Data I/O Corporation

Good afternoon, everyone, and welcome to Data I.O's second quarter, 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this 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, Asha, and welcome to everyone to the Data I.O. Corporation's second quarter 2026 Financial Results Conference Call. With me today are the company's President and CEO, Bill Wentworth, and Chief Financial Officer, Charlie DiBona. Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position acquisitions, financing and capital markets initiatives, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, foreign exchange fluctuations, 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 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 TenQ with the Securities and 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 earnings press release issued today after the market closed. Finally, accuracy and completeness of all discussions on this call, including forward-looking statements, should not be unduly relied upon. Data I.O. was 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 I.O.

Thank you, Jordan. Appreciate it. All right, we've got a lot to talk about. There's a lot to unpack here, so I'll try to make sure I hit all the points. And as you know, all of you are aware, obviously love to take questions. So for those who, if I didn't explain or you need some clarity, please hang on. ask away. So first, the Q2 highlights results midpoint of our revenue guidance, which was 5.1 to 5.4. We achieved 5.2. Gross margins obviously had a significant improvement. This is the highest level since Q2 of 23 and 30% lower revenue. Sales funnel continues to expand with new customers and new domains, which obviously has been a huge focus for us as we Sorry about that. Doing this remote from a cell phone. Anyways, I'll continue to expand, as I said, with new customers and new domains. We have six new logos so far this year, three automotive, two robotics, and one in global communications. All of these, especially the last two domains, have a significant amount of upside in the out years, probably seeing some of these things are ratcheting up now. for their demand. And I would think on the robotics side, we'll see that start to really creep in to drive significant revenues, probably in the second half of next year. But we're getting built into the supply chain of these companies, which is the first step you have to make. You have to be built into the process. With stronger revenue performance and our drive to take costs out of business while operating more efficiently, We have reached our goal of reducing the overall cost of running the business to less than $22 million. That was a goal that we set early last year, and we achieved that, you know, April of this quarter. This equates to approximately 5.25 to 5.5 to break even, essentially. And, you know, we feel comfortable at that level that we can generate organic growth and start to turn a profit and start seeing quarter over quarter growth. We entered Q3 with a pretty strong active pipeline. We've closed quite a few of those deals in July. But this revenue and our improved revenue mix, we're certainly selling more, I would say, systems with more value, more IOs, more options. I think we've done a great job of managing our quotes and making sure that we're charging appropriately for that value. And we've done a great job of communicating with our customers to show them that value through multiple different methods. And it's certainly helping out significantly. With the margin improvement strategies and our reduced operating expenditures, I can say for the month of July, our second large milestone is to get to cash flow neutrality, stop burning cash. Preliminary numbers for July show close to cash flow neutrality. Yes, it's only one month. That's a significant improvement. That's a result of all the hard work and execution driven by the broader team at Data.io. Again, we're not done yet. There's still plenty of work to do. I can see two or three areas, we still need to get better operational efficiency and cost, which will also improve our customer sat. And also, you know, be doing things in this industry that our competitors don't do. Through these efficiencies, we can react to customer demands faster, which are increasing almost daily. I emailed from a new client over in India, the demand for what they need as they clear up these new products is not easy. They're looking for a few weeks turnaround on device support and new devices. So these challenges we have to meet, and we are in the process of doing that during Q3. We've set a goal for, I think, four weeks of device turnaround. The industry right now is about eight to 12. So that's been on the great side. Transformation will give an update on the acquisitions. Obviously, we've announced those back in May. They've been pretty much going to plan. These things never happen as fast as you want. But we've done, I think the team's done a great job of looking at the business. We've had some great organizations help us through the process. Just trying to find any holes or issues with the business. I think we've done the Q and B was great because it did identify a few things that were able to actually save some money on the purchase price. So everybody's doing the job. We've extended the date to August 31st for close. So that's where we're at with that. The security acquisition, which came out in a press release, I am calling from a microchip conference that we would never have gotten invited to if it wasn't for buying these security assets from IR. Having a seat at the table with suppliers because you have IP that's real and they need it for their businesses and there's all these different compliance programs and regulatory programs coming out such as CRA in Europe and RED you know, and these things, they have to be fully compliant by the end of next year. And they're starting to monitor the vulnerability reporting starting next month. So, you know, we're seeing a big push on the medical side because they've got to go through their FDA approval. But other industries, you know, are certainly going to have to meet this requirement. Oh, you cannot sell your product immediate. So, you know, this is something I think from a timing perspective, perfect for us. we've engaged some of their customers where we're getting out in front of them and looking at and listening to their plans and what they have scheduled and kind of their methodology of getting customers compliant at the semiconductor space but also at the OEM and subcontractors as well. So it's opening up a whole new branch of opportunities for Data I.O. that honestly we wouldn't have had prior to. We had the the partnership with IR, but that's just a partnership. Now that we own the platform, and it's a platform we'll continue to invest in, it is differentiating the conversation we have with almost every customer. We will continue, by the way, an important point here is we're buying the assets, but we will continue a commercial relationship with IR. Their compiler and debugging software, their workbench stack, is an important platform for companies like Microchip. So that was one of the questions in today's meeting is, you know, is this just decoupling completely? And no, we said we're absolutely going to stay connected to service customers like Microchip, do launches in the channel with them, as well as technical support. And we're working out the commercial relationship between IR and Data RIO. but now we'll stay tightly coupled and they will be a strategic channel partner for this platform. It brings in four new revenue streams, the software platform itself, annual support contracts, licensing fees, and then you've got the tokens that have to be placed in the part and there's a charge for every token. And then also, as we get into programming as a service, providing security provisioning as a service provider. So it's exciting. It's great having more multiple revenue lines. And I think the best thing about this is that we didn't have to invent anything new. Like, we're using DataResCore, the Luminex platform. We're just pivoting it to address a market need. And so the beauty of that is we don't have to go and invest a bunch of money to be able to address the market. We can address it with our existing platform. Another key point to security is it's domain neutral. Everybody's going to need it. So this will also help accelerate our domain dependence on automotive and move into other domains. Certainly help accelerate it. As far as paths, we talked about this last earnings call. We're now in the data collection stage for proposals on the pipeline that we built. That is ongoing now. We expect to have proposals ready to go by the end of Q3. and the goal of booking one to three contracts in Q4. Overall growth drivers, improving opportunities, customers domain expansion in Q2, robotics, new automotive logos such as Valeo, automotive showing some early signs of recovery, industrial med tech and then global communications. So we are working hard to diversify our customer base. I would say You know, it's safe to say that we are finally evolving. It's been a long 18 months. But our goal of becoming a highly valued supplier in the semiconductor supply chain is starting to come true, especially with the security. There's other things that we can add to our stack internally, licensing debugging software from like an AR so that we can be a higher value within the engineering communities. paralleling the return for growth for programming industry alongside, along with the security mandates. DataRail is well positioned with tech, team in tech, platform balance sheet, and market growth drivers. At this point, I would like to hand this over to Charlie and provide more insight to our Q2 financial performance. Charlie, please take it away.