Earnings call transcript: Data I/O Q4 2024 earnings miss, stock drops 10%

Data I/O Corporation reported disappointing fourth-quarter results for 2024, with earnings per share (EPS) coming in at a loss of $0.13, missing the forecasted $0.02. Revenue also fell short, reaching $5.19 million versus an expected $6.9 million. Following the announcement, Data I/O’s stock price dropped by 10.06% in after-hours trading, closing at $2.77, down from $3.08. According to InvestingPro data, the company’s market capitalization now stands at $25.4 million, with the stock trading near its 52-week range of $2.29-$3.99.

Key Takeaways

• Data I/O missed both EPS and revenue forecasts for Q4 2024.
• The company’s stock fell over 10% after the earnings release.
• Full-year 2024 sales declined by 22% compared to 2023.
• The company is focusing on expanding its algorithm library and improving operational efficiency.
• Automotive electronics accounted for 59% of 2024 bookings.

Company Performance

Data I/O experienced a challenging year, with full-year sales dropping to $21.8 million from $28.1 million in 2023, marking a 22% decline. The company reported a net loss of $1.2 million for the fourth quarter and $3.1 million for the full year. Despite a reduction in operating expenses by $1.1 million, the decrease in revenue and gross margins from 58% to 52-53% impacted overall performance. InvestingPro analysis reveals the company maintains strong financial health fundamentals, with a current ratio of 4.87 and more cash than debt on its balance sheet. Get access to additional financial health metrics and 5 exclusive ProTips with an InvestingPro subscription.

Financial Highlights

• Revenue: $5.19 million in Q4 2024, down 25% from the prior period.
• Full-year sales: $21.8 million, a 22% decrease from 2023.
• Gross margin: 52-53%, down from 58% in 2023.
• Net loss: $1.2 million in Q4, $3.1 million for the full year.
• Cash position: $10.3 million, with no debt.

Earnings vs. Forecast

Data I/O’s Q4 2024 EPS of -$0.13 fell short of the forecasted $0.02, representing a significant earnings miss. Revenue also underperformed, reaching only $5.19 million against a projection of $6.9 million. This marks a notable deviation from expectations and highlights the challenges the company faces in its current market environment.

Market Reaction

Following the earnings release, Data I/O’s stock declined by 10.06% in after-hours trading. The stock’s performance is now closer to its 52-week low of $2.29, significantly down from its high of $3.99. The market reaction reflects investor concerns over the company’s ability to meet financial targets and improve profitability. Based on InvestingPro’s Fair Value analysis, the stock appears slightly undervalued at current levels. The company maintains an Altman Z-Score of 4.35, indicating strong financial stability despite recent challenges. Discover comprehensive valuation metrics and expert analysis in the Pro Research Report, available for over 1,400 US stocks.

Outlook & Guidance

Data I/O is targeting quarterly revenues between $5 million and $6 million moving forward. The company is expanding into service provider and contract manufacturer markets, aiming to leverage operational efficiencies and broaden its market reach. Despite the current challenges, executives expressed optimism about future revenue growth, supported by a strong backlog.

Executive Commentary

CEO Bill Wentworth highlighted, "We continue to see improvements in revenue and growth, and the indications are positive." CFO Gerald Ng added, "Our goal is to improve revenue... with assistance from a strong backlog." These comments underscore the company’s focus on leveraging existing strengths to navigate current market conditions.

Risks and Challenges

• Supply chain issues and potential tariff challenges could impact future operations.
• The decline in automotive electronics market demand poses a risk to core revenue streams.
• Continued pressure on gross margins may affect profitability.
• Macroeconomic pressures and market saturation could hinder growth efforts.

Q&A

During the earnings call, analysts inquired about the company’s tariff mitigation strategies and its progress in the service provider market. Executives reported positive early signals and noted that adapter activity increased by 49%, with service provider adapter sales up 20%, indicating potential growth opportunities in these areas.

Full transcript - Data I/O Corporation (DAIO) Q4 2024:

Conference Operator: Good afternoon, and welcome to the DATA. IO Fourth Quarter twenty twenty four Financial Results Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Jordan Darrow, Investor Relations, Data IO Corporation: Thank you, operator, and welcome to everyone. This is the Data IO Corporation fourth quarter twenty twenty four financial results conference call. With me today are the company’s President and CEO, Bill Wentworth and Chief Financial Officer and Vice President, Gerald Ng. 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 partnerships and any other statements that may be construed as a prediction of future performance or events are forward looking statements, which involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. These factors include uncertainties as to the impact on global and geopolitical events, international 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, parts shortages, pricing and other activities by competitors and other risks, including those described from time to time in the company’s filings on Forms 10 ks and 10 Q with the Securities and Exchange Commission, our press releases and other communications.

The accuracy and completeness of forward looking statements should not be unduly relied upon. Data IO is under no duty to update any forward looking statements. And now, I’d like to turn the call over to Bill Wentworth, President and CEO of Data IO.

Bill Wentworth, President and CEO, Data IO Corporation: Thanks, Jordan. Appreciate the handoff. Some comments, I’m going to be following the press earnings release we released a short time ago and try to follow along that path and add some color along the way to some of the things that we’ve started to see some traction and early traction. Since becoming CEO, October one, myself and the team have been a deep discovery throughout the business. Our findings have taken us through pretty much every functional department, looking for opportunities both to expand and where we the company has had success in the past, but also look for other opportunities to create some operational leverage and expand the business into new markets.

Given my experience over the last thirty years, thirty five years in the programming services business and opening up a regional programming center back when I was 22 years old and built that to the largest global programming center in the world, it gives me a unique insight to fulfill what customers need and want and need towards the future. So being in this space as long as I have and it’s been really a pleasure getting back into it. Honestly, it’s brought back a lot of great memories and it shows that I still have a significant amount of passion for this business. And it really has been great to meet the team and get back engaged in this industry. It’s a very unique interesting niche industry, but there’s a lot of unique qualities about it that make it really special, at least to me.

So in the post kind of initial phase of discovery, we’ve started using a consultative sales approach. And what I mean by consultative, it’s really programming and programming an operation and creating an operation. There’s a lot of unique attributes that customers need to know when taking this process on. It’s not just buying a big automated system plugging it in and just throwing in product in one end and having it come out the other end and having it be done correctly. There are processes pre and post that have to be initiated and should be thought through and taking on this process and bringing things in house and even adding some of the experiences myself and some of the other team members such as Monty Reagan, who’s been in this business for twenty, twenty five years, we can share with our customers and share with our providers best practices that we’ve experienced throughout the years.

Again, I mentioned Monty, he’s our newly appointed VP of Sales and Marketing and has really driven

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: this consultative sales approach. And we’ve

Bill Wentworth, President and CEO, Data IO Corporation: seen some really good qualitative sales approach. And we’ve seen some really good initial results granted it’s a small sample size. But if we look at kind of cycle time of sales, which typically from conversation to close was over one hundred and forty days in the past. And this is just an early sample size in the first two months of this year. We’ve gotten it down to 70.

So we can see the traction. The conversation is being recognized. The customers understand they really appreciate this consultative approach because they really feel like we’re building a partnership with them. And we’re there to help them not just buy capital equipment, but help them put it to use the right way so that they’re successful. As you know, one of the first moves I made early on is trimming some of the executive team and really that’s I was brought in to make change.

And it was really just more wasn’t just a signal, it’s really looking at where the business was going and understanding the people that were here to set those directions. We’re really not I think in the best interest of the company and best interest of the market and our customers. So it made sense to kind of part ways and set that new direction. And sometimes change is accepted, sometimes it’s not. So as we trim that management team, I think we got we were able to get the focus on the areas that matter to our customers and really take those ideas to market.

So since joining Data Route, Jerry Ying has continued to reduce our operating expenses. We continue to find opportunities to optimize our spending. Example, we’ve deployed an AI agent to reduce time to in our device request and algorithm process. We will continue to use technology to operationalize and automate what we do. There are a lot of opportunities to continue that trend and we will continue to exploit those areas and improve our operating capability, which would give us additional operating leverage.

One of the other main goals as I’ve talked to a lot of shareholders over the last four or five months is really building out our algorithm library. This is not something in the past that you’ve heard a lot about, but back in the early 80s and 90s when DataRow had probably 75%, eighty % market share, they had the greatest library. And that library of algorithms is what really creates the buying decision as a consumer such as myself. If I’ve got to support a wide range of customers and products, I have to have a large library of algorithms of parts that we support. So that is something that’s going to be in real focus and it’s one of the many KPIs we’ll be tracking on a day to day, week to week, month to month basis, because it will talk to the growth and the consumption of our platform.

That being said, you’ll see these KPIs and you’ll hear about them more and more in the future. It’s clear that these strategies are spot on and the numbers are starting to confirm that. Now we need to start doubling down for acceleration for the growth of the business. We do have line of sight as I mentioned earlier to the operational leverage. We continue to see improvements in revenue and growth and the indications are positive.

There are areas that we will be investing throughout this year as in our deploying our manual programming platform sometime around summer and improving our algo and adaptive development and delivery. These are that is the one area that a customer comes to you for request of supporting a device that means they want to use your platform. So it’s how you support them, how fast you support them and the cost in which you support them that gets you to gain market share. These investments along with other investments I’ve talked about today, collectively enable us to tap into a much larger addressable market than in the past. And in my experience, I’ve seen companies and not just data, other companies in this space not have the available technology available for their customers for the solution that they need.

And it’s important that we stay engaged with the semiconductor suppliers, customers intimately. So we understand where they’re going with their product development and also make sure that we have the would profitability and accelerate our top line growth and market share. This is something I’ve done several times in my career. It’s actually uniquely fun in a way, if you’ve done it before because the results when you get there are quite rewarding. So I would like to pass off the financial review to Gerry Ewing.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Thank you, Bill, and good day to everyone. I look forward to outlining and elaborating on our recent financial performance in more detail. My comments today will focus on key points of interest for the fourth quarter and the full year 2024. Our recent performance has been impacted by automotive electronics uncertainty and limited customer capacity expansion, resulting in lower system shipments. Fourth quarter revenue at $5,200,000 was down 25% from the prior period.

For the 2024, sales were $21,800,000 down 22% from $28,100,000 for 2023. The booking and revenue declines were greatest in the America and European markets. Overall, Automotive Electronics represented 59% of our 2024 bookings as compared to a higher 63% for 2023. While overall revenue performance was below expectations, we do have some positive performances to highlight. Despite the current automotive market headwinds in The Americas and Europe, Asia revenue grew at 14% for the year.

Our European channel booked a 10 system $2,800,000 order in Q1 of twenty twenty four with initial shipments occurring in this past fourth quarter. Reoccurring revenue such as adapters and services remain steady, representing 50% of full year’s revenue and providing a steady base to help offset the softness in system sales. Finally, order backlog remains strong at $3,500,000 as of December 31, up $700,000 from the start of the year and will contribute to shipments and revenue recognition as we enter 2025. Moving on to gross margin for the fourth quarter and for the full year was at 5253% respectively, down from 58% achieved in 2023. The lower margin percentages primarily reflect lower sales volume and related absorption of fixed manufacturing and service costs.

However, our performance benefited from material cost reductions, inventory savings, quality improvements and just general operational efficiencies. This was reflected in our actual 2024 production and service spending which decreased $250,000 or 4% from the prior year. Operating expenses in Q4 were $4,000,000 up $179,000 or 5% from the prior period. However, the fourth quarter spending included approximately $500,000 in one time charges from the previously announced organizational and leadership changes and an additional $120,000 for strategic technology platform investments. These one time charges and investments will contribute to future savings in 2025.

Full year expenses were 14,600,000 down $1,100,000 or 7% from the prior year. Excluding the one time fourth quarter charges noted earlier, full year expenses would have been down $1,700,000 or 12% from the prior year. The company did incur a net loss of $1,200,000 for the fourth quarter and $3,100,000 for the full year as compared to a net profit of $144,000 in the fourth quarter and $486,000 for the full year 2023. The 2024 revenue decrease of $6,300,000 dollars and gross profit decline of four forty basis points contributed to the gross profit decline of $4,600,000 which was partially offset by the $1,100,000 in operating expense reductions. For the full year, adjusted EBITDA was a loss of $1,400,000 compared to $2,300,000 gain in 2023.

Moving to the balance sheet, we continue to maintain a healthy cash position. In addition, trade receivable agent remains very low and inventory levels are sufficient to cover our backlog and anticipated sales. Accounts receivable was $4,000,000 as of December 31, with DSOs improving to sixty days compared to sixty nine days at the end of twenty twenty three. Inventory at $6,200,000 increased 300,000 from the beginning of the year in anticipation of future backlog reductions from bookings earlier in the year. Net working capital was $16,100,000 at the end of twenty twenty four.

The company continues to have no debt. We ended the year with access to $10,300,000 in cash, down $2,000,000 from the $12,300,000 from the start of 2024, due primarily to the loss stemming from the lower revenue in 2024. Cash benefited from continued customer collections and lower operating expenses. Cash optimization between corporate and our international subsidiaries remain a focus, including the $3,400,000 of cash repatriated from our China subsidiary in the second quarter of twenty twenty four as reported earlier in the year. We have more than enough cash in working capital to cover current and future operating needs.

But we’ll continue to focus on having the capital needed to fund future strategic and operating investments as needed. Looking ahead, our entire team and channel partners are focused on driving sales improvement by leveraging the new go to market and product strategies which Bill has noted earlier. The improved cost structure achieved through the past year is expected to contribute to our ability to make future business investments as well as mitigate emerging supply chain uncertainties, including tariffs and inflationary pressures. Overall, we remain very solid financially with a strong cash position, no debt and improved costs and operating structure, which will enable us to proceed with the implementation of the new reimagined market approach, again as Bill alluded to. That concludes my remarks for the fourth quarter of twenty twenty four.

Operator, could you please start the Q and A process?

Conference Operator: Certainly. We will now begin the question and answer session. Today’s first question comes from David Marsh with Singular Research. Please go ahead.

David Marsh, Analyst, Singular Research: Yes. Hi. Thank you guys for taking the questions. Good afternoon.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Hi. Hi, Dave.

David Marsh, Analyst, Singular Research: So, Jared, just want to start, I want to make sure I heard you right. So it sounds like $625,000 of non recurring in the fourth quarter. And so as we roll forward, we should we could kind of expect a commensurate decline in your kind of SG and A and R and D. Is that an accurate statement?

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: That is an accurate statement in the sense that they should be non recurring as we walk into the new year. But Dave, of course, we will always continue to look at our spending levels, continue to drive efficiencies and at the same time potentially redeploy and expand investments as needed. But you are correct, the one time expenses in Q4 should not occur in 2025.

David Marsh, Analyst, Singular Research: Okay, that’s great. And then just kind of turning more to the sales side, Bill, more for you. I think that Q4 was probably a little light of what most people who follow the company were probably expecting. I’m sure there were a lot of puts and takes there. Can you just talk about and obviously with the political change in The U.

S, I’m sure it has an impact overall on the market. I mean, can you just talk about the sales funnel and kind of what it looks like right now and kind of help us structure some expectations for the year?

Bill Wentworth, President and CEO, Data IO Corporation: Yes, sure. Obviously with the given change in the political environment and obviously all the tariff wars that seem to be going on, obviously there’s a lot of concerns up there about could that slowdown this year’s growth perspectives and things like that. And yes, Q4 was definitely not the not what anybody would expect, but that trend was going on since really the beginning of last year. The bookings have been tilting towards $5,000,000 quarter over quarter and continue to slow as the year slowed. And there’s a big impact from a slowdown in the automotive industry.

And given when you’re in really you’re captured by one industry that there’s any title shift there, you’re going to feel the pain. And it’s one of the reasons why we’re going to expand and focus on other parts of the market. And that’s what I’ve talked to some of the shareholders about this and some of the conferences is about that service provider network and that’s franchise distribution, contract manufacturers, independent service providers like my old company Source and there are Source like companies out there. There’s a lot of opportunities there. They do feed, they do obviously sell to a lot of different markets and industries.

So that gives you built in diversity just by selling to this. And that grouping probably consumes more of our technology than any other group in the industry itself. DataRO tended to be shifted away from a focus on that space. One is because look, they get a lot of demand from their clients because they feed a lot of customers, the arrows and the admittance of the world. They feed a significant part of supply chain globally.

And so the requests that come in from varying different customers across a very large technology space in the semiconductor space does leave it to be challenging, especially in the algo and device requests, you get a lot of them. So you have to fund that activity. And look from my early numbers and getting reengaged with those companies, there’s a significant percentage that they win. It’s better than 25%, thirty %, thirty five % of those. And there’s a significant amount of requests.

So we have to position the company as service customer segments such as service providers. But the results from that if do it the right way and you give them the products and services and support that they need can be hugely beneficial to growth.

Igor Novyartsev, Analyst, Lairs Capital: Yes, I appreciate that.

George Marama, Analyst, Pareto Ventures: So, I

Bill Wentworth, President and CEO, Data IO Corporation: think that going into this year, I would say our background, our bookings are strengthening. I’d say Q1 is definitely better than Q4. I can say that with some confidence. How much better we’ll see. We’ve got one of my favorite months coming up March because there’s no holidays other than St.

Patrick’s Day, but we used to get through that pretty good. So you get a lot more shipping days in March. It’s usually a pretty strong month. It’s a good indicator, I think going into the summer of what you can look like as far as manufacturing looks like and the manufacturing spend. Yes, the political environment doesn’t help give a lot of confidence, but as you see in the headlines, you see companies like Apple (NASDAQ:AAPL) making investments in The U.

S. Because of what’s going on. There is a de risk of China moving to other geometries and geos in the world and we got to make sure we’re in position to capture that. Supply chain shifts are nothing new to this industry. I’ve been through many of them.

I look at back in the 90s when North America OEMs are selling manufacturing facilities all over the globe and moving to Mexico. And then within three years that moved quickly to China. And so you have to be in position for these supply chain shifts in order to grab that market share and we’re creating plans to do just that.

David Marsh, Analyst, Singular Research: Great. Thank you so much. Appreciate that color. I’ll get back in queue.

Conference Operator: Thank you. The next question comes from Igor Novyartsev with Lairs Capital. Please go ahead.

Igor Novyartsev, Analyst, Lairs Capital: Hello, Bill. Hello, everybody. I’m a little bit new to the company, a new shareholder. So I think you have your work cut out for you. Let’s just say that.

I have actually a few questions and I’ll maybe ask a couple and get to the back of the queue because I don’t want to monopolize the conversation. But let me ask what you obviously everybody is talking about is tariffs. So you have a big manufacturing facility in U. S, you have a big manufacturing facility in China. How much of your product need to cross from U.

S. To China and from China to U. S? Mean, what if you can quantify the tariff impact? Let’s just assume that it will stay and whatever was announced would actually take place?

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: This is Jerry, and I’ll kind of try to tackle that question. Number one, obviously we are an international company with multiple manufacturing footprints and a broad distribution of customers throughout the borough. And so that actually is beneficial to us to a certain degree from a tariffs perspective, I. E. Not all products are coming outside of The U.

S. Into The U. S. And we’re a U. S.

Intercompany, for example. So that’s number one. Number two, we’re a pretty fairly well leveraged company. In short, if you look at our gross profits, it’s fairly relatively high. And if you look at our actual material cost, it actually is fairly reasonable in terms of its overall contribution to our profit.

The point I want to make there is while we obviously are actively managing and wanting to mitigate tariff and inflation, the ultimate impact on our material costs and our profitability is somewhat minimized given our strong leverage. Number three, we are actively looking at mitigating tariffs and we can do that in a couple of different layers. Number one, to the extent that we can bypass product coming into The U. S. And going directly to end customers through the rest of the world, that allows us to mitigate tariffs.

Number two, products that do come into The U. S. To the extent that we can actually bring in sub components that are a lower value versus end items, that’s another example of our ability to potentially mitigate tariffs. Number three, to the extent that we do have to pay tariffs for stuff coming into The U. S, The U.

S. Government does allow us for some sort of duty recovery for stuff that ultimately leaves The U. S. And those are just some examples of things we’re doing to try to mitigate tariffs to the extent that we can.

Bill Wentworth, President and CEO, Data IO Corporation: And to add on to that tariff discussion, obviously we owe it to our customers to have other plans in case things get worse, right? And that’s always a possibility and you have to have contingencies for that. So we are working on to have some plans to move things like adapter manufacturing out of China if we have to or at least a portion of it. We would never move all of it because we have a significant amount of businesses in China itself. So there are things we are looking at to do.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Now to build on that, one of the benefits of the COVID years was the fact that we had to become resilient in our ability to basically cover for any disruption in our supply chain. And that clearly was the case during COVID years with China, our operations in China as well as in The U. S. So we do have where it makes sense and where it’s efficient, we do have some strong resiliency that allows us some flexibility as well.

Bill Wentworth, President and CEO, Data IO Corporation: This facility in Redmond can build all products. We have other partners if we had to build our adapters as a backup if needed and we can turn that switch on fairly quickly.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: So we’ve got both short term actions, short term mitigations as well as some longer term strategic directions that clearly is at our disposal.

George Marama, Analyst, Pareto Ventures: All right. Thank you.

Igor Novyartsev, Analyst, Lairs Capital: That’s a lot of information, a lot of details. My other question and it’s a bit of a speculation, but obviously first thing I noticed that Asia is doing well and U. S. And Europe not so much. And obviously, as your main segment is automotive, how much is it attributed to the success of electric vehicles in Asia and sort of below trends less successful in Europe and in U.

S. Versus internal combustion vehicles? Because I mean, my speculation is that you sell a lot to electric vehicles as there is a whole lot more electronics, right?

Bill Wentworth, President and CEO, Data IO Corporation: Yes. Well, it’s look, automotive is a very interesting space. It’s one that my old services company actually entered in the mid-90s. And that’s when automotive really started to use technology as far as your entertainment infill systems, anti locking brake safety systems, engine control modules, the complexity of those modules using various different can microcontrollers sort of expand. I think back at when we first entered the automotive market, there was probably an average of 22 microcontrollers in a car that includes some flash.

The expansion of technology inside the cockpit has obviously gone well beyond that and obviously electrification has caused even more. But combustion engines, engine based cars still use a ton of technology. It’s not just all electric. I mean electric cars still only represent 10% of the overall market. And we grew far further than obviously grew beyond 10% here, especially in 2017 and other years where we captured a lot of this UFS and EMMC programming.

But it’s not just automotive. There’s a lot of that large density class that’s also used in consumer based electronics, which we have some pretty good significant wins in Korea and China at large and Mexico. So, yes, electrification is a part of that, but I would still say combustion engine cars still drive a significant amount of overall content. Companies like Bosch (NSE:BOSH) and Continental and others they sell to mostly those combustion engine manufacturers. So I would say it’s a little bit of both.

Did electrification bring a portion of additional demand? Sure, but it wasn’t the demand driven by as much as your standard kind of vehicles we’ve been driving for years.

Conference Operator: Thank you. The next question comes from George Marama with Pareto Ventures. Please go ahead.

Bill Wentworth, President and CEO, Data IO Corporation: Yes. Hi, guys. Thanks for taking the call. I’m happy to see the energy and changes afoot at Data IO. I was wondering with the changes taking place in the expanding the aperture to new verticals and to looking at sales processes, if you look out into 2025, in terms of timelines and key milestones, do you think you can inflect to some sequential kind of lift off these sort of $5,000,000 quarters sometime in 2025 or is that more of a $26,000,000, 20 7 million dollars kind of phenomena you think?

Well, do you want to take a fair stab at that, Jerry?

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Well, obviously first and foremost, we at Beto, I don’t give forward looking guidance. But that being said, I think George, what you’ve articulated is correct. I think that we’ve kind of averaged around $5,000,000 plus or minus per quarter this recent quarter. And clearly management expectation is to put initiatives in place that allows us to take it from $5,000,000 to $6,000,000 and beyond. And so that’s clearly, clearly the goal.

Some of the strategies that Bill articulated is going to take time. As we all know, both product go to market and then eventually I do want to provide some facts here. We do have a nice backlog. I do want to provide some facts here. We do have a nice backlog and so that backlog which is what we have communicated will help us in the near term.

And so I think in the end, our goal is to improve revenue. Where we may have a little bit of assistance with a strong backlog to help us early on. And then hopefully the other imperatives improvements we make will help on the back end.

Bill Wentworth, President and CEO, Data IO Corporation: And I think to add some color to that, I think back at the consultative sales approach that we started in just January alone really this quarter. It was something that Monty and I discussed and he started the same week I did back in September. And we started as we both got reengaged back in this market because we both were out of this market for about five years. So it’s been fun getting back engaged with it and looking back at some of the things that we did as even a supplier as a consumer of the technology and Monty came from BP (NYSE:BP). So he’s been on this equipment side before.

I’ve been on the consumption side of it, but also hired him and worked with him fifteen years directly. So he was on the service side as well. So I think when we look through and reflect back in our history, the market really hasn’t changed that much and the dynamics have been changed that much. It’s really taking the things that we felt that we would have wanted as a supplier, as our suppliers to expand kind of our needs as a customer. We’ve taken that approach and really melded it into a really good consultative conversation to have with our customers.

And again, it’s only been our direct sales force that’s been using this approach so far and we’ve seen a really good some really good traction early on. And so as we fine tune this discussion and turn into a sales playbook, which we will be in the next month or so, we’ll be rolling that out to our reps probably in late Q2, probably summer. And we’ll be piloting with with a couple of our stronger reps that have a little more technical capability and understanding of supply chains and roll that out and which should accelerate what we’ve seen already.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Okay, great. Sounds great. Thank you.

Bill Wentworth, President and CEO, Data IO Corporation: Yes.

Conference Operator: Thank you. The next question comes from David Cannon with Cannon Wealth Management. Please go ahead.

David Cannon, Analyst, Cannon Wealth Management: Hi, guys. Thanks for taking my questions. Could you, Gerry, give us a more detailed understanding of where OpEx is going to come down to? I know there was some one time expense in Q4. Are we going to get below $3,400,000 a quarter run rate?

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Dave, you’re going to make me look at my numbers. I think we’ve been I think, again, a couple of things about our expenses. Number one, because we are a public company, our typical Q1 expenses are going to be higher because of audit, the SEC filing and things of that nature. So Dave, to your question on the 3,500,000 let’s say run rate, I think we’ve been averaging $3,300,000 3 point 2 million dollars I think in Q4 this year, we’re at 3.5%. Again, these are all factual information that’s available.

Clearly, the expectation is that we continue to hold our expenses to the lowest level possible while making appropriate strategic investments in the business. The

George Marama, Analyst, Pareto Ventures: to the

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: earlier question regarding the one timers, the one timers have a two double impact. Number one, the expenses in the current year should not occur next year and then one would hope some of these expenses will reap savings in the next year. And so that being said, one would hope that we are able to then use those savings to make appropriate investments in the business and at the same time kind of hold our expenses relatively steady. So to your question, Dave, I think our my expectation our expectation would be to hopefully continue to hold our expenses as tight as possible until we can see recovery on the top line and to make sure that our expenses don’t lead the top line recovery.

David Cannon, Analyst, Cannon Wealth Management: Okay. And then in Q1, I mean, we’re two thirds of the way through Q1. Did you see an improvement in orders? I believe for Q4, you guys called out orders or bookings were like $4,200,000 Did you see a better run rate starting the new year? And could you give us any color on that, Bill?

Bill Wentworth, President and CEO, Data IO Corporation: Well, given that we typically do not give forecast, Dave, based I think on my commentary, you heard in that that I saw improvements over Q4. So to say that we were going to have a four, four quarters, definitely not keeping if that’s not the trend line, the trend line is increasing. I don’t want to predict the number given we have our biggest ship month, we have some great backlog of orders, we’ve been able to pull in some things through conversations and we’ll just we’ll see how the quarter ends, but the signs are good.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: So Dave, on that one, you are correct. Our $4,000,000 bookings performance in Q4 was the low mark for the year. And clearly our expectation is to reverse that in the upcoming quarter in terms of our bookings performance. And then of course that should lead to improved revenue from a conversion point of view. And then again similarly, if you look at our backlog, we have a okay backlog that should also be beneficial.

So I think the expectation is that we would hope to drive improvement in both bookings and revenue. But again, our team does a good job of booking ship, which then basically means we’ve got to do our job in closing the bookings and getting the conversion. And if we do then

Bill Wentworth, President and CEO, Data IO Corporation: Just as an example, Dave, even just our adapter activity is up 49%. I mean, so with all that turn to orders, no, but just that activity increase, you’re going to book a portion of that, which should be a lead. And that’s the reoccurring number that’s a good foundation of our business. It’s why it’s one of our focuses is to attract TSRs and Adaptive Sales. It’s a key indicator of who’s using our platform.

So these I know these are things you haven’t heard about in the past, but these are the keys to driving the business and driving growth. And all indications are we’re doing the right things.

David Cannon, Analyst, Cannon Wealth Management: Okay. And then you had in the past, you spoke about Data IO being overly dependent on the automotive market and that you felt it was low hanging through with programming centers and other verticals. So could you speak to in the New Year some of the progress that you’ve made reaching out to those other verticals and is that are you starting to see that translate to actual orders?

Bill Wentworth, President and CEO, Data IO Corporation: Yes, I’ll go right to the adapter KPI is that with the service providers were up 20% early so far this year and adapter activity in sales. So that is an indication of our platform getting used. The more your platform gets used that turns into sales of automated systems obviously, because if they’re using your platform more and more and they continue to put in more DSRs and you land that business, they’re going to need additional equipment. So that’s how you take market share. So yes, in that category early on, we still have some things we really need to work out and how we service that side.

As I said earlier, they do have a higher demand of requests. But if you don’t put the focus and attention on it and invest in that, you’re not going to get the opportunities. So even in the early on where we haven’t really made any major, major other than really focusing on what we have today, the resources we have and deploying them to those pieces of those resources towards that category, we’re seeing positive signals. So that tells me it’s a place we should invest more.

David Cannon, Analyst, Cannon Wealth Management: Okay. And Bill, just a follow-up on what you said regarding adapters. I want to make sure I’m understanding this correctly. So you’re tracking adapters, people that are using product. Are you saying that in the past, I mean, it’s logical, the friendliest audience is your existing customers are using product in order for follow on orders and the like.

So are you saying that in the past, the company wasn’t really tracking the adapters and going to those customers and saying, hey, we’ve got new systems, can we getting in front of them? And is that what you’re saying that some of these opportunities were just not really being capitalized upon? Yes,

Bill Wentworth, President and CEO, Data IO Corporation: I wouldn’t say they’re really opportunities. You have to look at the customer base. So if you think of an automotive customer, right, and automotive is a the reason why it’s such a great industry is they don’t oscillate demand that much other than when you have a bubble like electrification, right, which was a bubble, right? People everybody thought that we’re going to get X amount of percentage of market share. I’ve seen this through the industry when you go back to 02/2001, every telco and networking equipment company out there thought they were going to have 80% market share.

Let’s say it was a bubble. And so that happened in the automotive industry as well. So that being said, in automotive supply chain and the bill of materials for a car, once you build that model, it doesn’t change. One, because any change takes you have to build out. I won’t get into the technical details of their operations that they have to get certified.

But that being said, it’s any change takes a while. So typically your bill of materials for a car stays pretty steady state for five years until they redo that model. So you don’t get a lot of new device requests. You get the initial for the win of the devices they’re going to use. But this is why service providers are so important and critical to us as a business.

And this is where there was a defocus of this market group, probably going back five, six, maybe even ten years. And so the problem is that when you don’t service that group, you don’t get as many device requests. Your library doesn’t grow. And so that’s a negative. And so it’s not just Adaptive sales of existing business and platform and run rate.

It’s also getting new device requests to build adapters for your platform in order for them to consume more. So it’s just as much as run rate business, but more importantly, it’s new device requests. Does that make sense?

David Cannon, Analyst, Cannon Wealth Management: Yes. Thank you for calling that out. I’ll go back into queue.

George Marama, Analyst, Pareto Ventures: Okay.

Conference Operator: Thank you. The next question comes from Jeff McCaffrey, retail investor. Please go ahead.

George Marama, Analyst, Pareto Ventures: Hi, good afternoon, guys. Thank you very much for this call so far. Definitely one of the most helpful I’ve listened to from the team in years. So greatly appreciate it. I appreciate that.

Yes, no, this has just been fantastic. I greatly appreciate it. One thing I wanted to see if we could elaborate on my education is you’re talking a lot as far as expanding the TAM with the service providers and the contract manufacturers. Can we talk a little bit about what the like the end markets that those guys will be selling into kind of the expansion away from auto that those guys can help drive?

Igor Novyartsev, Analyst, Lairs Capital: What are one

George Marama, Analyst, Pareto Ventures: or two of the end markets that you’re excited about?

Bill Wentworth, President and CEO, Data IO Corporation: It’s honestly a great question by the way. And it’s being in the tech industry and this particular grew up in distribution. My dad started as an entrepreneur and owned a distributor called Linex and sold that to Anthem, which then became Arrow. So I was kind of born into the supply chain. Distribution, which I know very, very well, obviously saw my company back in 02/2008 to Avnet (NASDAQ:AVT), which is now Avnet’s global programming center is source electronics.

And we did it. That transaction was a great transaction, great team over there. But you look at distribution, automotive is actually I don’t want to say today because it’s been a little bit while since I’ve been involved instantly involved with distribution, but it was never a large portion of their revenue. Matter of fact, when I sold source to Avnet, the liabilities that you carry to that potential liabilities you take on in supplying the automotive industry are quite daunting. I mean, if you don’t if you do not execute, their fines can go up to $1,000,000 So it’s not something you take on lightly.

You have to be almost perfect or you have to be perfect. So it was something that from a terms and conditions standpoint, distribution kind of shied away from for years. But it’s gotten so large in content, you can’t ignore that market and they couldn’t, right? But I would say, what they serve is a vast amount of different parts of the supply chain that supports all technology products, whether it’s consumer, whether it’s garage door opening systems, consumer electronics, IoT, I mean they go on and on and on. And that’s why I don’t know if you remember back in the day when Roy Vallee was CEO of Avnet and I know Phil has been on a couple of times.

Kramer would come on and they’d introduce Roy and Avnet as the supermarket to the world of electronics and he was right because they support everybody. So there’s no one industry that drives their content. They support a vast variety of vertical markets and that’s what makes them such a great customer because of the diversity, honestly. So I hope that helps.

George Marama, Analyst, Pareto Ventures: No, that helps a lot. And one more that I hope is kind of simple in a sense is I know before the election, there was a lot of talk with the automotive uncertainty based on who wins and what mandates as far as EVs or combustion, kind of what would be the political endgame going forward. So with that now settled, is that being settled versus the now introduction of tariff uncertainty? What’s been greater? Is it that, okay, now we know, okay, it’s not going to be all about EVs every second of the day versus, oh, crap, here are the tariffs.

Which one of those has been a better or bigger offset in your opinion so far?

Bill Wentworth, President and CEO, Data IO Corporation: A better offset from

George Marama, Analyst, Pareto Ventures: I guess I was trying to say, let me say it more simply. The certainty around Trump being in the White House and the impact on the auto industry greater than the impact that we’re seeing so far around the tariff?

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Yes, again, let me tackle the tariffs a little bit. Again, from a finance operational perspective, I think identifying ways to manage and mitigate tariffs, I think is a little simpler. We know our supply chain, we know our logistics, we know our flow, we know what we pay today and we know what we might pay tomorrow and we know as I said earlier different tiers of action we can take to try to mitigate that. So from a risk mitigation action perspective, it’s a little easier to execute against. Not to say it’s easy, but it’s easier.

I think that obviously when you start to top and top line, that’s always a little more difficult because we don’t directly control that. So I think the whole issue of how are the overall economy and the markets going to progress, particularly in Europe and The Americas and Mexico, I think those clearly would be a bigger uncertainty.

Bill Wentworth, President and CEO, Data IO Corporation: I think one of the things you have to think about in this war of words has gone on since January 6 or whatever one, started to really start saber rattling. It’s interesting to hear the statement of rare earth middles come out of Ukraine. And because if you think about electrification of cars, electrical cars have six times the amount of rare earth middles than a combustion car. So I find it interesting that all of a sudden we negotiate a new contract for Ukraine. Now I’m not going to get political, but understanding the overall supply chain because that’s what semiconductor start with as well.

And so when you think through this whole AI thing, which I call the new oil, but who knows what’s going to happen. This is a battle that I think has just begun and has been going on behind the scenes for a while. We have to mitigate any possibility of major disruptions in the supply chain and that’s why you’re seeing companies shift out. I’ve gotten different percentages from people on the ground in China from also from The U. S.

And there’s a varying derisk going on between 20% and upwards of 50%. I don’t know which one’s right, but we need to prepare for that. And you know what, with that is actually opportunity, because if you put yourself in the place of that shift, you win. So that’s how I look at

Conference Operator: it. Thank you. There are no more questions at this time. I would now like to hand the call back to management for closing remarks.

Bill Wentworth, President and CEO, Data IO Corporation: I really appreciate all the questions. I was really hoping for a lot today. So it was great considering I’ve been around for a couple of these calls. And I really do appreciate those questions. They’re super helpful and it gives me a chance to kind of talk about the business and my vision and how I think and the challenges.

You’re always going to be challenged in business and it’s how you meet those challenges and how you think through them and think it through them as early as possible. So we’re really excited about the strategies we’re laying out. Like I said, it’s a small sample size, but being in this industry as long as I have and people like Monty Reagan and others that have been in this company for twenty, twenty five years, thirty years some of them, When I’ve shared this with them, a lot of them have worked from the supplier side and they haven’t been on the user side. So when you compare those conversations together, things really click together and they’re like, oh, yes, that makes sense. So it gets the team motivated.

They’re really excited to be working on the core platform of the business, which DataRail makes universal programmers. That’s you’re going to hear that a lot and that term has been in this industry for fifty years. So we’re excited where we’re going. The team is extremely energized and just looking forward to a future and making progress quarter over quarter and that’s the plan. We have a bunch of announcements we’ll be making at a timed based on some milestones and you’ll be hearing more about that as the quarters come on.

We have been selected to present at the first ever GEO invested investing virtual investor conference on March 6. So I suggest if you can attend or view, I’ll be doing a fireside chat with the leader of that conference and really looking forward to being part of that conference and hopefully be one of those micro cap, small cap stocks to look at for this year. At this point, I’d like to conclude the call. Enjoy the rest of your day. Thanks again for joining us and I really appreciate the questions people.

Gerald Ng, Chief Financial Officer and Vice President, Data IO Corporation: Thanks. Thank you.

Conference Operator: The conference has now concluded. Thank you for your participation. You may now disconnect your lines.

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