DATA I/O CORP Q2 FY2025 earnings call

• Bookings were up sequentially, but backlog hasn't settled. The company is investing in its core programming platform due to the complexity of memory programming technologies like UFS flash and NVMe. - There are 6 major product events from September to November to introduce new products in various regions, which will increase lead generation. - Q2 2025 operating expenses were $3.8 million, up from prior quarters, with $480,000 in one-time expenses for platform investment, information systems, and HR transitions. - The company is mitigating tariff and trade pressures by shifting material sourcing and manufacturing, with small impacts from aluminum tariffs being addressed. - Significant investment in the core programming platform is underway to improve UFS flash yields, and work with consultants to reduce IT spend and move to the cloud for better security and cost savings.

Net sales in the second quarter of 2025 were $5.0 million, down from $6.2 million in the first quarter of 2025 but up from $5.1 million in the second quarter of 2024. Second quarter 2025 bookings were $5.8 million, up from $4.6 million in the first quarter of 2025 and $5.6 million in the second quarter of 2024. Backlog as of June 30, 2025, was $2.8 million, down $200,000 from March 31, 2025. Gross margin as a percentage of sales was 49.8% in the second quarter of 2025, down from 51.6% in the first quarter of 2025 and 54.5% in the prior year period. Automotive electronics represented 66% of second quarter 2025 bookings compared to 59% for all of 2024. Consumable adapters and services provide a stable base of reoccurring revenue, representing 50% of total revenue in the second quarter.

• The second half is expected to have a better product mix. New product launches at major events are anticipated to drive revenue. - Expect a permanent CFO announcement in Q3 2025, with potential double spending in Q3 and Q4 for transition. - Aim to roll out the new universal platform by the end of 2026/beginning of 2027 to reduce technical debt and serve a wide range of products.

• Tariffs and trade issues impact capital equipment spending in the automotive industry, affecting revenue. - Supply chain issues such as part shortages, inflationary pressures, and specific tariffs on materials like aluminum. - Uncertainty around market acceptance of new products and the ability to record revenues based on product delivery/timing. - Volatility in the automotive and semiconductor industry can impact order levels and revenue.

Q: How do the $480,000 one-time expenses hit the P&L?

A: Primarily in the G&A category, including IT, finance, and HR spending. A majority is on the G&A line, with some consulting in the executive group. Savings are expected from IT spend reduction, moving to the cloud, and potential annualized savings of ~$0.5 million.

Q: UFS flash yield issues and solutions?

A: Identified technology gaps in the platform, invested in consultants and a platform reset. Aiming for 99.8%/99.9% yields, working on contact technology and platform redesign to improve yields.

Q: Gross margin outlook for the back half?

A: Broader product mix in the second half, including 3000s, 5000s, 7000s. Manual system launches are expected to drive more conversation and revenue, with low-hanging fruit in the existing customer base.

Q: Expansion beyond automotive?

A: Continued focus on diversifying customer domains, changing sales strategies, and adopting Salesforce Service Cloud for field service to generate revenue through milk runs, health checks, and training.

Q: UFS market opportunity and recurring revenue?

A: Large market opportunity with UFS and NVMe growing at 14% CAGR. Recurring adapter revenue remains, with potential increase as adoption grows, but need to solve yield issues first for pent-up demand.