DATA I/O CORP Q1 FY2026 earnings call

• Core Business Traction & Transition
  • Q1 2026 started slower than planned, but bookings accelerated through March, with strong momentum carrying into Q2 2026. Three net new customer logos were added in Q1, with three more in the active pipeline for Q2. Europe saw three system purchase orders booked in Q1, more than the combined total of the prior two years; North America and Mexico show strong momentum, while Asia remains slow.
  • The company is actively diversifying its customer base away from heavy historical reliance on the automotive industry, though automotive customers are now returning to activity. Two of the three new net logos are robotics companies, a priority target market aligned with AI infrastructure growth.
  • Operational optimization has reduced annual break-even for the overall business to less than $22 million, down from close to $27 million prior to the restructuring. AI deployment across all business functions has driven significant productivity gains and cost savings.
• New Business Lines
  • The company launched a new website on April 10 2026, introducing programming as a service, a recurring higher-margin OpEx model that smooths the lumpiness of traditional capital equipment sales. The company is in deep conversations with multiple large subcontractors interested in moving from insourced programming to this service model, and is developing multi-tenant software to support the offering.
• Capital Raise & Transformational Acquisition
  • The company secured $9 million in gross proceeds from a strategic direct investment by a single institutional investor, which will become the company's largest shareholder post-close. The investment is structured as common stock, an unsecured convertible debenture, and 5-year warrants with a $3 per share exercise price, and is expected to close by the end of May 2026.
  • The company signed a letter of intent for a transformational acquisition expected to close by the end of Q3 2026. The acquisition will double DataIO's annual revenue run rate, is immediately accretive to earnings and cash flow, adds significant manufacturing expansion capacity to support growth of programming as a service, and diversifies end-market exposure (the target has less than 10% of revenue from automotive, with existing customer relationships in semiconductor, military, defense, and aerospace). Total purchase price is approximately $23 million, with ~$3 million paid in DataIO equity (sellers are retaining 15% of consideration in company stock, signaling confidence in the combined business).

Total Q1 2026 net sales were $3.3 million. By product segment: 1. Adapters: contributed 47% of total Q1 revenue, equal to ~$1.551 million. 2. Software and services: contributed 34% of total Q1 revenue, equal to ~$1.122 million. 3. Capital equipment: contributed the remaining 19% of total Q1 revenue, equal to ~$0.627 million. Adapters and software/services combined for 81% of total revenue, forming a stable recurring revenue base for the company. Q1 2026 bookings were $4.2 million, up sequentially from $3.1 million in Q4 2025 but down from $4.6 million in Q1 2025. Backlog as of March 31 2026 was $2.6 million, up from $2.3 million at year-end 2025, and deferred revenue stayed consistent at $1.5 million.

• Q2 2026 revenue is guided to a range of $5.0 million to $5.4 million, representing at least 20% sequential growth from Q1 2026. This guidance includes Q1 bookings that slipped into Q2 due to revenue recognition timing, plus solid early Q2 new activity. The company notes this one-time quarterly guidance is not a precedent for regular future quarterly guidance.
• On an organic basis (excluding the announced acquisition and any future acquisitions), the company expects to achieve positive operating cash flow by the end of 2026, supported by organic revenue growth and completed operational cost reductions.
• 2026 full-year organic revenue growth over 2025 is still expected, supported by strengthening demand signals. Annual run rate expense reductions of $1.8 million have already been implemented from 2026 operational optimizations, and benefits will be realized through the year.
• Programming as a service revenue is not included in current Q2 guidance; management expects 1-3 contracts to be signed by the end of Q3 2026, with minimal revenue contribution in Q4 2026 at the earliest.

• Forward-looking statements related to the acquisition, closing timeline, revenue growth, operating cash flow, and programming as a service expansion are subject to known and unknown risks that could cause actual results to differ materially. Key risks include impacts from global geopolitical events, international tariff and trade regulations, fluctuating order levels tied to automotive and semiconductor industry activity, revenue recognition timing dependent on product delivery and installation schedules, market acceptance of new products and service models, changing economic conditions and customer demand, component part shortages, competitive pricing pressures, and execution risks for acquisition due diligence, closing, and integration.

Q: Can you confirm that an annual break-even of $22 million equals ~$5.5 million quarterly EBITDA neutral, assuming stable gross margins? What is the EBITDA margin profile of the acquisition target, and how much organic expansion capacity does the target's current facility have? How does the AI build-out intersect with DataIO's business, and what is the 12-24 month opportunity?

A: The quarterly break-even math is correct, with slight gross margin improvement expected after the acquisition. The target is 60% capital equipment and 40% services, with more recurring revenue than DataIO's current base; full margin modeling is still ongoing during early due diligence, but clear AI-driven productivity upside exists to reduce design timelines and improve margins. The target has excess manufacturing capacity that allows DataIO to scale production for programming as a service, which DataIO could not do with its existing space. AI-driven infrastructure build is driving demand for automation and semiconductor testing/programming across robotics, automotive, and edge applications; the OpEx programming as a service model enables faster customer decision-making and delivers predictable recurring multi-year revenue, with additional upside from mandatory EU cybersecurity provisioning requirements coming in 2027 that carry 2x the revenue of standard programming.

Q: The acquisition target operates in semiconductor handling and packaging; why is the current owner selling the business, and how many warrants are issued as part of the $9 million direct investment?

A: The target was not a forced sale; the transaction came together from mutual strategic fit, as the combination of the two companies delivers accelerated scale and growth for both parties. Timing and aligned strategic vision created the opportunity for the combination. 1,080,000 warrants are issued as part of the direct investment.

Q: How will the remaining purchase price for the $23 million acquisition be funded, after accounting for $9 million in new investment and $5 million in existing cash? Is this acquisition the final major step in DataIO's transformation, or are more acquisitions expected?

A: The remaining funding is expected to come from a combination of existing additional cash, and potential assumption of the target's existing balance sheet debt; no additional equity raise is required. This acquisition is the second major leg of DataIO's three-legged strategic stool; additional acquisitions of service-focused providers are still expected over the medium term to continue expanding the services business.

Q: Can you clarify what the acquisition target does, and how it fits with DataIO's existing business?

A: The target is complementary to DataIO, not a direct competitor, with exposure to multiple end markets that diversify DataIO's historical automotive concentration. Less than 10% of the target's revenue comes from automotive, with existing established customer relationships in semiconductors, military, defense, and aerospace that DataIO can leverage to expand its own addressable market. Additional strategic details will be shared after due diligence and closing.