% lower revenue.
Sales funnel continues to expand with new customers and new domains, which obviously has been a huge focus for us as we [Technical Difficulty].
Sorry about that. Doing this remote from a cell phone. So anyway, I'll continue.
Sales continue to expand, as I said, with new customers and new domains. We have 6 new logos so far this year, 3 automotive, 2 robotics and 1 in global communications. All of these, especially the last 2 domains have a significant amount of upside in the out years, probably seeing some of these things are ratcheting up now for their demand. And I would think on the robotics side, we'll see that start to really creep into drive significant revenues probably in the second half of next year, but we're getting built into the supply chain of these companies, which is first -- it's the first step you have to make. You have to be built into the process.
With stronger revenue performance and our drive to take costs out of the business while operating more efficiently, we have reached our goal of reducing the overall cost of running the business to less than $22 million. That was a goal that we set early last year, and we achieved that April of this quarter. This equates to approximately $5.25 million to $5.5 million to breakeven essentially. And we feel comfortable at that level that we can generate organic growth and start to turn a profit and start seeing quarter-over-quarter growth.
We entered Q3 with a pretty strong active pipeline. We closed quite a few of those deals in July. But this revenue and our improved revenue mix, we're certainly selling more, I would say, systems with more value, more I/Os, more options. I think we've done a great job of managing our quotes and making sure that we're charging appropriately for that value. And we've done a great job of, I think, communicating with our customers to show them that value through multiple different methods, and it's certainly helping out significantly.
With the margin improvement strategies and our reduced operating expenditures, I can say for the month of July, our second large milestone is to get the cash flow neutral, right, stop burning cash. Preliminary numbers for July show close to cash flow neutrality. Yes, it's only 1 month. It's a significant improvement. That's a result of all the hard work and execution driven by the broader team at Data I/O.
Again, we're not done yet. There's still plenty of work to do. I can see 2 or 3 areas we still need to get better operational efficiency and cost, which will also improve our customer set. And also we'll be doing things in this industry that our competitors don't do.
Through these efficiencies, we can react to customer demand faster, which are increasing almost daily -- e-mail from a new client over in India and the demand for what they need as they gear up these new products is not easy. They're looking for a few weeks' turnaround on device support and new devices. So these challenges we have to meet. And we are in the process of doing that during Q3. We've set a goal for, I think, 4 weeks of device turnaround. Industry right now is about 8 to 12. So that's another great sign.
Transformation, I'll give an update on the acquisitions. Obviously, we've announced those back in May. They've been pretty much going to plan. These things never happen as fast as you want. But we've done -- I think the team has done a great job of looking at the business. We've had some great organizations help us through the process, the -- just trying to find any holes or issues with the business. I think we've done the QoB, which was great because it did identify a few things that we were able to actually save some money on the purchase price. So everybody is doing the job. We've extended the date to August 31 for close. So that's where we're at with that.
The security acquisition, which came out in the press release, I can tell you I am calling from a microchip conference that we would've never gotten invited to if it wasn't for buying these security assets from IAR. Having a seat at the table with suppliers because you have IP that's real and they need it for their businesses. And there's all these different compliance programs and regulatory programs coming out such as CRA in Europe and RED. And these things, they have to be fully compliant by the end of next year, and they're starting to monitor the vulnerability reporting starting next month. So we're seeing a big push on the medical side because they've got to go through their FDA approval. But other industries are certainly going to have to meet this requirement or you cannot sell your product in the year.
So this is something, I think, from a timing perspective, perfect for us. We've engaged some of their customers. We're getting out in front of them and looking at and listening to their plans and what they have scheduled and kind of their methodology of getting customers compliant at the semiconductor space, but also at the OEM and subcontractors as well. So it's opening up a whole new branch of opportunities for Data I/O that honestly we wouldn't had prior to. We had the partnership with IAR, but that's just a partnership. Now that we own the platform, and it's a platform we'll continue to invest in, it is differentiating the conversation we have with almost every customer.
We will continue -- by the way, an important point here is we're buying the assets, but we will continue our commercial relationship with IAR. Their compiler and debugging software, their workbench stack is an important platform for companies like Microchip. So that was one of the questions in today's meeting is, is this just decoupling completely. And no, we said we're absolutely going to stay connected to service customers like Microchip, do launches in the channel with them as well as technical support. And we're working out the commercial relationship between IAR and Data I/O. But no, we'll stay tightly coupled and they will be a strategic channel partner for this platform.
It brings in 4 new revenue streams, the software platform itself, annual support contracts, licensing fees and then you've got the tokens that have to be placed in the part and there's a charge for every token. And then also as we get into Programming-as-a-Service, providing security provisioning as a service provider.
So it's exciting. It's great having more multiple revenue lines. And I think the best thing about this is that we didn't have to invest anything new. Like we're using Data I/O's core LumenX platform. We're just pivoting it to address the market need. And so the beauty of that is we don't have to go and invest a bunch of money to be able to address the market. We can address it with our existing platform.
And another key point to security is it's domain neutral. Everybody is going to need it. So this will also help accelerate our domain dependence on automotive and move into other domains, certainly help accelerate it.
As far as PaaS, we talked about this last earnings call, we're now in the data collection stage for proposals on the pipeline that we built. That is ongoing now. We expect to have proposals ready to go by the end of Q3 and the goal of booking 1 to 3 contracts in Q4.
Overall growth drivers, improving opportunities, customers domain expansion in Q2, robotics, new automotive logos such as Valeo, automotive showing some early signs of recovery, industrial, med tech and then global communications. So we are working hard to diversify our customer base.
I would say it's safe to say that we are finally evolving. It's been a long 18 months. But our goal of becoming a highly valued supplier in the semiconductor supply chain is starting to come true, especially with the security. There's other things that we can add to our stack internally, licensing debugging software from like an IAR so that we can be a higher value within the engineering communities, paralleling the return for growth for programming industry alongside -- along with the security mandates. Data I/O is well positioned with tech team and tech platform, balance sheet and market growth drivers.
At this point, I would like to hand this over to Charlie and provide more insight to our Q2 financial performance. Charlie, please take it away.
Thanks, Bill, and good afternoon, everyone. I'm going to cover 4 areas today. First, a quick review of our second quarter financial results. Second, I'll dive briefly into the accounting treatment for the convertible debenture we closed in June because it has a meaningful impact on the reported operating income -- sorry, net income and EPS. Third, I'll give an update on our 2026 business. And finally, I'll give another quick overview of where we stand with some of the strategic transactions that Bill discussed in his remarks.
But let me start with the quarter. Net sales in the second were $5.2 million, up 59% sequentially from $3.3 million in Q1 and compared to $5.9 million in Q2 of last year. The sequential improvement reflects conversion of delayed Q1 orders and what we believe is an inflection in demand for capital equipment after a prolonged downturn.
Second quarter bookings were $4.9 million, up from $4.2 million in Q1. We signed 6 new customer logos in the first half, 3 from automotive and 3 from diversified technology markets that Bill mentioned.
Consumable adapters and software services represented 55% of total revenues with platform sales at 45% of Q2 revenues, a shift from the 81-19 split in Q1, reflecting the rebound in capital equipment orders. Deferred revenues fell slightly to $1.1 million from $1.5 million. Meanwhile, backlog as of June 30 was $2.1 million, down from $2.6 million on March 31, reflecting operating improvements enabling quicker response to orders and improved order to ship performance within the quarter. Again, as Bill mentioned, we're getting our product out to our customers faster.
Gross margin was 57% compared to 49.5% in Q1 and 49.8% in Q2 of last year. The improvement reflects the cumulative effect of positive mix shift, improved value-based pricing, increasing operational efficiencies and greater overhead absorption on the higher revenue base. Direct material costs remained steady as we continue to mitigate the impact of tariffs and other inflationary pressures.
Operating expenses were $3.7 million, including approximately $527,000 in onetime expenses, primarily related to the restructuring, but also consulting IT and placement expenses. Excluding onetime items, operating expenses were approximately $3.1 million, a decline both sequentially and from the prior year. By April, we achieved our target, as Bill mentioned, total COGS and operating expenses below a $22 million annual run rate.
Operating loss was $724,000 on $5.2 million of revenue, an improvement from $844,000 loss on $5.9 million of revenue in Q2 of '25, better performance on lower revenue.
Net loss was $1.6 million or $0.17 per share compared to $742,000 or $0.08 per share in Q2 of '25. This increase was driven almost entirely by $873,000 of interest expense from the convertible debenture accounting, the accounting for which I will walk through in a minute because it is unique to the situation that we faced.
Adjusted EBITDA, excluding equity compensation and onetime items, was essentially breakeven at positive $39,000 compared to a negative $1.75 million in Q1.
On the balance sheet, cash at quarter end was $10.8 million, up from $5.7 million as of March 31, reflecting net proceeds of $8.3 million from the June private placement. Net working capital was $10.8 million. On the balance sheet as of June 30, you will see $6.2 million of convertible debentures classified as short-term debt, which was netted from working capital. I want to flag that this was a quarter-end snapshot only. The debentures converted into Series B preferred shares on July 8, and the company currently has no debt outstanding. Removing those convertible debentures from short-term liabilities and the working capital calculation would have yielded a working capital of $17 million at quarter end.
Now let me turn to the second part here, to walk through the accounting on the convertible debenture because I know the $873,000 interest expense will draw questions. When we closed the $9 million private placement on June 17, the proceeds were allocated across common shares, equity classified warrants and the convertible notes using the relative fair value method based on stand-alone fair values determined by KPMG, our independent consultant.
Approximately $5.9 million was allocated to the notes, which have a face value of $6.8 million. This difference, combined with the allocated issuance costs, created a total discount on the notes of approximately $1.5 million. Under the effective interest method, that discount is amortized over the expected life of the notes.
Because the notes automatically converted to Series B preferred stock upon shareholder approval, which both management investor and the investor expected promptly, the amortization period was not the 5-year stated maturity of the notes, but the period from issuance to the anticipated shareholder vote. Approval was obtained on July 8, giving us an amortization window of approximately 3 weeks.
Amortizing $1.5 million of discount over 3 weeks produces a concentrated charge. Of the $873,000 in interest expense recognized in Q2, approximately $863,000 is noncash and nonrecurring accretion of debt discount and approximately $10,000 is the coupon interest at 4%. Again, the notes converted to preferred equity on July 8, and there is no debt currently on the balance sheet.
Both the convertible notes and warrants -- well, excuse me, let me just quickly turn to the update of the business framework we laid out in our first quarter call.
Following the strong second quarter and significant progress on 2 planned acquisitions, we are reaffirming the 2026 business framework we laid out earlier this year. The pillars are unchanged: organic revenue growth over 2025, acceleration of recurring and services revenue, including Programming-as-a-Service, continued expansion within the programming services market and operational and process optimizations driving improved margins, including the internal application of AI. The first half trajectory supports these targets and the framework now incorporates consolidation of transformational acquisitions in the second half.
We are not providing specific revenue guidance for the third quarter. As we said last quarter, the Q2 guidance is a onetime disclosure driven by the near-term visibility from Q1 slippage. Nonetheless, we remain confident in the trajectory and the framework is tracking to plan.
Finally, let me briefly update -- give you further update on the 3 strategic transactions shaping Data I/O. The $9 million direct investment closed on June 17 with net cash proceeds of $8.3 million, and the convertible notes converted to Series B preferred stock as of the shareholder meeting on July 8. The warrants remain outstanding and exercisable $3 per share over 5 years. Our lead investor is now our single largest shareholder.
The transformational acquisition is on track. We have extended exclusivity through the end of August, as Bill mentioned, and we progress -- as we progress through diligence and definitive documentation. Upon closing, as we discussed before, the acquisition is expected to nearly double our annual revenue run rate and boost earnings and cash flows.
And finally, in July, we announced our intent to acquire IAR's embedded software security and IT-related assets. Combined with our programming platform, this creates a true end-to-end security provisioning solution that Bill mentioned, even as regulations like the EU Cyber Resiliency Act mandates device level security. We'll provide additional details as we progress forward toward a definitive agreement and an expected close.
In summary, Q2 was an operational watershed, 59% sequential revenue growth, 57% gross margins, and breakeven adjusted EBITDA as the strategic plans and operational efficiencies implemented over the prior 18 months began to bear fruit.
The large reported net loss reflects a nonrecurring noncash accounting charge that will not repeat. We have $10.8 million of cash, no debt, 2 acquisitions advancing to collectively continue the transformation of Data I/O into a company with greater scale and diversification, broader provisioning and security capabilities and reach, and new revenues and business models to exploit.
With that, I'll turn the call back over to the operator for questions and answers.
[Operator Instructions] The first question comes from Jon Hickman with Ladenburg.
2. Question Answer
I got on late, so maybe you already talked about this, but did you say something about the progress of the closing of your acquisition that you mentioned a couple of months ago?
Yes. We just mentioned we extended the exclusivity to the end of August. That's all we commented on other than due diligence long and tracking to plan and that. So...
Okay. So you're still pretty confident that, that will happen?
We remain confident, yes.
Okay. So -- could you elaborate a little more on -- I know you've spent some time and energy and money on building out your team. You've added some new executives recently.
No, we haven't added any new executives pretty much...
You added somebody like just a couple of weeks ago. They used to work with you at your...
We have a strategic consultant to come in to review some of our customer-facing activities and also look at the Programming-as-a-Service side. Now whether or not that person becomes a full-time employee will probably bear fruit as we go through the quarter. I fully expect that. But no, we haven't formally added anybody new to the payroll.
Okay. And then this might prove my naive as far as the industry in general is concerned, but we're hearing a lot about shortages in the memory world due to kind of AI. Is that affecting your customers and their demand for...
Well, they're using that same high-speed memory that NVIDIA needs or AI requires, I'm sure those customers are being adversely affected. There's always going to be a ripple effect through a technology when you have the newer technology being in such high demand. If the technology they have in the fabs can produce the, let's say, different flash technologies that aren't as cutting edge and they could use that technology to build those flash memories, it's absolutely going to have an impact. We can't avoid it.
But for the most part, what we've seen is, at least on the UFS side, we haven't seen lead times go out too far. We do -- there's a client on the acquisition that had some allocation challenges with a few memory parts. But it's not as widespread as the high-speed memory needed for cellphones and it's more specifically AI.
[Operator Instructions] Since there are no further questions, this concludes the question-and-answer session. I would like to turn the conference back over to Bill Wentworth, Chief Executive Officer, for any closing remarks. Please go ahead.
Yes. Thank you. Thank you, operator. Appreciate that. Obviously, there's a lot of changes going on in the industry itself that's going through some significant changes like the last question, things like allocation and price increases and things like that. It's great when things are slow, when we put those things when industry such as tech has picked up like it has. And it's starting to broaden its reach outside of AI as far as the demand for semiconductors as things like edge computing start to build out, autonomous anything, AI-driven robotics and industrial automation, those things will continue to expand, and you're starting to see that demand affect the overall semiconductor market.
So yes, lead times have pushed out. But I think the industry has learned a lot since '01 and they do a much better job of managing through that. Obviously, this is a very unique time as the amount of infrastructure that's being built out right now is beyond, I think, anybody has been in this industry as long as I have. We haven't seen anything like this. So you just don't know how that's going to affect.
But I would say in conclusion that we're in a great position, especially because a lot of the technologies we're dealing with are not related to that specific industry. But that industry is driving other companies and technologies and bringing new products to life, which helps us and driving significant volumes of that, too.
So I would say as we become a more highly valued vendor, it is one of the main reasons why buying the security asset was so important to us because it gives us a pretty significant differentiator against our competitors, but also we fill a huge customer need that's coming up soon. So I see that obviously helping a lot.
One of the things I mentioned early on in my comments is between the 2 assets, we're picking up almost, I'd say, 60 to 70 active accounts that would use our technology that we have not been in. So that's a lot of new logo and new domain growth. So being able to realize those revenue synergies that will be right in front of us soon is -- that's not really accounted for yet in my side of other than doing some FP&A in those numbers and trying to gauge an eye on how that will help cash flow generation and things like that. But even that, I would say that analysis was fairly conservative, I'd say, below the midpoint.
So anyways, I think we're definitely in a great position now for Data I/O to return to continued growth, both inorganically for sure, but organically as well. We're off to a very good start in Q3. I feel very confident about the target that we set for ourselves internally of reaching that target and which makes me look forward to Q3's earnings call. But stay tuned. There's going to be more announcements coming out over the next 30 to 60 days that are significant.
And so I'd like to close with those remarks and hand it off to the operator.
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.
Data I/O Corporation — Q1 2026 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Data I/O Corporation — Q4 2025 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Data I/O Corporation — Q3 2025 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Financial data from Data I/O Corporation
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 18 18 |
22%
22%
100%
|
|
| - Direct Costs | 8.78 8.78 |
20%
20%
49%
|
|
| Gross Profit | 8.99 8.99 |
24%
24%
51%
|
|
| - Selling and Administrative Expenses | 11 11 |
31%
31%
60%
|
|
| - Research and Development Expense | 6.03 6.03 |
6%
6%
34%
|
|
| EBITDA | -7.29 -7.29 |
206%
206%
-41%
|
|
| - Depreciation and Amortization | 0.48 0.48 |
4%
4%
3%
|
|
| EBIT (Operating Income) EBIT | -7.76 -7.76 |
174%
174%
-44%
|
|
| Net Profit | -8.91 -8.91 |
240%
240%
-50%
|
|
In millions USD.
Don't miss a Thing! We will send you all news about Data I/O Corporation directly to your mailbox free of charge.
If you wish, we will send you an e-mail every morning with news on stocks of your portfolios.
Data I/O Corporation Stock News
Company Profile
Data I/O Corp. engages in the provision of programming, security provisioning and associated intellectual property management solutions used in electronics manufacturing with flash memory, microcontrollers and flash memory-based intelligent devices as well as secure element devices and secure microcontrollers. It designs, manufactures and sells programming systems and services for electronic device manufacturers, specifically targeting high-growth areas such as high-volume users of flash memory and flash memory based microcontrollers. The company was founded by Grant C. Record and Milt Zeutchel in April 1969 and is headquartered in Redmond, WA.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Wentworth |
| Employees | 94 |
| Founded | 1969 |
| Website | dataio.com |


