Data I/O Corporation

Good afternoon, everyone, and welcome to Data.io's fourth 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 fourth 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 position, 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 in such statements. These factors also include uncertainties as to the impact of global and geopolitical events, international tariff and trade regulations, order level of 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. is referred to reconciliations in our 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 was under no duty to update any forward-looking statements. And now I'll turn the call over to Bill Wehrmuth, President and CEO of Data.io.

Thank you, Jordan, very much. Thank you for everybody dialing in to the call. And I want to start off, obviously this is a Q4 earnings call, but Obviously, there's a lot that transpired over 2025. It was certainly a little more difficult of a quarter than we planned. You know, there were a lot of things and headwinds that still continue with tariffs. But I want to assure everyone that that did not waver us from the continuation of our transformation. You have to get through these tough times, and you can't stop the transformation that this company needed. You know, DataRail had some transformation work that was fairly heavy. We did invest a lot of money into the business license, specifically our platform. And I'm pretty proud of the team, very proud of the team, and how we ended the year and how we've teed up this year, which I'll talk a little bit about shortly. The setup. Our mission throughout 25 was to transform Data.io for long-term growth. That plan proving to be approximately one year ahead of schedule. I've been through personally quite a few transformations in my own business and with other companies, so this is something I'm fairly good at measuring. I'm very confident that we are ahead of schedule. There are things that could even speed that up through our 26. We executed against six strategic priorities, modernizing the go-to-market, which you'll hear about a little bit later, investing in our core platform. That was number one. Then we started that early in 25. strengthening customer relationships. We have really, you know, got out in front of customers. Myself personally probably really extended more of our employees into talking customers, which is so important in order for transformation to really occur because our team needs to hear from all of our customers and suppliers in order for those transformations to really take hold and for everybody to get energized around those. Optimizing business operations, IT infrastructure. You know, we went through a fairly sizable cyber attack. We made it through that. I felt extremely well. We were up and running within 11 working days. So we found out a lot about our infrastructure, too, and some of those things that we needed to button up. And that also continues as part of the transformation. We've made great strides there. Moving to the cloud, you know, that offers obviously additional security. Getting things off-prem into the cloud. Moving data into more secure applications that are also in the cloud. And, again, that continues. Improving operational processes and deploying AI company-wide. And you'll definitely hear more about that later in this conversation. Over the past 18 months, we have made deliberate changes to the board and executive suite to ensure that we have the right team in place. Boards, you know, we've had a board member and the executive team obviously has been, you know, you have some pivots here and there. I think we for sure have the right team on the field to execute the plan this year and return data out to revenue growth and cash flow neutral deposit throughout the year. Again, transformations take time. And I've been through these and they're not easy. I can tell you that the team has put in a ton of time. They've really stepped up and really have positioned DataRail for a great 2026. Our new direction, we're expanding our addressable market. DataRail is shifting from our traditional programming CapEx market to servicing a broader data provisioning market, a significantly larger opportunity for the company. We're leveraging our platform to reach into two adjacent markets, programming services and programming attests. with activity building for both. Yesterday, if you've seen the press release with IAR, this is one of the what we feel is going to be a significant opportunity this year and going forward. I've been a big believer in partnerships ever since I've been in the business and been in this business in particular. It's really important. We're a small company. You can't just go it alone. Being able to forge a relationship and a really strong collaboration with IR really combines their security expertise with our provisioning expertise to create a very comprehensive device support model for security provisioning in the industry. They have a significant ALGO library aligned with our ALGO library. We feel this solution is frictionless, fairly easy, and I won't get into the details of how complicated security provisioning can be, but it's very difficult. We presented at a few of their conferences. It's gone really well, and we have business opportunities that we're now talking through with them and our collective customers. I would say, you know, the interesting opportunity I've had from shareholders and other meetings and podcasts, conversations around, well, hey, how does AI help Data.io? Well, you know, I would say during the year, and you've heard me make this comment many times, it doesn't really help us now. That has changed. If you remember back in the mid-'90s, the Internet boom, and obviously that went through its change, but it continued even through that pause, and it continued to grow our industry. AI with the build-out with the hypervisors, that continues and will continue. But what it's doing is these AI models are starting to really gain traction, and I'm sure we all see it in the news. What this does is now create the need for the build-out of the edge AI, which is the edge of the network. You can't have autonomous cars and robotics and, you know, IoT devices that are fairly, you know, have a high level of technical capability without expanding the edge of the network. It's just not possible. We have had conversations with new customers this year already, which was not part of our revenue plan coming into the year, of significant build-outs around this edge AI. This is something that, look, I've been in the technology industry for almost 40 years, and this build-out is something that I think is going to dwarf what the internet build-out was back in the late 90s. And I don't see this pausing, because AI is changing things so fast. There's just, to keep up with it, I can see that edge of the network continuing to grow. So we're very excited about the setup, the tailwinds, the new drive and demand for semiconductors as we see things start to pick up across the board. I expect this to be a multi-year growth cycle and new revenue opportunities for Data.io. New and existing customers are confirming that Edge AI build-ups are real. Early customer alignment and interest validates our strategy. and the framework for the company. As we enter 2026, we are poised to deliver organic revenue growth this year with very encouraging customer activity in Q4 and into 2026. And now I'd like to hand the rest of the conversation to Charlie DeBoer, our CFO.

Thanks, Bill. And good afternoon, everyone. I'll take this time now to walk through our fourth quarter and full year financial results covering revenue and bookings, our revenue mix, margins, operating expenses, bottom line, and then also some balance sheet items. Net sales in fourth quarter were $4 million, down from 5.2 million in fourth quarter of 2024. For the full year, net sales were 21.5 million compared with 21.8 million in the prior year. Similarly, fourth quarter bookings were 3.1 million, down 25% from 4.1 million in the prior year period, while full year bookings were 18.6 million down 17% from $22.5 million in 2024. Regionally, 2025 bookings and revenues were strongest for customers throughout Asia, as North America demand remained consistent with the prior year, but Europe declined. Moving forward, as a global company headquartered in the Western Hemisphere, DataIO is well positioned to support customers migrating manufacturing facilities to the Americas. In terms of mix for 2025, Consumables and adapters and services represented 58% of total revenue for the year, providing a stable base of recurring revenue. As a result, deferred revenue rose to approximately $1.5 million on December 31, 2025, up from $1.4 million as of September 30 of the year. Capital equipment sales represented the remaining 42% of 2025 revenues. Demand for capital equipment continued to be negatively impacted by the realignment of technology spending with AI-related data center investments at the forefront. In particular, a reassessment of EV capacity and manufacturing impacted the company's largest end market, the automotive electronics sector. Notably, sales to the automotive electronics sector represented 52% of 2025 bookings compared to 59% in 2024, while overall backlog as of December 31st was $2.3 million, down from $2.7 million at the end of September. All that said, as Bill mentioned, we've recently seen very positive indications of demand for our products as the build-out of Edge AI is beginning to ramp up. Gross margins as a percentage of sales was 43% in fourth quarter, compared to 52.2% in the fourth quarter of 2024. Full-year gross margin was 49.3% for 2025, compared to 53.3% in the prior year. The decrease in gross margin reflects some mixed shift, as well as lower absorption of labor and overhead costs. Direct material costs remained relatively steady and consistent with prior periods, as the company continued to actively mitigate the impacts of tariffs and other inflationary pressures. Operating expenses for the fourth quarter were $4.2 million, which included approximately $312,000 in one-time expenses related to SEC filings, restructuring work, and the initial phases of our transition to a new ERP system. This compared to $4 million in the fourth quarter of 2024. Full year 2025 operating expenses were $15.7 million, of which $1.4 million represented one-time expenses primarily related to the company's leadership transition, investments in the core programming platform, and information systems. Again, SEC filings and the remediation of the cybersecurity incident first identified on August 16, 2025. This compared to $14.6 million in 2024, wherein there were no one-time operating expenses recorded. Net loss for the fourth quarter was $2.5 million, or 27 cents per share, compared to a net loss of $1.2 million, or 13 cents per share, in the fourth quarter of 2024. For the full year, net loss was $5 million, or 53 cents per share, compared to a net loss of $3.1 million, or 34 cents per share in 2024. Adjusted EBITDA, which excludes equity compensation, was negative $2.5 million in the fourth quarter, compared to negative $1.1 million in the fourth quarter of 2024. Excluding one-time expenses of approximately $312,000 in the fourth quarter, adjusted EBITDA would have been negative $1.9 million. For the full year, adjusted EBITDA was negative $3.9 million, compared to negative $1.4 million in 2024. Excluding the one-time expenses of $1.4 million, full-year adjusted EBITDA for 2025 would have been negative $2.6 million. The company's balance sheet and liquidity remain solid. Cash at the end of the fourth quarter was $7.9 million compared to $10.3 million on December 31, 2024. The decreased cash balance reflects one-time expenses, technology platform investments, and IT spending through the year, partially offset by reduced inventory levels and increased accounts payable. Networking capital was $12.3 million on December 31, 2025, compared to $16.1 million on December 31, 2024. In addition to cash, inventories were reduced by about half a million dollars as the team implemented programs to become leaner and more efficient. Finally, the company continues to have no debt on the balance sheet. Before wrapping up and before we turn to questions, I'd like to provide a framing or framework for thinking about 2026, which is based solely on organic growth. First, we are targeting organic growth for 2026 over 2025, supported by early demand signals we are seeing from edge AI infrastructure and continued strength in our recurring revenue base. Second, we have a growing pipeline for entry into the programming services and programming test markets which represent meaningful opportunities to expand our addressable market. Third, as revenue increases, we expect improved absorption of labor and overhead costs, which should drive improved gross margins relative to what we've experienced in 2025. Fourth, on the expense side, we are targeting an additional $1 million in run rate reductions beyond the benefit of previously implemented structural and operational cost improvements starting in early 2026. Fifth, edge AI itself is becoming deeply ingrained across all functional departments in the organization, driving efficiency and enabling us to do more with less. And finally, the combination of revenue growth and cost discipline gives us line of sight to positive operating cash flow by the end of 2026. Again, this preview only addresses organic operations and does not include the inorganic initiatives which we're actively pursuing to accelerate our growth and build out. With that, I'll turn back to the operator for 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 touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from David Williams with Benchmark.

Hey, good afternoon, everyone, and thanks for letting me ask the question here. So, Bill, good to hear from you, and thanks for all the updates. I guess maybe first, can you maybe talk a little bit about the semiconductor manufacturing and maybe what the reshoring does, especially as we come back to the American region's What do you think that means for your revenue opportunity, and is that an area of growth and opportunity for you in the near term?

Well, you know, Dave, thanks for the question, and great to hear from you. You know, semiconductor manufacturing coming back to the U.S., I mean, it's great. Obviously, it creates a lot of jobs, which creates growth in other domains and things like that because of factories being built. I wouldn't say the semiconductor manufacturing coming back to the U.S. directly impacts us, What is impacting, again, as we talked about AI build-out, and that's not at the hypervisor level. This is the edge of the network, right, to be able to have all this automation that's coming our way that's going to be AI-driven and AI-enabled. What we're seeing, though, is, sure, there's some reshoring going on. That's the other thing that we're seeing is not the semiconductor side, but just products being built and brought back to the Americas. You know, we're seeing things like factories kind of spinning up an activity that we really didn't think that would happen until second half of this year, starting early in the first half. It's been a little slow out of the gate, but the conversations are definitely picking up. We've got conversations with quite a few clients and new logos that were not in part of our revenue plan, and they're very definitive about when their production is going to start, when they need systems, And, you know, I will say the plan that we put in place, our strategy, we've been displaying to these customers, existing and new, the comments are things like, you're exactly the supplier we're looking for. You're hitting all the areas that we provision data and need to provision data. And in the past, we were in one box. Now in the three box, we'll get there, obviously, as part of the plan that we'll execute this year inorganically and organically. but it's to be able to be in position to address the different areas of data provisioning. The great thing about this strategy is, David, is that we have the platform. It's not like we have to go out and buy new technology or make some other investment, which does create risk when you do M&A. We get to use exactly what we've been investing in last year. Going into this year, we're just putting it in other areas of the data provisioning, like security. I hope that answers your question.

Yeah, great color. Thanks for that. And then maybe just speak to the AI-assisted software development and maybe what that means. Yeah, absolutely.

You're a huge evangelist of this, right? So I can tell you personally I probably watch AI way too much on TV and not shows. I'm talking podcasts, you know, educating myself. You know, when I first became a board member, it was one of the things we – we created as one of the first couple meetings was getting AI to just search the technical documents that come from semiconductor companies. These would normally take the engineers three to five days to read through to get all the information that's important to load the table up to create an algorithm, as an example. That would take three to five days. Now, the doc AI that we created 18 months ago, almost two years now, It cost, I mean, the project, the POC, and to get it to work and function, probably cost $120,000. I can tell you today, if we did that same project today, it would cost about $100. That's how far AI has advanced. So to give you an example. we are now creating a CICD process, and I know this might be over a few people's heads, but that stands for continuous improvement, continuous development. That's what you have in every software process. It's important to have that built into your DevOps and Agile. So what you do is when you're writing code, you automate all the functions and what it takes to write code and get software tested, and then more importantly, released. So For the first time, we have AI that we built in our process that actually released production code this week. So meaning, like, very minimal human intervention. That's how far it's come. And so we're adopting – we've mainly been using Claude. It's in – you know, we're using it across every department. but we're creating teams around bug fixing and enhancements and then other teams to just do the new software that we have that's going to be coming out this year that's going to start to retire technical debt, which will further reduce our costs. I can tell you, David, that the AI advancements are just amazing, and they are making a huge difference in our company and the ability to produce new products faster and get to market faster. But on top of it, You know, I've done a lot of M&A in my career. I can tell you, looking at synergies, when you do M&A, you have your standard, hey, that's 10%, 20%. You can carve out of the back office when you consolidate roles and jobs and things that overlap. AI brings a whole new component to that because you can look at a company and go, if they have not deployed AI, for example, the many places that they could that would advance the optimization of their business. So not only for what we're doing today, but also when we look at inorganic growth as well. I think it's going to accelerate that. It's going to greatly help us get our new ERP online far faster. I mean, the things we're doing now with AI, before we start the actual process of the transformation of ERP, is setting enough to make it. I don't want to say easy for Charlie because he's heading the project, but I can tell you it's had a huge impact. It's filled some huge gaps that you would normally be concerned with in ERP implementations. Do you want to comment on that, Charlie?

Yeah.

I mean, I could go on and on about AI.

I won't take open objections. It's easy. But it's certainly, you know, the speed at which we're doing, you know, what are fairly time-consuming tasks like, mapping your old chart of accounts to the new chart of accounts, creating new chart of accounts, putting in new policies. The speed at which you can do that with assistance from AI, obviously overseen by people, making sure everything works, it's just accelerating and de-risking the process. It's probably the biggest impact on ERP is going to be the reduction in implementation costs as we go forward. It's just amazing how quickly we're getting the ball in play. We have a current example.

We just launched Salesforce Service Cloud two weeks ago, right? Actually, soft launch was two weeks ago. Formal launch was last week, a week ahead of schedule, which is rare when you're implementing new software. This is – Service Cloud is now – what we use for taking ticket information from customers when they have a challenge with any of our equipment or software, and that's where they enter the tickets. That project originally was scoped at, and this is only eight months ago, was scoped at almost $250,000 with AI and with some other things that we did to maximize the process and make it easy. We did this for $100,000 and we were on time with the project. And I can tell you after five days, typically you'll see, you'll hear a lot of issues with changes substantial as that. I just talked to the head of service at the parking lot before I went and ran an errand. I said, how's it going, Sam? He's like, five days in, we're good. Like no noise, no challenges. There haven't been any problems with the customers being able to answer tickets. I mean, and AI was a big part of that.

Great. Really fantastic color there. I appreciate it. And maybe, Charlie, just one for you, just kind of thinking about the balance sheet and where you are, what's your level of comfort, I guess, with the balance sheet, given the strategy and kind of what you see out in front of you?

Yeah, I'm comfortable with it. Obviously, you know, we did drain some cash last year. That's sort of the inevitable outcome of making the investments and the transformation that we were undergoing. But we do see that there's, you know, a turning point through the course of the year here as we You know, we are very focused internally on controlling costs. We're making moves that, like I said, we expect to be at least $1 million of run rate savings. And that will happen through the early part of the year. So we'll realize a lot of that through the course of the year as well. You know, this is, I think, a very solid, you know, we're a debt-free company right now with decent cash on hand. and in a good position to sort of execute on the strategy we have, both organic and inorganic. And, you know, I really don't have any – certainly the balance sheet does not keep me up at night. ERP transformations keep me up at night.

But I would say in that, to add to that, David, is that going back to AI, and I'm sorry to go back to this, but the transformations do cost money. And the thing is that coming into the business over a year and a half ago, this company was very thinly threaded, whereas you were going to need additional resources to do transformations. They don't happen on their own. I can tell you that AI has an impact in lowering the cost of the transformation, especially where we are today and moving forward, that I don't have to hire a bunch of resources to continue the transformation because AI is picking up a lot of the slack and creating things. huge productivity increases, especially in engineering and software development, you know. So it helps in all areas and will create new sources of revenue for us.

Our next question comes from Michael Legg with Lattenberg Thelman.

Thanks, guys. Hey, Michael. How are you? Wanted to dig a little deeper into M&A pipeline and where you are there. Could you just give us a little update on how that's going?

Yeah, absolutely. Mike, as we've talked about, that was certainly a big part of my charter and strategy. And this goes back to, you know, October of 2024 when we laid out the original strategy of the board to get into these other, you know, capabilities. We have, we are in, a data room was just opened up on one of our opportunities just two nights ago. We have another one being opened up most likely tomorrow. I got a call from a CEO in one of our strategic initiatives to meet at APEX to discuss a serious discussion around acquiring their business, and we have two other irons in the fire. So it is a quite active pipeline. More in there, you know, probably a little more than I'd like, but at least it gives us choices, and that's great. Fully expect something to happen this year. Obviously, I wouldn't be having these conversations, but everything, again, is directly tied to the strategy that we discussed. So very active pipe, Mike. And there's more behind that once we get through a few of these that fit exactly where we want to fill and the holes we want to fill in our strategy. And then we will refill that pipeline and we will take another pass at it next year.

Let me just follow up on that. I do want to emphasize that both Bill and I are very disciplined acquirers. We have already walked a couple transactions that did not make sense once we got into looking at the financials. We're good stewards of the capital of the company. We have very exciting targets that we're looking at. We're enthusiastic about them, but we're also not in deal heat.

And they're day one accretive. That's the important thing. I mean, really accretive in a couple cases. And the important thing, too, Mike, is I've done a fair share of M&A activity. And I can tell you what's really important. Look, there's things like roll-ups and things like that, you know, that the private equity firms have been doing from day one with their LBO funds. There's not a roll-up, you know. This M&A strategy is a place where you have a company that has vertical capabilities and a business that has horizontal. When you put those types of companies together, it accelerates growth because you're filling each other's gaps. And that's where M&A really makes sense. logical sense, but good financial sense as well.

Okay, good. Thanks.

And then, you know, obviously we have some headwinds in the industry right now. You mentioned in the fourth quarter you saw a lot of good customer activity. Can you just expand on that customer activity and what you're seeing?

Yeah, sure. I wouldn't say Q4 had a lot of good customer. There were some conversations, a lot of it was tailing off, like, we'll talk to you in Q1 and Q2. So those were good conversations, trying to get an idea. You're always trying to set up your next year, right? So you do a big push trying to find out when budgets expire, what's left, what's the budget going to look like next year, what are your projects you're working on. You know, a good amount of our pipe this year or opportunities that are in our pipeline revenue plan, 75% of them are new from last year. I mean, so we've had conversations throughout the year And they're not all new logos, but just new activity, right? Some new logos. It's a big push. It's a reason why we developed the manual product line. We've got reps ready to set up orders in Q1 for our manual systems, which you should start to see next month. And to get those manual systems both here in North America and China. I just came fresh off a trip from there. Met with one of our largest customers that's a big supplier to BYD. we have new products coming out. Matter of fact, they brought up and asked for a solution. Just so happens we were already working on it. And so they offered to be our beta client. And so that's in our pipeline for the second half. So a lot of exciting things across the board. But yeah, those conversations are starting now. Look at, you know, turn into purchase orders as we get into the end of Q1 and definitely the Q2. I mean, there's a lot of And I think the tariff thing recently, pulling that back, there's some pent-up demand back there. I can't tell you how much. I think that will have an impact and give us a little bit of a tailwind, but we'll see. But outside of that, the build-out of Edge AI, our existing customers, the solutions we're bringing them, the new plan that we have to be in all areas of data provisioning, the customers love the story.

And then you mentioned you're a year ahead of plan since you took over, Bill. Can you just kind of give us some of the thoughts you have on, you know, two years ago, what you thought versus what you're seeing today, some of that why you're ahead of plan, what positive upside you may have seen that you might not have thought of a couple years ago?

Yeah, absolutely. It's a great question. And, you know, it's a hard thing to measure, obviously. But in year one, there's always a significant amount of investment because you're going to have to maybe kill little contracts or you're going to have to swizzle the management team. You're going to have a bunch of one-time costs. We're paying for things that weren't fixed in the past three, four, five years ago. So a lot of that was really all in 2025. We're still investing in 26, but the investment right now is directly in new products. It's directly in areas that are going to drive revenue. So there's no more – I would say the cleanup is pretty much completed. I would have thought it would have taken longer, but as I said, the tools we're using and the technology we're using to get there faster has paid huge dividends, and that's only going to accelerate. So, yes, I think we're probably – you know, typically transformations of this nature are two, two-and-a-half years. We're a good six months ahead of schedule. Could be more, but – easily six. So that's why we feel really comfortable with the revenue plan this year and get to where we've articulated.

Our next question comes from George Marima with Pareto Ventures.

Hey, George. Hey, Bill. Hey, Charlie. So, Bill, as you guys are moving into physically high and kind of in-line programming, what – What are you replacing out there? What are you competing against? And just internally as a company moving into these new areas, what kind of changes and distributions and sales and marketing motions need to happen to fully realize this? Yeah, the great thing is we don't have to change anything. These are existing customers and some new logos that are large contract manufacturers that we call on globally. They're now obviously been tasked with new projects to build out you know, the edge of the network, the products that fit that. There's one campus we went to, it's 80 acres. And next to them is Google, Verizon, a bunch of other companies that have created products that they're going to build for this build-up. This is a massive campus, massive. And, you know, so it's really, we're not changing, you know, channels. I mean, we are handling more of this direct, George, I will tell you. That's one of the things that You know, look, the reps we've had in the past, the good reps in this rep set, quite frankly, are old and tired. And so we've been revamping that slowly. We changed all their contracts this year. We're very specific in what they need to do. And if they don't, they know that we will go into these accounts direct. I want to make sure we control our revenue this year. And in the future, it's important. And there's no reason to, you know, look, nobody's going to sell your products with passion than the people that work for the company. It's just not. And so our team is very passionate about what they're doing. They're very knowledgeable. Most of them have been in this industry for quite some time, and that's the new blood we've brought in. So people like Monty and Dean and others, you know, and, again, we're looking to add more sales resources through this year. So that's where the investment is going to be in revenue and growth. I hope I answered your question. Yeah. And then on the – cash flow flipping positive? What kind of revenue do you need to achieve that? Well, you know, it's tough to say. I mean, obviously, you know, we're reducing and optimizing the business monthly, honestly, and there's some significant optimization that's coming, some we've already done in Q1, which we'll talk about after Q1. Charlie, I don't know if you want to

Yeah, obviously we can't give – we're not giving specific guidance on revenue, but we believe between the upside on revenue and the cost containment and the cost reductions we can implement that we are pretty comfortably – and you can see what we did last year. You can sort of project from that and say if the two lines are moving in opposite directions and both in a positive way, there's a point at which they cross pretty close to where we were. Yes.

Okay, so perhaps back half 26 you can flip it.

I think that's probably a reasonable type of thing. I think that's fair.

Our next question comes from David Marsh with Singular Research. Hey, David.

Hey, guys. Thanks for taking questions. So, you know, your predecessor, you know, was pretty heavily focused on electric vehicle markets. You know, talked a lot about that. We are starting to see some new products come out and start to take a little bit of market share and starting to see that evolve a little bit. I just wanted to get a sense. Clearly, you guys are focused on new and different markets, but can you talk a little bit about activity in that market specifically and if that's something that's still a revenue driver for you guys?

Oh, yeah, absolutely. Automotive will still remain a pretty strong market for us, obviously. Actually, some of the customers we talked to, I'll give an example. A large German automotive company, Tier 2, actually had told us of Productronica. This was in November. And, you know, they had said, we're not going to buy any CapEx for all of 2026. Well, we just presented to their larger team down in Mexico. And after we presented where we were going – So they want us to actually present to their global tech council next month because they were so impressed with the places we're taking our technology and solved a lot of problems that they've had on their board to figure out how to manage data provisioning. Data provisioning, because there's so much content in cars and other products, it's a larger conversation nowadays. You know, it was still 52% of our bookings last year. So, you know, it still remains a strong market. The customer I was talking about for beta airing one of our new solutions is an automotive client. And they're one of the largest providers to BYD, which is another EV company. So, no, none of that changes or stops. If anything, we're trying to bring new solutions to them, which we are. that will gain more market share for us, but also provide them solutions that they don't currently have today. So kind of that expands the market. It's kind of a market expansion, you know, as we drive these new solutions. So, no, and in the other case, you know, we're looking forward to that meeting, but the person who actually said that they weren't going to be buying any CapEx is actually on that council. So we're looking forward to that conversation. But, no, I'll tell you, the strategy we have is spot on, and it's crystallized, and the customers are 100% nodding up and down.

Got it. And the agreement with IAR, I mean, it's really – it seems like a really tremendously positive step for you guys. I mean, are there other agreements that you could potentially look to ink with some other folks that might be able to – provide you those same types of opportunities? I mean, I know you have a pretty long history with, you know, some of the major electronic component suppliers out there. I mean, you had similar conversations with any of those that you might be able to, you know, allude to.

Absolutely. And that's, you know, I'm a big fan of partnerships, like real partnerships where both people win. And IR, that took a year, right? These things do take time. The great thing about IR is this was a company that was falling out of favor with DataRio. And it actually started at an embedded conference in Nuremberg, Germany. And I'm with my team, and they're like, I'm walking towards their booth. I'm like, where are you going? I'm like, I'm walking over there. They're in security. A large company. We should partner with them. I'm like, you do know that is a company about secure things, and we've fallen out of favor with them. So I walk in. Hey, I'm Bill Wentworth. They're like, well – You know, they don't really like us. I said, they don't like you. They don't know me. So walk into the booth, right, completely oblivious, and start up a conversation. The first guy I run into actually worked at Arrow before he joined the company, and we knew all the same people. So it broke the ice right away. We had a conversation. That conversation led to this agreement. And, look, people like Monty Reagan, our VP of sales, drove this relationship for the last year and ended in this result. They have a huge Algo library. We have one. You combine those two with a frictionless solution, we will be the choice in security. I mean, I know that might be a bold statement, but their software development kit is one of the best in the industry, if not the. But your point, too, can this lead to other relationships? Yes, because guess what? Their relationships are with semiconductor companies. So as our relationship grows, I'm sure we'll get opportunities with their relationships because they're As we've created this collaboration, the one thing I say in partnership is, look, we won't both always win. And it's okay. But I'd rather have a ton of at-bats than none at all. And so that's the type of real, true collaboration partnership you want. And, yes, David, we're going to look for more and more of those. Absolutely. It's how this company will grow organically and take share.

Once again, to ask a question, please press star 1. To withdraw your question, please press star 2. Our next question comes from Casey Ryan with West Park.

Hi, Bill. Hey, Charlie. Yeah, great update. We've kind of picked over the bones here in this call. You've got to get first in line. I didn't realize it was going to be such a bum rush tonight. I love it. Yeah, no, it's fantastic. Well, so one question, just about the gross margin dip, I think. Obviously, it's high to revenue. You know, we all understand that. But what do you think is the rebuild? Is it sort of over all four quarters through the year, or can it bounce back a little faster as to that and is like 51-52 kind of the right normalized rate in some normal quarter down the road.

I'll let Charlie take that one. He's studying hard.

Yeah. I think it will sort of be through the course of the year, though not necessarily purely linear. Okay. I think it will come back a little bit faster than – again, it is tied to volumes, a big part of it at least. And there's a mix shift issue. So there's some of the new products that we're going to be selling, particularly in the back half of the year, higher margin. That will help, certainly. You know, again, we're not giving firm guidance, but I think that if you sort of look at historical levels, that's probably a reasonable starting point. And then mix will play a big part.

And great question. Margin is always on everybody's mind. As we build more value in our software – One of the things that we've done and we'll be releasing, you'll see probably a release next month, of a piece of software that really brings a tremendous amount of value. We've been downloading it already with customers. This is the other thing that's gone really well with these customer visits. And they see the value, but what it's going to allow us to do is increase our attach rate on our software or on our equipment. And as you know, that's highly profitable revenue. We have a I would say our attach rate is probably at 20%, 30%. We should be able to double that throughout the year. And that's a significant boost.

It will both increase the attach rate and the retention rate.

Yeah, absolutely.

So we're looking at boosting, not only helping the gross margin, but helping the overall margin profile of the company. And then – having sort of a, you know, repeated, contractually repeated revenue source.

Yeah, because a lot of times they would buy these, you know, interesting. And this is, you know, look, the programming industry, I know, has been in it for a very long time. And, look, we take advantage of the rules that they didn't have in place. Like we would get a software agreement and then we would use it on other machines because they just weren't that sophisticated. And it's happened. There's a way to close that off. And it's one of the things that said, look, we should not have a customer running our equipment without a software contract. I want to get it to the point where none of them can, and they shouldn't be, honestly, because it's not good for their business. It induces risk, especially because one of the things we're going to build in our software stack is the ability to do things like have security built in, like recognize illegal handshakes between our equipment and their network, because then we don't know where that security breach could have came from. And these are things that are very important to – IT departments, CIOs, chief security officers across the board. It's been something that's been ramping up over the last 12 to 18 months anyways. So as we build more value in our software stack, it'll force them to have to have the machines under contract, which, you know, it's one of our initiatives this year.

Right, right. Okay. And then just one quick question about the concept of maybe some acquisitions. So maybe, you know, to add services. Beyond being accretive, are you sensitive to the size? Like, is there sort of a minimum size that, like, you're thinking about? Or is geography relevant? Like, does it need to be a U.S.-based service?

Yeah, it's a great question. You know, it's a little bit of both, honestly. You know, geography, you know, that to me is definitely strategic, right? I mean, we do have, obviously, a significant operation in China. it would be good to de-risk that a little bit in Asia, right, because Asia will continue to be a strong market. And it's a market, quite honestly, we're weaker against our competition. So my goal is to strengthen that, right, especially with our new products but also with a footprint. So that's important. In the U.S., certainly easy to do transactions in the U.S. So those are not only geographically friendly but also strategically friendly as well. So services is a very fragmented industry. I know I was in it for a long time. It's as fragmented as ever. So there's opportunity there. And so we're going to take advantage of that.

Yeah.

Both Bill and I have experience doing international transactions as well as domestic. Obviously, there's complications that come with international, but there's also opportunities that come with international. Because we are comfortable treading where other people might not want to walk.

Yeah. We have time for one more question before concluding the call. We will now take Howard Root, retail investor.

Thanks. Good afternoon. I'll keep it real short, not to delay, but two little quick things. One, Bill, you know, when you stepped in, you really had two sets of challenges. One was the market. The other was the product, kind of the platform in that it wasn't integrated. You didn't talk anything about the product status. Has that work all been done? to integrate automatic and manual programmers?

Yes. Yes, it has. And so that software, we now can run both our manual engineering units and our automation units on the same software. There's still some cleanup to do, especially in the handler side of things, but we're probably three months away from cleaning that up, three to four. But as far as that integration, yeah, that unified platform is what we talk about a lot with customers. Because that platform, again, also will be used in services and at tests when we get there. So fully integrated, fully compliant, forward compatible with algorithms. Obviously, we do have a legacy product that we're going to start to migrate from. That also is a revenue opportunity in the next two to three years. And starting this year, as we start to get customers to migrate to our Luminex platform. So that's the thing, you know, we're out talking to customers that have been with us for quite some time, talking about kind of where Flashcore is today, how long it's going to be along, and that we need to start migrating to Luminex. So that will also be a revenue boost for us over the next two years.

Okay, great. And then in terms of cash flow, just to follow up, I mean, the end of the year, a little under $8 million in cash. Near-term positive cash flow, you're saying, but that looks like second half of the year, not first half. And then you're talking about the acquisitions, and then you've got the shelf that you've filed out there. Obviously, the stock being depressed to use that as a currency is dilutive. Can you do the acquisitions and run your business without issuing any more shares in order to accomplish that, or is that going to be a – you're going to need a financing here in order to accomplish what you want to do?

There are alternative sources that we're exploring. I have some relationships, as has Bill, to look for non-equity sources of cash. I'm not going to say that there wouldn't be any component of equity in the transaction, but I wouldn't expect it to, I don't think we're looking at a wholly equity type of acquisition. And some of it depends on the scale. We're looking at a couple different things, different sizes. The size obviously plays some role in how much would be

And now the deal structure, too. So we have a lot of different options on deal structure. There are some that are very favorable to cash.

Yeah.

Like you don't need much of it.

There's a couple different permutations, but I don't think you're going to look at us just issuing stock for a company. I don't think that's what you're going to be seeing.

Okay. And the reason for doing the self-registration?

Well, it is to have that flexibility. I mean, there's not many public companies that don't have some kind of shelf registration because it affords you flexibility if an opportunity that's sort of uniquely strong comes along. And as I said, I don't think that we're looking at not – we may blend some equity component into some of these acquisitions, so we would need some flexibility to issue stock. But, again, I don't think we're going to be 100% stock now.

Yeah.

I'm sorry, Howard, you broke up there. We couldn't hear it.

There's no near-term, there's no present need or desire to tap into that shelf. No, no, no.

We're not going to just get you to share right now. That's not our point.

Okay. Okay. Great.

Yes. Robert, is that our last question?

They all hang up.

Hello?

Yes, Bill, would you please?

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

Thank you, Aubrey. I really appreciate everybody jumping on, the people that jumped on the call, and really appreciate the questions. I can't tell you that's far better than reading a script, and I get to talk from the heart and, you know, where we're going with the company. I'm very proud of this team, and I'm really looking forward to this year. You know, it was a tough, tough 2025, but those things are never easy. But I can tell you that the lack of anxiety that's happening right now. Granted, we still have a lot of work to do, and that pace will not stop. If anything, I would expect the pace to up. The team is ready for it, and we've had a lot of meetings over the last week or two getting people prepared and the team prepared for what we're going to embark upon this year and into 27. So thank you again, all of you, for your time. I'm always available for a conversation. Jordan knows that, so if you want any additional conversations, please reach out to Jordan. Happy to talk about the business anytime. Thank you, everyone, and have a great day.

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.