Data I/O Corporation

Good afternoon, everyone, and welcome to Data.io's third quarter 2025 financial results conference call. Please note, today's event is being recorded. At this time, I'd like to turn the conference over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Data.io Corporation third quarter 2025 financial results conference call. With me today are the company's president and CEO, Bill Wentworth, and Chief Financial Officer, Charlie DeBona. 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 to the impact of global and geopolitical events, international tariff and 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 Form 10-K and 10-Q with the Securities Exchange Commission in our press releases and other communications. The company may also reference GAAP and non-GAAP financial performance measures, including one-time items, which are intended to provide listeners with a means to better understand the company's performance. Please refer to reconciliations in our third quarter earnings press release issued today after market close. Finally, the accuracy and completeness of all discussions on this call, including forward-looking statements, should not be unduly relied upon. Data.io is under no duty to update any forward-looking statements. And now I'll turn the call over to Bill Wentworth, President and CEO of Data.io.

Thank you, Jordan, for that introduction. I want to thank the people that have taken the time out of their day to listen to our earnings call and look forward to the conversation and specifically the Q&A after. You know, I've spent the last week thinking about the last year, since this month marks the year that I started as CEO of Data.io. And, you know, one of the things that I noticed as a board member, you know, that the company was certainly doing well in the automotive industry, but it was also a fairly... high concentration in that business. And it's still a great business for Data Rail and has continued. Even in this softness, it's still driving quite a bit of our revenue. But it's also one of the things that needs to drive us to get to new markets, but also new businesses. So what we've done, and I look back at the year and look at, you know, where we've invested, you know, in the first couple months of discovery, You know, it was looking at the team and kind of what the members brought to the party and really where were the strengths and weaknesses of the company from a people standpoint. You know, he brought in a new director of engineering, John Duffy, who's done a phenomenal job. He started in January getting our refresh of our manual product line and getting the development of our next generation programmer, which will be introduced to Productronica at the end of this month, which we're very excited about. We've won a couple of awards already at some shows with the new reskinned which has made the ability for us to really go out and pitch the platform and really get back into the engineering communities, which has been exciting, and started to drive some ramp in our manual systems and started to look at some pre-orders as well, which will really start to kick off in Q1. Rounding out the product portfolio is probably the most important thing we had to do this year outside of the people. Without the people, you have to have the right people to design the products and bring these things to life. And I have to say, if you look at our product portfolio from a year ago and look at it today, it's night and day. It's really what DataRail stands for, and that's what we're excited to bring to market. You know, we are starting the next generation already of our long-term platform, which started its design cycle this quarter. I would kind of call it DataRail's AI moment at the end of next year when that product gets released. That doesn't preclude us from driving revenues and new revenues this year with the with the reskinning of the Luminex and getting to the new platform that we're launching at Productronica. We're also starting the refresh cycle of our automation. We've also noticed some gaps in the solutions area of automation for processing programmable technology. So we're pretty excited about rolling out some new automation platforms sometime around the middle of next year. And that leads to kind of process. And Charlie's going to get into some of that process and how we're going to be managing margins and look for margin expansion throughout next year, quarter over quarter. There are some areas that we can definitely improve there. But really the exciting part is getting into these new businesses and adjacent markets. You know, the market we serve today is $100 million to $200 million at best. Services definitely needs to be a pillar of this company, and we are starting those conversations now. But that's a $1 billion-plus market. that really brings in recurring revenue, not necessarily always contractual, but you're always managing a supply chain, and those consistencies take out a lot of the lumpiness of the CapEx business, but it's a direct adjacent play. It allows us to drive, you know, very competitive pricing in the market. It puts us in a position to really drive that business, both for partners that we may partner with to provide them services, or OEMs that decide that they don't want to buy CapEx and they need a service provider instead. So it gives us an opportunity to have both conversations. We are in conversations now about embedding our technology in testers, which is a big part of the market. That's probably a multibillion-dollar market. Now we're opening up a market that used to be 10% to 15% that we could play in, upwards of 60% to 65% of where data gets provisioned. And that's where DataRail is going to be able to finally grow. These activities are going to have traction next year. I can't tell you when these revenues will start, I just know that we're in conversations and we're actually in them earlier than I thought. I really didn't think that we would, the company, would be engaged in these conversations until Q1. So the great thing is that we're out of the gate pretty quick. And then there's some vertical integration that we're going to be doing. People on the phone know the company Kohu. They invested in Sockets years ago. It's a big part of how they go to market with their technology, with testers and handlers. It's a big part of, and a very important part of our business, Because the second most important thing to a programmer is being able to make contact with the device. And it's something that DataRoute should have expertise in. It's a $7 billion market. And so it's a business where we can, you know, make a small entry into a small player in the U.S. or even abroad, have that expertise internally, lowers our operating costs, but also gives us a secondary offering, but also is a lead generator as well. All three of these new business units do drive revenue for the other, and that's the great part about being in adjacent markets is you can leverage your core, which is exactly what we'll be able to do next year. So I'm excited about 2026 because we can finally start to drive the growth engine. We're going to have the products and the people and the services to be able to go do that, and that's where we're investing in between now and the end of the year, and we'll continue to make those investments next year. We've invested – Also in the engineering department, we brought in some additional algo writers to drive our algo migration from our older platforms to the new platforms. So we're getting ready for that growth. That's all I have for now. I look forward to the Q&A session. I know there's some coming, so I look forward to the Q&A. I'll hand the rest of it over to Charlie. Charlie?

Thank you, Bill. And good day to everyone. It's a pleasure to speak with you all today. which is my first call as a CFO of Dead.io, and I'm excited about the prospects of this company and of this role in particular. In my remarks, I'll address our recent financial performance in more detail. My comments today will focus on key points of interest for the third quarter of 2025, recent trends, and our outlook. Net sales in the third quarter of 2025 were $5.4 million, down from $5.9 million in Q2 2025, and flat from the prior year period. Bill mentioned some of the pressures that continue to drag on our current performance, revenue performance. These include the temporary realignment of tech spending related to AI and the changes in the global EV landscape for manufacturers and the impacts on automotive electronics generally. Global trade and tariff negotiations, which had been a gating factor earlier this year, remain but are now tertiary concerns. Automotive electronics as a primary business segment represented 78% of our third quarter 25 bookings, compared to 59% for all of 2024. For the third quarter of 2025, consumable adapters and services represented 24% of total revenue, providing a base of reoccurring revenue, while capital equipment sales represented 76% of total revenue. Similar to the second quarter, Asia was led by customers in China and Korea for a relatively strong third quarter in the region, particularly within the EV sector of automotive electronics. Europe, however, remains pressured with capital equipment spending impacted by tariff and trade uncertainties, as well as EV disruptions in the regional market. The Americas bolstered by systems to be deployed in Mexico, has been relatively flat. Global bookings for the quarter were $5.2 million, up over 7% from $4.7 million in the third quarter of 2024. New bookings activities were driven by demand for the PSV7000 automated programming system. A total of eight of PSV7000 systems, complete with Luminex programmers, were booked in the third quarter of 2025. Backlog as of September 30th, 2025 was $2.7 million, down slightly from $2.8 million as of June 30th of 2025. Three systems were booked and shipped within the third quarter, with seven systems remaining in the backlog. Gross margin as a percentage of sales was 50.7% in the third quarter of 2025, as compared with 49.8% in the second quarter and 53.9% in the prior year period. A higher margin product mix and configuration of automated systems driven by demand for the PSV 7000s led to the improved margins on a sequential quarter comparison. Direct material costs remain steady and consistent with prior periods as supply chain planning and other actions have mitigated the impact of new tariffs, trade, and inflationary pressures. The third quarter gross margin benefited from this positive product mix and configuration of automated systems, as I mentioned. We've begun a thorough review of gross margin enhancement strategies. Some of these initiatives were already underway and should support our gross margins this year. We expect other aspects of this plan will lead to higher sustainable gross margins in the longer term, meaning next year and thereafter. These strategies are likely to include pricing modifications and new pricing models, labor and costing efficiencies, supply chain optimization, and a focus on more direct sales engagements with key customers, particularly in the Americas and Europe. Moving back to my review of third quarter performance, operating expenses for the third quarter were $4.1 million, up from $3.8 million in the second quarter of 2025, and $3.3 million in the prior year period. Third quarter 2025 spending tracks closely with the company's operating expenses early in the year after excluding approximately $585,000 in one-time expenses. $200,000 of these expenses were related to the investigation and remediation of the cybersecurity incident first identified on August 16, 2025. $130,000 are related to executive transitions And another $130,000 are one-time expenses tied to technology and IT-related growth initiatives. For comparison, total second quarter 2025 one-time expenses amounted to $480,000. As with cost of goods, we are undertaking a thorough review of operating expenses to find opportunities for savings and efficiencies. Two 325 one-time investments and expenses reduced our profits adjusted EBITDA and cash in the period. Backing out those one-time expenses in the third quarter of 2025 would have left us with an operating loss of $808,000 versus the reported third quarter operating loss of 1.393 million. And the third quarter operating loss of 24 of $325,000. Again, backing out one-time expenses Adjusted EBITDA would have been $563,000 versus a reported adjusted EBITDA loss of $1.15 million and a positive adjusted EBITDA of $37,000 in the prior year period. Our cash balance, absent the one-time expenses, would have been approximately $600,000 higher or just over $10.2 million as of September 30th versus a reported amount of $9.7 million. and the $10.3 million as of December 31, 2024. The company's continued discipline in spending and cash management reflects a constant cost structure, as well as investing in our unified program platform and other new products and fortified RIT systems, both of which allow for greater top-line growth and scaling of the business. Data.io's networking capital of just over $14.4 million as of September 30th was slightly lower than $16.1 million as of the end of last year, in part reflecting one-time spending through the three quarters of the year. Finally, the company continues to have no debt. This concludes the remarks for the third quarter of 2025. Operator, would you please start the Q&A portion of the call?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from David Williams with Benchmark. Please go ahead.

Hey, good afternoon, everyone, and thanks for taking my questions, and congratulations on the progress here and just the confidence and the tone.

Certainly good to hear. Yeah, thanks, David.

Yeah, so lots of exciting things going on, and I guess maybe first I'm going to touch on, you know, Bill, you and I have talked before about just the technology and progressing that and taking it into the future. And outside of maybe what you discussed just now, what do you think if you look out maybe two years or three years from now, how do you envision just the platform overall? Do you think that all of the growth and the areas of growth that you have that you're looking towards, can you do that, I guess, and still maintain kind of your focus on the core business?

Yeah, it's a great question, David, because I know it sounds like we have a lot going on, which we do, which is great. But it all revolves around the platform. That's the beauty of it, right? So when you think about the platform that we're building, that we're in design now, that's really going to be a platform that will last, you know, a good 10 years. We had to kind of round up the existing portfolio of platform that we had and just kind of filled some small gaps until we could build this next gen. But that platform will be the platform we move Algos onto, and they'll be forward compatible to the new platform. the new real, our long-term platform, which will be released at the end of this year. So it kind of fills a gap, but then gets that product. And it also, in the design of this, will be designed for the things such as the embedded opportunities we have with some very large test companies, global test companies. Can't disclose any names or really describe what they do, but it's certainly a large opportunity for data out. And it's a part of the data provisioning market that represents probably 25% to 30%. or 35% of the overall data provisioning. And then there's the services piece, where we would also use our platform. And the great thing about providing services is you get to test your technologies on these services. So instead of the customer finding some of the problems, we get to find them up front as a service provider. But that's also a market that's, you know, a billion-plus market and really hits all domains, right? The great thing about some of the partners that we will be talking to about providing these services and generating these services for is that they serve multiple markets. So it does insulate the company in the future from any domain concentration like we're dealing with now. And then thirdly is the automation that we have today. We need to be a little more specific because we do program various different types of technologies, from microcontrollers to programmable clocks to sensors all the way up to large density UFS flash. And the platform has to be able to handle all of that. But the solutions you provide need to be a little more specific to the technology, such as microcontrollers typically programmed in less than a few seconds. So it doesn't make much sense to program a lot of microcontrollers on a huge 7,000, right? So we're looking at providing and generating newer technologies handleware technology that is faster, it's more functional, it's made for very fast programming times, and it's more economical. You get a lot more value. So we're getting very specific. And then there's also been a gap in the services space, whether it's an OEM that wants to do their own programming in-house or a services provider that needs to provide services for their OEM customers. is like a tabletop automation, something that can go tray to tray or tray to tape. It's been a huge gap in our industry for many years. It's never really been addressed very well. DataO did try to address this back in 2008 with what they call the FLX500. It was a great machine. It was just over-engineered. And so the good thing is we still have a lot of the specs and the drawings and software for it. We're digging that out of engineering, and we're going to rebirth that machine. We do believe that's going to be a great seller for the company, and it's also something we'll consume internally as a service provider. I hope that answers your question.

That was a fantastic color. Thanks for all the details. Maybe secondly is just thinking about your customers and how they're viewing some of these changes, obviously in a positive way. But do you feel like you're gaining traction there? And I'm assuming that your customers are really leading the way in some of these new technologies. But just anything on the feedback or traction you're seeing I think would be very helpful.

Yeah, sure. And, you know, as a customer myself, some of the gaps I've seen for years, so it's easy for me to look through their lens. But we've got a customer here this week that's been a long-term customer of DataRail. And the great thing about having them on site is you get to share a lot of information. They can share with us. You know, we share with them what we're thinking, and they kind of like say it and they nod and say, yeah, that's a great idea. And so a customer's been here all week. It's a customer that's in the automotive space. Meetings are going great, and getting that feedback directly from customers is nothing better. So, yeah, I think we're building the things, the products that they need today going forward. When we introduced them to our new manual program, they were like, Oh, yeah, I need that. So, you know, I think, you know, there's no doubt in my mind we're building what customers do want to consume in the coming years. And there's nothing better than getting direct customer feedback.

The next question is from David Marsh with Singular Research. Please go ahead. Hey, David.

Hey, guys, thanks for taking the question. I appreciate it. Hey, Bill, you know, I mean, obviously, you know, you're still, you know, I hate to say new to a day, but I mean, given all the changes you've made, I mean, the product suite is pretty new, but you're certainly not new to the industry. So, I mean, you know, I would first offer congrats on the, you know, the awards that you're receiving at the trade shows. But, you know, my question is, You know, just given your history in this business, I mean, what have you seen as typical kind of sales cycles from, you know, getting kind of critical acclaim at trade shows and, you know, generating that kind of customer interest and then actually getting the pull through on the orders?

Yeah, a lot will depend on the technology event, and the reason why I say that is is that technology events, meaning silicon, a big change in silicon usually drives big spend. You reach certain technology hurdles. UFS has been one of those. Our industry has struggled with getting to the yields that are necessary. I thought we'd be past that for this quarter, and we're not, and I mean Q3. We made some pretty big strides in the last four weeks, so I think we can announce some really good year rates on UFS. That's a technology that's, you know, it's very high-density flash. It has to be programmed offline. You can't do it in line. It's just something that we need to do a better job of perfecting, and I think that would be an example of a pull-through, David, is that when you get that technology conquered, they come to you. The thing is that UFS was mainly used in automotive, which is fine, but that's also a market that's still relatively depressed. But at the same time, when that market picks up, they're going to be in a position, plus a few years have gone by, they'll be refreshing and looking to advance that UFS technology with a company such as DataRail that has the solution that can solve the problem. And then you've got in the next year or two, 2027, you've got one terabyte flash coming out. And that's across UFS and NVMe is capped out, but UFS will be driving those. We will have the technology available to program those high-dense flash. And it's one of the things when we look at our product portfolio, we're going to refresh the 7,000, but that's mainly going to be a system, an automation system, that's going to be made for programming high volumes of high density memory. The new system will be focused on micro controls. You can do both on both machines. They'll have the flexibility, but there'll be a main purpose for those solutions, which will drag our platform in with it. Does that make sense? You know, so I see these, you know, our PSV line is over 10 years old now. So we are focused this quarter of driving a target list of accounts that have these systems that are eight, nine, 10 years old. and going out and being very proactive to get them to refresh. And the good thing is that we'll have the new platform for them to be able to refresh on. So there will be a couple reasons for them to really take a serious consideration of refreshing now, even when times are a little slow. Because, look, this is the best time to invest, right? It's easy to adapt change or adopt a new platform when things are slow.

That's a great lead-in from my next question, which is rates are starting to come down a little bit in the U.S., and we're starting to hopefully get some clarity on global trade. I love your hope. Okay. Well, you know, we got the president out making a lot of deals, hopefully. That's right. Well, deal away. Good for all. I mean, you know, I guess it is kind of a real-time question. Yeah. I mean, are you seeing any kind of optimism, particularly, you know, outside of the country in terms of the trade partners with, you know, some of the, you know, hopefully some of this tariff stuff clearing up and, you know, giving us a little bit clearer path forward?

Yeah, I'd say this cautiously because this is not just the trade issues. I know if you read recently, there was a passive supplier that was technically owned by a Netherlands company that became Chinese-owned, and the rare earth minerals were getting shut off from them, and they're in about 40% of the automotive products. We had a call with one of our larger automotive customers earlier this week, and they said, we're shutting our factory for three weeks. Now, That can change quickly, right? Just like trade talks can change the tide pretty quickly. So can things like turning that back up, right? And so you hope that these trade agreements that are evolving include things like rare earth minerals. I know that's a hot subject, but it's one that does cause huge ripple effects through the supply chain. So with your hope, I'm hoping that that's part of these negotiations. But for right now, it's still pretty shaky.

The next question is from George Marima with Pareto Ventures. Please go ahead. Hey, George.

Hey, how you doing, Bill, and welcome aboard, Charles.

Thank you.

A lot there. So let's pull on the partnerships and accretive acquisitions thread. Yeah, sure. What kind of hurdle rates – Are you looking at for that? And, like, what sort of, like, categorically speaking, what sort of acquisitions would we be looking at in partnerships? What would that look like?

Well, partnerships, those are mostly going to be around the embedding of our technology, right, where our technology can fit inside somebody else's solution that gives them added capability for their customers and their customers are asking for that, such as app tests. So those, we've had some pretty significant conversations with one of the larger test companies in the world. Those conversations are going to continue at Productronica and will probably result in a contract that will start to drive our building of that technology for their platform. So I can't say when that's going to drive revenue. They're looking for a second half of next year release, to give you an idea. So this is, it's real. They have like a scoped release time, second half of next year. A lot will depend, George, on how much they put us in the driver's seat. We're pushing to be the actual provider of the technology from the ground up, meaning developing the whole product versus co-developing. You know how big companies can be. They're not going to work as fast as a small company can. We would like to have this early in the second half, not later in the second half. So that's why we're pushing our own agenda. We'll see how that goes. They're open to it. You know, there's just a couple conditions that I need to make sure that our intellectual property is protected. That's the most important thing. As far as things like services, we're in some communication now with some potential opportunities that are really a carve-out. There's not a huge cash need to bring that business over. Could add some good revenue to the business but get us more importantly into services, which we need to be in. So there's a couple different methodologies. There are some smaller acquisitions we can do to get there, you know, small acquisitions versus large acquisitions. They're both the same amount of work. I prefer to do a larger one. So, you know, we're opening as many doors. We did hire a boutique advisory firm, by the way, last week. We had our first kickoff call. I've given them 25 targets. We've gone through that pick list, and that is an ongoing activity. It was just launched last Thursday.

On the services, are we talking about just programming services or beyond that?

No, programming services.

And would this be – kind of explore this a little bit. So let's say a company hired you. What would this look like?

Well, it depends on the relationship, right? I mean, so it would be – I mean, right now, because we don't have a programming services division, they wouldn't really be able to hire us right now. So we've got to get the programming services in there with the expertise and the the shop floor control system and things, which would come from an acquisition or a carve-out. Okay, so you'd already buy a business doing that. So once we get that, yeah, that's kind of the first domino that has to follow, George, because then at that point, then I can open up in somebody's warehouse, I could open up on their production floor, I could open up. Once I have that shop floor control, I can parachute that thing anywhere.

Okay.

And the equipment. The advantage of being the equipment manufacturer is, certainly we make the equipment that needed to process the programmable parts. So that's the advantage we have. And that's why I've always thought services should be a cornerstone of a company such as DataRail, if not the other way around.

It's a bigger market. So as we look out the next year, it sounds like the cadence of things would be your internal new product launches and then embedded applications and socket manufacturing and then later – Services sort of kind of roll in.

Yep. I would see services coming first, actually.

Oh, really? Okay. Yeah. Yep. Okay. And then when you talk about leading the semiconductor roadmaps, are we talking about just UFS Flash or are there other things you're talking about as well?

No, I mean, the important part is just staying connected to them because they're rolling out new silicon all the time and sharing roadmaps. So it's more just engaging the semi-houses. Like I said, we signed six or seven information sharing agreements with various semi-houses. We need to do a better job, though, there and really engaging, I think, at that point when we can start growing again. I'd certainly like to allocate a resource or two to be calling on the semi-houses on a regular basis because they can also help generate leads too.

Yeah, okay. Well, I really like the startup energy, guys. Keep it going.

No, I'm pretty excited. Finally, you know, George, it's been a long year, as you know, so it's nice to start looking at execution of plans instead of just dreaming about them.

Agreed. Thank you. You're welcome.

Again, if you have a question, please press star then one. The next question is from Casey Ryan with West Park Capital. Please go ahead. Hey, Casey.

Hi. Good afternoon, you guys. Interesting conversation. So I'd like to ask about the EV, I guess, disruptions. I don't know if that's the word that was used in the press release, but you did sort of suggest Asia was sort of okay and then talked about Europe a little bit and maybe the U.S., And kind of two things I'm interested in around EBs. Is it kind of the headline thing where we see credits going away and there's some policy stuff impacting it, or are there fundamental things with what the OEMs are thinking about those types of platforms, I guess?

Thank you. Yeah, well, I think, you know, obviously it's no secret that, you know, the Asian manufacturers are doing very, very well across the globe. I mean, you've seen BYD move up the ladder, you know, in Europe as far as share. You know, domestically, you know, they're doing very well self-consuming their EVs. That's where we received a bunch of orders. You know, South Korea, some of their automotive kind of parts manufacturers are doing well. There's a company there called Mobis who actually feeds into a lot of the different supply chains. So there's different pockets, I guess is the best way to say, that are pretty strong. And we play not all of them, but some of them, which has helped this year. You know, the European auto manufacturers are in a lot of hurt. I mean, we had a big call with all our reps. We had 95 of them on the phone last week and really talking about next year and where we're going. Just to get them all kind of geared up and excited about the new products coming, which they are, I will say they applauded the call. They were like, finally, we have products that you're going to make that we can sell in our own, you know, geographical areas, which, you know, if you're not in heavy manufacturing, you know, what are you going to sell, right? If you're in engineering and development communities, you need things like manual systems, tabletop systems to do low volume, medium production products. you know, we need to help fill the gaps for them so they can address a bigger market that we haven't been addressing in the past. So they were pretty excited about that. So, you know, still, again, automotive is, you know, it's a little, you know, it's still fragmented in the way of the revenue is still in pieces across the globe. And some of it's just not buying anything. I mean... Some of these reps came back from their August break, and they said their business was down 50%, 60%. This is Europe. Right. The U.S. has been – and, you know, we had a good friend of mine that had a chance to talk to the VP of technology supply chain for BMW. And his comment was, look, you know, the lots of fields, you know, kind of inventory has kind of cleared out, but end demand is slow. You know, and it's not – you know, if you take out the AI spend in the U.S., We don't really have much of an economy after that.

Well, and so I appreciate that too. Is there some delineation between auto overall and EVs in particular? And does that distinction matter, I guess, from where you guys sit?

Not really, because you've got so much technology in cars, honestly, as those markets tune back up where, you know, we have, You know, we have customers that deal in all aspects of that, EV, you know, hybrid and, you know, pure petrol, but, you know, and then a mix. So, no, it's across the board. It's just right now, you know, the EV makers are doing – and some of the key component manufacturers are still shipping a decent amount of product now. Automotive numbers could stay flat. Content will still be up 10% this year. So you're still seeing that content still drive. You know, you can still have down years. The problem is that when they're not clicking on all eight cylinders, excuse the pun, but they have excess capacity of our equipment, too. So when that fills up is when the next buy signal will happen. And I think next generation products that are using high-density flash is going to require more capacity. So as these things start to turn up their new revs, you know, I think the sweet spot right now, it's 128 gigabyte on UFS for automotive. Those go to two 56, five 12. You're going to see a spend cycle.

Right. Um, okay. And then, um, you know, it looks like systems are pretty good in the quarter. Actually. I think if I just took 76% of revs number, it's like 4 million, 4.1 million. Um, And so it's really consumables that were kind of challenged, and I guess it's consumables kind of related to units, and is that sort of how we're sort of seeing that inside of the numbers, I guess?

Yeah, we had some pretty good socket spins in the first two quarters. I wasn't surprised to see a little softness in Q3 in that. Always, you know, you'd like it to continue, but as things slow down, people aren't processing as many parts, which means they don't have to replace as many sockets. So... You know, again, as volumes tune up, you know, you start to see that number come back. It's off to a decent start this quarter. I wouldn't say it's, you know, flying off. But, you know, sometimes you've got CapEx budgets and they may start placing some orders at the end of the quarter. I don't know. I mean, we don't get a lot of forecasts on that. It's, you know, because it's, you know, not a long lead time, you know, item. We pretty much can spin those once they come in within weeks. three, four, five weeks and usually have some inventory going. So, you know, look, the more you get your platform out there, the more that number goes up. And that's the reason why having the new product portfolio, driving that platform out to market, getting more sites out there means more sockets.

Yeah. Okay. Yeah. Then three quick margin questions, I guess. Overall, margins were pretty steady, even though your mix changed quite a bit. So where do systems and consumables carry the same margin? I guess in my mind I was saying consumables might be higher.

No, margins are much higher than consumables, probably 60% to 70%, sometimes a little bit more. But margins, you know, look, we're carrying a little extra expense because we're trying to Again, scale the business, get the business in the right position. We've got some consultants that will probably take off the P&M during the first half of next year for sure. But where margins are going to get better are going to be better pricing. I mean, honestly, we've just done a poor – the company historically on their custom systems has gone off of a list price methodology. Every system we do is custom. I don't know why you would go off a list. You should just custom build from the ground up. We've done this a couple times already in a couple orders, and we've come out with not only capturing our costs better, but improved margins on top of it. And now we're getting the reps to add more value. I mean, I'll give you five points, but go earn the rest. Why am I protecting your margin?

I need to protect mine. Well, right, sir. I mean, sort of what I'm drilling into here is that there is – is that there is really good margin expansion opportunity that you guys are demonstrating.

Oh, yeah. Absolutely. Yes.

Because Mix was sort of off this quarter from a margin preference standpoint, and you guys still were flat to up, I think, on gross margins versus last quarter.

Yes. Yes. We were up sequentially. We do expect – look, we're focused on opportunities both on the cost of goods side and as well on the operating expense side of it. Not just rooting out some efficiencies, but then as Bill mentioned, I mean, the opportunities on the pricing side for gross margin improvement are, we believe, significant. We're exploring them. We still have to understand a little bit better what those dynamics look like, but there's opportunity there that's worth exploring in some depth.

And so Charlie and I and Monty are going to be digging into that pretty deep this quarter. Yep.

Okay, so at some point in the future, we'll say in the far distant future, if REVs were split evenly, could you see 55% gross margins or something like that in your imagination?

You guys aren't guiding that. That's theoretically possible, yes.

Okay, okay.

We've been there before, so I don't see any reason why we couldn't get back there with better rigor around everything we do, expense control, but also, more importantly, how we price our products.

Right. Well, like, it sounds like pricing, you know, understanding how to price better has a lot of leverage to it. And then as you say, as you grow systems, then consumer will go up, and that's a margin adder to the overall. Just to refresh the last margin question, services, you know, I'm thinking sort of, you know, range-wise is sort of a 30% business, but, like, tell me what you're thinking about its contribution to your margin profile.

I can tell you from my experience, we ran between 52% and 58%.

On services?

Yes. That's historically. Now, obviously, with making the equipment, we have an advantage a little bit because, obviously, you know, we have the margin in that. And, you know, we don't want to penalize the core business, right? So we'll sell it, obviously, at a competitive price. But we have the advantage there for service, you know, sockets, things like that. So, no, I expect the services business to run pretty healthy margins. Definitely not 30.

Ladies and gentlemen, at this time, we've reached the end of the question and answer session. I'd like to turn the floor back over to management for any closing remarks.

No, I just want to thank the people on the phone. Great questions. Always love the questions. It's always great to dig into the business. And, you know, it's been an interesting year, I have to say. The great thing about it is we've I think we really have a great team now that we can build from, but we are more importantly building out the products and the product portfolio. I think we've got a great focus for next year to grow and grow into these new businesses. And, you know, we're initiating discussions with, I think, some really great future partners for our technology. So I want to thank everybody for logging on to the call today and those who are listening in and look forward to updating you next quarter.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.