Data I/O Corp 2026 Q2 Earnings Call

Please go ahead, sir. Thank you, Asha, 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, William 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 marks 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 one-time 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. Now I'll turn the call over to William Wentworth, President and CEO of Data I/O.

Thank you, Jordan. Appreciate it. 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. As you know, all of you are aware, obviously love to take questions. For those who, if I didn't explain or you need some clarity, please hang on and ask away. 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 2023 and 30% lower revenue. Sales funnel continued to expand with new customers and new domains, which obviously has been a huge focus for us. Sorry about that. Doing this remote from a cell phone. Anyways, I'll continue. Sales continue to expand, as I said, with new customers and new domains.

We had six new logos so far this year, three automotive, two robotics, and one in global communications. All of these, especially the last two domains, have a significant amount of upside in the out years. Probably seeing some of these things are ratcheting up now for their demand. I would think on the robotics side, we'll see that start to really creep in to drive significant revenues probably in the second half of next year. We're getting built into the supply chain of these companies, which is 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 break even, essentially. 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've closed quite a few of those deals in July. This revenue and our improved revenue mix, we're certainly selling more, I would say systems with more value, more IOs, 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. We've done a great job of 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 expenses, I can say for the month of July, our second large milestone is to get to cash flow neutrality, stop burning cash. Preliminary numbers for July show close to cash flow neutrality. Yes, it's only one 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 two or three areas we still need to get better operational efficiency and cost, which will also improve our customer sat and also be doing things in this industry that our competitors don't do. Through these efficiencies, we can react to customer demands faster, which are increasing almost daily. I had an email 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. 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, four weeks of device turnaround. The industry right now is about 8 to 12. That's been on the great side. Transformational, 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. I think the team's done a great job of looking at the business. We've had some great organizations help us through the process, just trying to find any holes or issues with the business. I think we've done the Quality of Earnings, was great because it did identify a few things that we were able to actually save some money on the purchase price. Everybody's doing the job. We've extended the date to August 31st for close, so that's where we're at with that. The security acquisition, which came out in the press release, I am calling from a Microchip conference that we would 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. There's all these different compliance programs and regulatory programs coming out, such as the Cyber Resilience Act in Europe and the Radio Equipment Directive. These things, they have to be fully compliant by the end of next year. They're starting to monitor the vulnerability reporting starting next month. We're seeing a big push on the medical side because they've got to go through their FDA approval. Other industries are certainly going to have to meet this requirement, or you cannot sell your product in the EU. 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. It's opening up a whole new branch of opportunities for Data I/O that honestly we wouldn't have 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, it's an important point here is we're buying the assets, but we will continue a 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 this just decoupling completely? 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. 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 four new revenue streams for 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. Also, as we get into Programming as a Service, providing security provisioning as a service provider. It's exciting, and it's great having more multiple revenue lines.