Data I/O Corporation

Good afternoon and welcome to the DataIO Fourth Quarter 2024 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.

Thank you, operator, and welcome to everyone. This is the DataIO Corporation Fourth Quarter 2024 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, part shortages, pricing, and other activities by competitors, and other risks including those described from time to time in the company's fileings on Forms 10-K 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. DATE.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 DATE.IO.

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, early traction. Since becoming CEO October 1st, 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 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 30 years, 35 years in the programming services business and opening up a regional programming center back when I was 22 years old and built up the largest global programming center in the world, it gives me a unique insight to I feel what customers need and want and need towards the future. 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. 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. In the post initial phase of discovery, we've started using a consultative sales approach. 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. Even adding some of the experience that myself and some of the other team members such as Monty Reagan, who's been in this business for 20, 25 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 this consultative sales approach. We've seen some really good initial results. Granted, it's a small sample size, but if we look at cycle time of sales, which typically from conversation to close was over 140 days in the past. This is just an early sample size in the first two months of this year. We've gotten it down to 70. 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. 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. I was brought in to make change. It wasn't just a signal. It was really looking at where the business was going and understanding the people that were here to set those directions were really not, I think, in the best interest of the company and best interest of the market and our customers. It made sense to part ways and set that new direction. Sometimes change is accepted. Sometimes it's not. As we trim that management team, I think we were able to get the focus on the areas that matter to our customers and really take those ideas to market. Since joining Data Rail, Jerry Ying has continued to reduce our operating expenses. We continue to find opportunities to optimize our spending. For 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 will 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 Data Rail had probably 75, 80 percent market share, they had the greatest library. That library of algorithms is what really demonstrates 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. That is something that's going to be in real focus. It's one of the many KPIs we'll be tracking on a -to-day, -to-week, -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 next generation programming platform for the future. We've brought in some thought leadership, very exciting stuff that we'll be talking about throughout the year. Deploying our manual programming platform sometime around summer, and improving our algo and adaptive development and delivery. That is the one area that a customer comes to you for requests of supporting a device. That means they want to use your platform. 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. In my experience, I've seen companies, and not just Datarow, other companies in this space, not have the available technology available for their customers for the solution they need. It's important that we stay engaged with the semi-conceptive suppliers, customers, intimately, so we understand where they're going with their product development, and also make sure that we have the technology available for them to buy and consume, and be able to solve that problem. So, in closing, I would say that this has been what I've tasked to do, and return the company to 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 Jerry 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 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 $5.2 million was down 25% from the prior period. For the 2024, sales were $21.8 million, down 22% from $28.1 million 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 performance 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 -to-10 system $2.8 million order in Q1 of 2024, with initial shipments occurring in this past fourth quarter. Reoccurring revenue, such as adapters and services, remains 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 $3.5 million as of December 31, up $700,000 from the revenue recognition as we enter 2025. We went on to gross margin for the fourth quarter and for the full year, was at 52% and 53% 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 million, 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 $14.6 million, down $1.1 million or 7% from the prior year. Excluding the one-time fourth quarter charges noted earlier, full year expenses would have been down 1.7 million or 12% from the prior year. The company did incur a net loss of $1.2 million for the fourth quarter and $3.1 million 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 $6.3 million and gross profit decline of 440 basis points contributed to the gross profit decline of $4.6 million which was partially offset by the $1.1 million in operating expense reductions. For the full year adjusted EBITDA was a loss of $1.4 million compared to $2.3 million gain in 2023. Moving to the balance sheet, we continue to maintain a healthy cash position. In addition, trade receivable aging remains very low and inventory levels are sufficient to cover our backlog and anticipated sales. Accounts receivable was $4 million as of December 31st with DSOs improving to 60 days compared to 69 days at the end of 2023. Inventory at $6.2 million increased $300,000 from the beginning of the year in anticipation of future backlog reductions from bookings earlier in the year. Networking capital was $16.1 million at the end of 2024. The company continues to have no debt. We ended the year with access to $10.3 million in cash, down $2 million from the $12.3 million 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 $3.4 million of cash repatriated from our China subsidiary in the second quarter of 2024 as reported earlier in the year. We have more than enough cash in working capital to cover current and future operating needs, but will 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 -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 cost and operating structure, which will enable us to proceed with the implementation of the new reimagined market approach. That concludes my remarks for the fourth quarter of 2024. Operator, could you please start the Q&A process?

Certainly. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, you may press star, then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from David Marsh with Singular Research. Please go ahead.

Yeah, hi. Thank you guys for taking the questions. Good afternoon.

Hi, Dave.

So, Jerry, just want to start, want to make sure I heard you right. So, it sounds like 625K of non-recurring in the fourth quarter. And so, you know, as we rolled forward, we should, we could kind of expect a commensurate decline in your kind of SG&A and R&D. Is that an accurate statement?

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.

Okay, that's great. And then just, you know, kind of turning more to the sales side, Bill, more for you. You know, I think that Q4 was probably a little light of what, you know, most people who follow the company were probably expecting. You know, I'm sure there were a lot of puts and takes there. Can you just talk about, you know, and obviously, you know, 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, you know, kind of what it looks like right now and, you know, kind of help us structure some expectations for the year?

Yeah, sure. You know, obviously, with the given change and the political environment and obviously all the tariff wars that have been going on, you know, we've had a lot of talk about slowdown this year, growth perspectives and things like that. And yeah, Q4 was definitely not what anybody would expect. But, you know, that trend was going on since really the beginning of last year. The bookings have been tilting towards 5 million quarter over quarter and, you know, continued to slow as the year slowed. And, you know, there's a big impact from a slowdown in the automotive industry. And given when you're in, you're captured by one industry that, you know, 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, you know, 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. Data Out tended to, they 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. You know, the arrows and the admonitons of the world, you know, they feed a significant part of the world. And so the requests that come in from varying different customers across a very large, you know, technology space and 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, you know, activity. And, you know, look, from my early numbers and getting re-engaged with those companies, you know, there's a significant percentage that they win. You know, it's better than 25, 30, 35% 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 you do it the right way and you give them the products and services and support that they need, can be hugely beneficial to growth. So expand on 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 usually 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, what you can look like as far as manufacturing looks like and the manufacturing spend. Yeah, the political environment doesn't help give a lot of confidence, but as you see in the headlines, you see companies like Apple 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've 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 were 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.

Great. Thank you so much. Appreciate that color. I'll get back in the queue.

Okay. Thank you. The next question comes from Igor Novyartsev with Laird's Capital. Please go ahead.

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's talking about, the tariffs. So you have a big manufacturing facility in the US, you have a big manufacturing facility in China. How much of your product needs to cross from US to China and from China to US? I mean, what if you can quantify the tariff impact? Let's just assume that it will stay in whatever was announced, will that actually take place?

All right. 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 US into the US and where US is your company, for example. So that's number one. Number two, we're a fairly well-leveraged company. In short, if you look at our gross profits, it's relatively high. And if you look at our actual material costs, 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 tariffs 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 products coming into the US 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 US to the extent that we can actually bring in subcomponents 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 US, the US government does allow us for some sort of duty recovery for stuff that ultimately leaves the US. And those are just some examples of things we're doing to try to mitigate tariffs to the extent we can.

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 are working on and 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 number of businesses in China itself. So there are things we are looking at to do.

No, 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 was the case during COVID years with China, our operations in China as well as in the US. So we do have, where it makes sense and where it's deficient, we do have some strong resiliency that allows us some flexibility as well.

This facility in Redmond can build all products. We have other partners if we had to to build our adapters as a backup if needed. And we can turn that switch on fairly quickly.

So we've got both short-term actions, short-term mitigations as well as some long-term strategic directions that clearly is better disposal.

All right. Thank you. That's a lot of information, a lot of details. My other question, and it's a bit of a speculation, but obviously the first thing I noticed is that Asia is doing well and the US 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 trend, less successful in Europe and in the US versus internal combustion vehicles? Because I mean, my speculation is that you sell a lot to electric vehicles and there is a whole lot more electronics, right?

Yeah. Well, 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 systems, anti-lock and break safety systems, engine control modules, the complexity of those modules using various different can microcontrollers that expand. I think back 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. Electric cars still only represent 10% of the overall market. And we grew far further than, obviously grew beyond 10% year, 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, in 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 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.

Thank you. The next question comes from George Marema with Pareto Ventures. Please go ahead.

Hi, guys. Thanks for taking the call. Happy to see the energy and changes afoot at Dataio. I was wondering, with the changes taking place in the expanding the temperature 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 million quarters sometime in 2025? Or is that more of a 26, 27 kind of phenomena, you think?

Well, do you want to take a first step at that, Jerry?

Well, obviously, first and foremost, we at Dataio don't give forward-looking guidance. But that being said, I think, George, what you've articulated is correct. I think we've kind of averaged around $5 million 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 five to six 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 customer impact does take a little bit of time. And so we do hopefully anticipate that the benefits will be as we walk into 2025 and find time to improve on that. I do want to provide some facts here. We do have a nice backlog. And so that backlog, which is what we've communicated, will help us in the near term. And so I think in the end, our goal is to improve revenue. 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.

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 Monte and I discussed. And he started the same week I did back in September. And we started as we both got re-engaged 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 Monte came from 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 15 years directly. So he was on the services side as well. So I think when we look through and reflect back on our history, the market really hasn't changed that much and the dynamics haven't 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 traction early on. And so as we fine tune this discussion and turn it 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 a couple of our stronger reps that have a little more technical capability in understanding of supply chains and roll that out, which should accelerate what we've seen already.

Okay, great. Sounds great. Thank you. Yep.

Thank you. The next question comes from David Cannon with Cannon Welts Management. Please go ahead.

Hi, guys. Thanks for taking my questions. Could you, Jerry, 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 $3.4 million a quarter run rate?

David, 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, ESCC filing, and things of that nature. So, David, to your question on the $3.5 million, let's say run rate, I think we've been averaging $3,332. I think in Q4 this year, we're at $3,500. Again, these are all factual information that's available. Clearly, the expectation is that we lower the level possible while making appropriate strategic investments in the business. The earlier question regarding the one-timers, the one-timers have a 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 then to use those savings to make appropriate investments in the business at the same time, kind of hold our expenses relatively steady. So, to your question, Dave, I think my expectation and 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 to top line recovery.

Dave? 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 $4.2 million. Did you see a better run rate starting the new year? And could you give us any color on that,

Bill? Well, given that we typically do not give forecasts, 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 4-4 quarter is definitely not, you know, that's not the trend line. The trend line is increasing. I don't want to predict a number given we have our biggest shift month. We have some great backlog of orders. We've been able to pull in some things through conversations. And, you know, we'll just we'll see how the quarter ends. But, yeah, the signs are good.

So, Dave, on that one, you are correct. Our $4 million 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 improve 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 book and 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... Just

as an example, Dave, even just our adapter activity is up 49%. I mean, so it's all that turn of orders, no. But just that activity increase, you're going to book a portion of that, which would be a lead. And that's the reoccurring number that's a good foundation of our business. That's why it's one of our focuses is to track DSR as an adapter sales. It's a key indicator of who's using our platform. So these, I know the 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.

Okay. And then, in the past, you spoke about data IO being overly dependent on the automotive market, and that you felt there 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 are you starting to see that translate to actual orders?

Yeah, I'll go right to the adapter KPI is that what the service providers were up 20% early so far this year in adapter activity and sales. So that is an indication of our platform getting used. And 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 that really need to work out 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, 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.

Okay. And Bill, just to 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, getting in front of them. And is that what you're saying? That some of these opportunities were just not really being capitalized

upon? Yeah, 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, 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 they were going to get X amount of percentage of market share. I've seen this through the industry. When you go back to 2001, every telco and networking equipment company out there thought they were going to have 80% market share. That's how you have a bubble. And so that happened in the automotive industry as well. So that being said, an 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, 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'll 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 10 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 adapter 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?

Yeah. Thank you for calling that out. I'll go back into queue.

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

Hi. Good afternoon, guys. Thank you very much for this call so far. Definitely one of the Yeah, no, this has just been fantastic. I greatly appreciate it. One thing I want to see if we can 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 end markets that those guys will be selling into kind of the expansion away from auto that those guys can help drive? What are one or two of the end markets that you're excited about?

You know, it's honestly, you know, a great question, by the way, and it's, you know, being in the tech industry in this particular grew up in distribution, my dad started as an entrepreneur and owned a distributor called Lion X and sold that to Anthem, which then became Arrow. So I was kind of born into the supply chain, you know, distribution, which I know very, very well, you know, obviously, sell my company back in 2008 to Avnet, which is now Avnet Global Programming Center is source electronics. And I'm a part of every team over there. But, you know, 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, it's been involved with distribution, but it was never a large portion of the revenue. Matter of fact, when I sold source to Avnet, the liabilities that you carry to the potential liabilities you take on and supplying the automotive industry are quite daunting. I mean, if you don't, if you do not execute, their fines can go up to a million dollars. 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, you know, what they serve is a vast amount of different parts of the supply chain that supports all technology and products, whether it's consumer, whether it's, you know, 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 Valley was CEO of Avnet, and I know Phil's been on a couple of times, you know, Kramer would come on and he'd introduce Roy and Avnet as the supermarkets of the world of 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.

No, that helps. That helps a lot. And one word 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, you know, kind of what would be the political end game going forward. So with that now settled, is that being settled versus the now introduction of tariff uncertainty? What's been greater? Is it, okay, now we know, okay, it's not going to be all about EVs every second of the day versus, oh, crap, here the tariffs. Which one of those has been a better or bigger offset in your opinion so far?

A better offset from?

I guess I wouldn't 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. Cool.

Yeah. 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. We know what we might pay tomorrow. 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 talking top line, that's always a little more difficult because we don't directly control that. So I think the whole issue of how the overall economy and the market is going to progress, particularly in Europe and the Americas and Mexico, I think those clearly would be a bigger uncertainty.

I think one of the things you have to think about in this war of words that's gone on since January 6th or whatever, and started to really start saber rattling. It's interesting to hear the statement of rare earth middles come out of Ukraine. 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're negotiating a new contract with Ukraine. Now I'm not going to get political, but understanding the overall supply chain because that's what semiconductors start with as well. So when you think through this whole AI thing, which I call the new oil, look, who knows what's going to happen? This is a battle that I think 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, also from the US, and there's a varying de-risk 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, there's actually opportunity. Because if you put yourself in the place of that shift, you win. So that's how I look at 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.

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 20, 25 years, 30 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 yeah, that makes sense. So it gets the team motivated. They're really excited to be working on the core platform of the business, which Data Rail makes universal programmers. That's, you're going to hear that a lot, and that term has been in this industry for 50 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 that are 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 Investing Virtual Investor Conference on March 6th, so I suggest if you can attend, you'll be able to get a better 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. Thanks.

Thank you. The conference has now concluded. Thank you for your participation. You may now disconnect your line.