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Operator: Good afternoon and welcome to the Data I/O First Quarter 2025 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: Thank you, operator, and welcome to the Data I/O Corporation First Quarter 2025 Financial Results Conference Call. With me today are the Company’s President and CEO, Bill Wentworth, and Chief Financial Officer and Vice President, Gerry Ng. Before we begin, I’d like to remind you that statements made in this conference call concerning future events, results from operations, financial positions, markets, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, product releases, new industry participants, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements which involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from those expressed or implied by such statements.

These factors also include uncertainties as the impact of global and geopolitical events, international trade regulations, order levels for the company, and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing, and other activities by competitors and other risks, including those described from time-to-time in the company’s filings on Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases, and other communications. The accuracy and completeness of forward-looking statements should not be unduly relied upon.

Data I/O is under no duty to update any forward-looking statements. And now I’d like to turn the call over to Bill Wentworth, President and CEO of Data I/O.

Bill Wentworth: Jordan, thanks a lot. Thank you for the people joining on the call. It’s always great to get a great audience, so looking forward to some questions after the call as well. We’re pleased to announce that Data I/O team has reversed the 2024 trends with revenue coming in at $6.2 million, up 19% over the previous quarter through four, bookings up $4.6, up 11%. As we’re all aware, the tariff discussion has been front and center since the beginning of March. It has had obviously, everybody reads the headlines and reads the news. It’s had some, let’s say, stalling some investments, maybe sitting on some of those decisions. We are constantly communicating with our customers weekly, almost in some cases daily, because there are some orders that we’ve been tracking since the beginning of the year.

I would say, Asia was off to a slow start. That was really due to kind of a late Chinese New Year this year. But also, they had a pretty good year last year. Looking at their forecast for this year, we still see them holding. Again, tariffs are going to play a big role in that and depending on how those go, we’ll dictate some of that. We’ll get into, and any questions around tariffs, definitely in the open questions, we’re very prepared to talk about how we’re getting around those issues in the supply chain. The team has done a phenomenal job really putting together various different pathways to still be able to deliver product and not have a major, major tariff impact. The next would be really some several announcements we’ll be making over the next two to three quarters.

And this really comes from the last six months of discovery work, really looking through our technology platform and programming platform. We do have a new product roadmap that we’ll be rolling out that will be very detailed in the next quarter or two, strategic investments for growth and productivity improvements. The other notable thing over the last literally six to eight weeks has been our discussions with semiconductor companies. We’ll be talking about this probably by the end of Q2, some of the strategic relationships that we’re forging with these companies. And this is something Data I/O did years ago. And I will tell you the conversations have been quite substantial and quite fruitful and is really going to set us up for real good growth and being able to be that recommended partner, technology partner for the semiconductor houses that produce programmable technologies.

Diversity in customer segments, we’ve talked a lot about in the past automotive and IoT. Interesting in some geos, those two verticals, especially automotive, are stronger than you would expect given what’s going on around the world, especially domestically. Whereas such in China, we have domestic manufacturing in mainland China, which that’s one of the areas such as their EV market has remained fairly strong. Customer diversity in segments such as industrial service provider networks, which would be franchise distribution. We haven’t really gone to those markets too strong yet because we’re developing new products that will fulfill their product needs for the technologies that they sell. And we see that coming in the coming quarters. Coming off the IPC APEX show in March where we refreshed our manual product line, introduced the new LumenX M8 and the FlashCORE III-M4.

These are really reskins of existing technology but adding some software to make it more functional within engineering departments. I will say, it was the best trade show we’ve had at APEX since 2013. It was really — what really was great to see was just the activity around our booth. And we had our competitors within line of sight of our booth and qualified leads were up 39%, which this is based on flat attendance from last year. New contacts were up 18% from 2024. These are just great metrics. And it really brought to light the consultative discussion we’re having around the whole supply chain for how you program parts, how you manage the technology, how you move from engineering to production to final inspection to rework of products that may come back for rework.

Although its small sample, we believe that this consultative approach will be a big part of our growth engine in the future. It certainly made its mark there. I’d like to turn the discussion over to Gerry Ng and talk about our financial results.

Gerry Ng: Thank you, Bill, and good day to everyone. I look forward to outlining and elaborating on our recent financial performance in more detail. My comment today will focus on key points of interest for the first quarter of 2025 and our perspective looking forward. Our recent performance has been impacted by positive business strategy and go-to-market changes, which Bill alluded to earlier. However, that was offset by recent economic headwinds created by, of course, tariffs and trade uncertainties. Despite these recent challenges, we saw quarterly revenue and profitability improvements on a sequential and year-over-year basis. Net sales in the first quarter were $6.2 million, up $1 million, or 19% from $5.2 million in the fourth quarter of 2024, and an increase of $100,000 from $6.1 million in the first quarter of 2024.

The improvements were driven by business recovery and backlog deliveries in the Americas and Europe, with growth from the prior period of 32% and 44%, respectively, for, again, our Americas and European markets. Asia revenue did decline 40% due to a strong prior year performance and current quarter business push-out from evolving trade tariffs as well as economic uncertainties. Automotive electronics, a primary business segment, represented 66% of our first-quarter ’25 bookings, compared to 59% for all of 2024. Consumable adapters and services remain steady, representing 46% of total first-quarter revenue and providing a stable base of recurring revenue. Moving on to new bookings, activities were strong at the start, but did slow at the end of the first quarter, as customers delayed purchase decisions due to the economic, trade, and tariff concerns, particularly in Asia.

First quarter ’25 bookings were $4.6 million, up from $4.1 million in the fourth quarter of 2024, but it was down from $8 million in the first quarter of 2024 a year ago due to last year’s large $2.8 million contract from a single customer from multiple assistance deliveries that we have been providing delivery on over the course of the last six months. Backlog, at the end of the first quarter, was $2.9 million, down $600,000 from December 31. Moving on to gross margin, as the percentage of sales was 52% in the first quarter of 2025, and comparable to the 53% achieved in the full year 2024, the slight decrease in gross margin percentage for the current quarter primarily reflects a higher mix of system revenue and lower inventory levels and the associated spending absorption.

More importantly, direct material costs remain steady and consistent with prior periods. Looking forward, planning and actions are underway, as Bill indicated, to mitigate the impact of new tariffs, trade, and inflationary pressures. Leveraging our domestic and international production and service capabilities, potential actions under consideration include shifting material sourcing, product manufacturing, and shipment logistics, just to name a few. Operating expenses for the first quarter were $3.6 million, down $427,000, or 11% from the fourth quarter, and down $515,000, or 12% from the prior year period. Fourth quarter announced changes — last fourth quarter announced changes with staff reductions and related charges did contribute to approximately $300,000 of expense savings in the first quarter of 2025.

And those savings are expected to continue into the remaining year, of course, allowing the business to redeploy those resources as necessary. First quarter operating expenses, which are typically higher than other quarters of the year, also did include public company costs pertaining to audits, regulatory fees, and NASDAQ fees at approximately $300,000. The company incurred a net loss of $382,000 for the first quarter, compared to a net loss of $1.2 million in the fourth quarter of 2024, and a loss of $807,000 for the prior year period. The improvement in the first quarter net loss reflects, of course, higher revenue and lower operating expenses, which were partially offset by, again, one-time annual public company expense in Q1. Adjusted EBITDA, which may be a good proxy for cash, for the first quarter was nearly break-even at a loss of $98,000, compared to a loss of $364,000 for the prior year period.

Using that to transition to the balance sheet, we continued to maintain a healthy cash position. We ended the first quarter with access to $10.5 million in cash, up $159,000 from the $10.3 million on December 31, 2024. The increase in cash reflects higher sales, an improved and continued improvement in our cost structure, and lower inventory levels, again, partially offset by higher cash expense related to our annual first quarter expenses for public company activities. Data I/O’s net working capital of over $16 million on March 31 remains relatively flat compared to the beginning of the year. The company continues to have no debt. While we remain cautious for the second quarter, our entire team and channel partners remain focused on driving sales improvement by leveraging our new go-to-market and product strategies, which Bill has alluded to and will continue to expand on.

Despite the current care of trade and inflationary pressures, we believe we have the talent, experience, and financial capacity to navigate these challenges. This concludes my remarks for the first quarter of 2025. Operator, please start the Q&A process.

Operator: Thank you. We will now begin the question and answer session. [Operator Instructions]. Today’s first question will come from David Marsh with Singular Research. Please go ahead.

David Marsh: Hey, guys. Thanks for taking the questions and congrats on the improvement this quarter.

Bill Wentworth: Thank you, David.

Gerry Ng: Hey, David.

David Marsh: So my first question is just around revenue mix. I mean, typically it’s kind of a wait for the – wait for the SEC filing. But could you just provide a little bit of color on revenue mix between capital equipment adapters and software in the quarter and how it may compare the prior year?

Gerry Ng: Yes. In the prior year, 2024, our mix of what we call recurring – reoccurring revenue was about 50%, and that is made up of both adapters revenue as well as service contracts, software, and things of that nature. For the Q – for our recent Q1, our recurring revenue mix was 46%. So it actually decreased by 4 percentage points. However, that’s a good thing because our overall revenue increase was driven to a large extent by the fact that we were able to secure and deliver more systems. And so as a result, the overall mix just shifted a little bit, but again, we are still very happy with our recurring revenue base, because that is, of course, a stable base kind of going forward.

Bill Wentworth: Right. And I would say to add to Gerry’s comments is that, Q1, we shipped about $2 million worth of, I think, sockets for Q1. That was up over Q1 of last year. So the trend for the — and all of last year, I think, were about 7.4 or somewhere in there. So the trend, if we continue to do this trend – and I do believe that will continue. We see some activity coming in systems that we knew we shipped. Usually those new systems on the ship you’ll see fall on orders, large orders of adapters, so we’re in communication about that. And probably we’ll be able to communicate that at the end of Q2. So, yes, the consumables are a big indicator of where we go. Things like socket adapters we track now daily. It is on an active dashboard that the wholesale team can see and finance can see.

These are some of the changes we made internally just to be able to view through our lens what are the important indicators to drive the business. And that’s really concerned with adapters and device requests because those two are basically an indicator of how much of your platform is being used as it’s consumed.

David Marsh: Got it. That’s really helpful. And then just transitioning to the expense side, your SG&A was down handsomely year-over-year. I mean, obviously, we know Gerry’s been working hard to eliminate things where he can. So, as we look at that and we look at it in the context of the prior year, I mean, do you think that for the current year you have the potential to be down, kind of a similar percentage throughout the year? Or kind of can you give us a sense of where that’s trending for the year?

Gerry Ng: Yes. Obviously, we are always consistently looking at opportunities. We’ve made good progress last year, and we have, I think, some opportunities from an expense reduction and an efficiency perspective going forward, particularly around, not surprisingly, IT, automation, efficiency, things of that nature. So those will always be efforts that will allow us to continue to drive cost reduction where we can. However, I think there is going to be an emphasis on the business to also make sure we make the right investments going forward, particularly in driving the growth of the business. So I think that will be a constant balance that the business will look at. I would probably say I would probably not anticipate similar year-over-year expense reductions that we’ve been able to achieve over the course of the last two years, but I think that’s going to result in investments that will hopefully drive better overall company performance.

Bill Wentworth: To add to Gerry’s comments, this is a transformational year. So there are things that we’ve seen that we need to make some investments in for the future. And given the current business conditions, there are some things I’d like to do a little faster than others, but we will do this in a cautious but predictable way that will still drive to our goals. And we’re finding ways to fit that in the existing expense profile the best we can.

David Marsh: Makes sense. If I could just get one more real quick before I jump back in the queue. You talked a lot about diversifying end markets, and there was some specific mention in the press release about the semiconductor sector, very specifically. I mean, could you just talk about how things are progressing there? I mean, I know it’s not a light switch like overnight. It doesn’t happen overnight that you’re growing significantly in end markets you haven’t been in or have been nascent in for a while. But it sounds like, based on the — trying to read the tea leaves in the press release that you’re making some progress there. Maybe you could just give us some color?

Bill Wentworth: Yes, I would love to. It’s never easy, right? We attended the Embedded Show in Nuremberg, Germany, in March, so it went from Germany to Anaheim back-to-back trade shows. The Embedded Show is not something that we’ve attended. We have one years ago, but definitely going to make a better effort at these shows in the future. We’ll probably show at the show next year. We made some really great contacts. We brought over our chief, our little engineer, and really struck up a lot of great conversations, probably a good 20 to 22 contacts that we made there. Came back, we had one with a particular supplier. We’re under NDAs with these. The conversation was fantastic. It could not have gone better. Now, does this result in business right away?

No. But to be able to get the relationship going forwards at the level that we’re at and at the position in which they’re introducing their new products was far better than I even imagined. And so it’s been surprisingly quicker than I would have expected. I would say these conversations are well ahead of even what I thought they would be. Again, I can’t say what that’s going to translate in business. But when you can create a relationship with a semi-house and you’re in with their new products and their product groups within their industrial group, their automotive group, their consumer electronics group, you can’t be better positioned. And so, this is something Data I/O used to do years ago, and it’s one of the initiatives that I architected to the board back in October.

And Dave, I would say they’re going far better than I thought they were this early. And so, we’ll be reporting out more specifics as we can in Q2 and Q3, but they’re going very well.

David Marsh: That’s great news. Good to hear. Well, again, congrats on the quarter, guys. I’ll yield the floor.

Bill Wentworth: Thanks.

Operator: Thank you. The next question comes from Chris Vachovsky [ph], Private Investor. Please go ahead.

Unidentified Analyst: Good afternoon. Thanks for taking my question. I wanted to ask about that subject you were just discussing. Is there any technological reason, any new technological development that makes it important for a semiconductor house to actually have preferred programmer vendor?

Bill Wentworth: Well, yes, and this is really becoming one of the reasons why we want to focus on these partnerships, because the technologies nowadays, such as UFS, NVMe, these memory technologies, which used to be the easiest technologies to program, quite honestly, because you’d just be programming a simple data file into a memory block. Now these UFS parts, they have very specific protocols you have to follow. You have to be able to emulate those handshakes within the programming algorithm. These are fairly very complex. So it takes different types of equipment, which we invested into Q1 to get through a specific technology roadmap that we had pending already, which really got through an over-hurdle far faster than we would have in the past.

So, yes, those relationships are absolutely critical, because we’re testing these, say, critical timing paths. We need feedback from the suppliers. Are we on the right path? And so it is something that Data I/O got a little behind in, and we’re playing a little catch-up, but we plan on getting ahead by, one, using these relationships, and, two, being more engaged with the governing bodies around these protocols. It’s a much more complex world, which, by the way, favors Data I/O’s future market. I mean, the market will grow organically just based on the size of these memories that are coming out that will have to be taken offline to program. We saw roadmaps as early as 2027 for one-terabyte flash. I mean, that is a ton of memory. You can’t do that in line.

The file sizes aren’t going to be one terabyte, but they’re going to be a big portion of that memory. So, yes, I think we are definitely positioning, and this is what you’ll hear in the coming quarters, our product roadmap, which is pretty exciting. I hope that answers your question.

Unidentified Analyst: Right. So what you’re saying is that — and let me just try to simplify things, you’re saying that at this point you can no longer program these memories the usual way, the way a telephone accesses them, or the way an impaired device accesses them. You have to program them in a different way because you just need to put way more data in it and you can’t wait half an hour?

Bill Wentworth: Right, right, exactly. And these protocols in which you have to follow to access the memory.

Unidentified Analyst: Are those public, or are those something privately shared with a semiconductor company?

Bill Wentworth: We wouldn’t share those publicly because it’s our intellectual property.

Unidentified Analyst: Right, but wouldn’t the semiconductor company specify the protocols?

Bill Wentworth: Oh, yes, I mean, they’re out there, sure. How we apply them is our IT, but oh, yes, those are all public. I mean, you can go on the different governing bodies. We’d be happy to share those in the future where you go get that information, but that’s public information for sure. Like if you went to Micron’s website and looked up UFS 4.0 and protocols 2.0, it’ll tell you what’s in there. It’s just, can you do it? I mean people nowadays, some of our competitors just take a golden chip and duplicate it, but then you have yield issues, so.

Unidentified Analyst: Okay, I see. All right. So its good to hear that there’s — so what you’re saying is that there’s new technological hurdles emerging in your business. Okay, that’s good to hear.

Bill Wentworth: And like I said, we’ll, in the coming quarters, we will have — we’ll be announcing our product roadmap, which will have a lot more detail behind it.

Unidentified Analyst: Okay, I’ll be listening for that. And I just wanted to ask also, have you seen an improvement in orders in April, or is it there are people just still waiting?

Bill Wentworth: Yes. Sorry, I don’t know if you want to take a stab at this one, but the tariffs, the noise in the headlines has definitely created a swirl and things have — if you even look through our Q1 as good as it was, I mean, January, and I’d like to say it was definitely a big part of the team, January is a great month, and normally isn’t a great month. And Q2 is typically a slower month anyways, historically, if you look back at our financials, but January hot, February really good, March, you get quiet. And naturally, I mean, that’s just what’s going to happen when you have the uncertainty that you have.

Gerry Ng: So, Chris, maybe to jump on that, again, maybe I’ll use the — our systems versus our reoccurring revenue. Number one, again, our reoccurring revenue is pretty steady. It’s pretty steady week to week, and at this point, just a couple weeks into the month of April, we’re happy with our reoccurring revenue. That’s why we like it and we haven’t. Relative to our systems and CapEx sales, as indicated in our earnings release and indicated earlier, we did have a little bit of delay and push out as we finished the quarter. Our sales team is actually working with our customers, because they have to go through the process of understanding its impact on their business, and so we’re staying close to them. And at some point, whatever our customers do, we’re going to follow.

That’s the nature of who we support. And so I anticipate that we’ll continue to probably be a little slow working with our customers, but the expectation would be that we’re cautious of our Q2, but we’re working hard to make sure we mitigate the issue.

Unidentified Analyst: And could I just ask you, do you track – I’m sure you track utilizations of your systems. Are they running hot or is utilization also slowing because of this direct uncertainty?

Bill Wentworth: Could you repeat that one more time? I’m not sure I caught all of it.

Unidentified Analyst: So I’m sure you track utilizations of your systems out in the field. Are they running hot?

Bill Wentworth: We don’t track utilization of our customers. Quite honestly, they’re not going to let us tether into the network and track inserts. I’d love to. It would be great if I could do that, Chris, because getting data off the machines, we could do a lot more predictive maintenance and things like that. But given the global security concerns, that’s just not going to happen, unfortunately. I would love it, but we live in a different world nowadays.

Gerry Ng: But, Chris, kind of building on what Dave asked and our response earlier, we have some early indicators. Obviously, a good example is bookings, right? Bookings lead to revenue. Another indicator is a socket or adapter sales, because to the extent that we see continued and increased adapter requests, it means our customers are using no products. And at some point, it either means that they’re going to hit capacity and want to buy more of our products. So that, again, is a key indicator that we follow.

Bill Wentworth: And it’s also why we do track DSRs, and specifically sockets, to Gerry’s point, is that, that’s an indicator of usage and utilization of the — I can see this quarter may be customers, maybe, again, installing a CapEx, but buying more programming heads, per se, options, things that can expand volume without having to do a heavy CapEx now and get by based on their uncertainty. So we’re monitoring that super closely and to see what that behavior is. And again, talking to our customers weekly, we have a very — we’ve increased our cadence with our clients, and we’re just monitoring the situation as close as we can.

Operator: Thank you. [Operator Instructions]. I am seeing no further questions at this time. I would like to turn the call back over to management for closing remarks.

Gerry Ng: This is Gerry. Thank you. Again, thank you very much, operator. To all listeners and participants in today’s event, we appreciate your continued interest in and support of Data I/O. And as you can tell, we are very excited and enthusiastic about the opportunities ahead of us, given the uncertainties regarding tariff regimes unfold. At this point, I’d like to conclude the call. Enjoy the rest of the day. Thank you again for joining us, and goodbye.

Bill Wentworth: Thanks, everyone.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Thank you.