Good afternoon and welcome to the Data I/O First Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Data I/O Corporation First Quarter 2025 Financial Results Conference Call. With me today are the Company's President and CEO, Bill Wentworth, and Chief Financial Officer and Vice President, Gerry Ng. 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 such as the impact of global and geopolitical events, international trade regulations, order levels for the company, and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing, and other activities by competitors and other risks, including those described from time to time in the company's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases, and other communications. The accuracy and completeness of forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any forward-looking statements. And now I'd like to turn the call over to Bill Wentworth, President and CEO of Data I/O.

Jordan, thanks a lot. Thank you to the people joining the call. It's always great to have a strong audience, so I look forward to some questions after the call as well. We're pleased to announce that the Data I/O team has reversed the trends from 2024 with revenue coming in at $6.2 million, up 19% over the previous quarter, and bookings up to $4.6 million, up 11%. As we're all aware, the tariff discussion has been front and center since the beginning of March. It has obviously created some stalling in investments and maybe delayed some decisions. We are constantly communicating with our customers weekly, and in some cases daily, because there are orders that we've been tracking since the beginning of the year. I would say that Asia was off to a slow start, mainly due to a late Chinese New Year this year, but they had a pretty good year last year. Looking at their forecast for this year, we still see them holding. Again, tariffs will play a significant role in that and depending on how those unfold, we'll dictate some of that. We’re prepared to discuss tariffs during the Q&A, as we are ready to talk about how we've managed those issues in the supply chain. The team has done an incredible job putting together various pathways to deliver product without facing a major tariff impact. We've also made several announcements that we will roll out over the next two to three quarters. This comes from the last six months of discovery work, as we've been exploring our technology and programming platforms. We have a new product roadmap that we will be detailing in the next couple of quarters, focusing on strategic investments for growth and productivity improvements. Additionally, over the last six to eight weeks, we've had discussions with semiconductor companies, and we will likely share more about these strategic relationships by the end of Q2. This mirrors what Data I/O did years ago, and I can inform you that the conversations have been substantial and fruitful, which positions us well for significant growth as a recommended technology partner for semiconductor firms producing programmable technologies. We've talked a lot in the past about diversity in customer segments, particularly automotive and IoT. Interestingly, in some geographies, those two verticals, especially automotive, are stronger than expected given the global situation, particularly domestically. In China, we have domestic manufacturing, and the EV market has remained fairly strong. Customer diversity in segments such as industrial service provider networks is also promising, but we haven't focused too strongly in those markets until we develop new products to meet their needs. Referring to the IPC APEX show from March, where we refreshed our manual product line with the new LumenX M8 and the FlashCORE III-M4, these are essentially reskins of existing technology but incorporate software enhancements for better functionality in engineering departments. I can state that it was the most successful trade show we’ve participated in since 2013, witnessing tremendous activity around our booth. We had our competitors within sight of our booth, and qualified leads increased by 39%, despite flat attendance from last year. New contacts rose by 18% from 2024. These are excellent metrics, and they reflect the consultative discussions we’re having around the entire supply chain related to how we program parts, manage technology, and move from engineering to production to final inspection and rework of products that may need it. Although it's a small sample, we believe that this consultative approach will significantly contribute to our growth moving forward. I'd now like to turn the discussion over to Gerry Ng to talk about our financial results.

Thank you, Bill, and good day to everyone. I look forward to outlining and elaborating on our recent financial performance in more detail. My comments today will focus on key points of interest for the first quarter of 2025 and our outlook moving forward. Our recent performance has been affected by positive business strategy and go-to-market changes, as Bill noted. However, this was offset by recent economic headwinds created by tariffs and trade uncertainties. Despite these challenges, we saw quarterly revenue and profitability improvements both on a sequential and year-over-year basis. Net sales in the first quarter were $6.2 million, an increase of $1 million, or 19% from $5.2 million in the fourth quarter of 2024, and up by $100,000 from $6.1 million in the first quarter of 2024. The improvements were driven by recovery in business and backlog deliveries in the Americas and Europe, reflecting growth of 32% and 44%, respectively, in those markets. Unfortunately, revenue in Asia dropped by 40% due to strong prior year performance and business push-outs from evolving trade tariffs along with economic uncertainties. Automotive electronics, our primary business segment, represented 66% of our first-quarter ‘25 bookings, compared to 59% for all of 2024. Consumable adapters and services remained steady, accounting for 46% of total first-quarter revenue and providing a reliable base of recurring revenue. Moving to new bookings, activities were strong at the beginning but slowed towards the end of the first quarter as customers delayed purchase decisions due to economic, trade, and tariff concerns, particularly in Asia. First quarter ‘25 bookings totaled $4.6 million, compared to $4.1 million in the fourth quarter of 2024, but this was down from $8 million in the first quarter of 2024 due to a large $2.8 million contract from a single customer last year. By the end of the first quarter, backlog was at $2.9 million, decreased by $600,000 from December 31. Regarding gross margin, as a percentage of sales, it was 52% in the first quarter of 2025, similar to the 53% achieved in full year 2024. The slight decrease in gross margin percentage for the current quarter primarily reflects a higher mix of system revenue, along with lower inventory levels and associated spending absorption. Nevertheless, direct material costs remained steady and consistent with prior periods. Looking forward, we are planning and taking actions, as Bill indicated, to mitigate the impact of new tariffs, trade, and inflationary pressures. We are leveraging our domestic and international production and service capabilities, with potential actions including shifting material sourcing, product manufacturing, and shipment logistics, among others. Operating expenses for the first quarter were $3.6 million, reflecting a decrease of $427,000, or 11% from the fourth quarter, and down $515,000, or 12% from the prior year period. The fourth-quarter changes with staff reductions contributed to approximately $300,000 in expense savings during the first quarter of 2025, savings which are expected to continue throughout the remaining year, allowing the business to redeploy resources as needed. Operating expenses for the first quarter are typically higher due to public company costs related to audits, regulatory fees, and NASDAQ fees amounting to approximately $300,000. The company incurred a net loss of $382,000 for the first quarter, an improvement compared to a net loss of $1.2 million in the fourth quarter of 2024, and a loss of $807,000 in the prior year period. This first-quarter loss reflects higher revenue and lower operating expenses, partially offset by one-time annual public company expenses. Adjusted EBITDA, a good proxy for cash, for the first quarter was nearly breakeven, with a loss of $98,000, compared to a loss of $364,000 in the prior year period. Transitioning to the balance sheet, we maintained a healthy cash position, ending the first quarter with access to $10.5 million in cash, up $159,000 from $10.3 million on December 31, 2024. The increase in cash reflects higher sales, improved cost structure, and lower inventory levels, partially offset by higher cash expenses related to annual first-quarter public company activities. Data I/O's net working capital of over $16 million on March 31 remains relatively flat compared to the start of the year. The company continues to have no debt. While we remain cautious for the second quarter, our entire team and channel partners stay focused on driving sales improvements through new go-to-market strategies, which Bill has mentioned and will expand on. Despite the ongoing tariff and inflationary pressures, we believe we have the talent, experience, and financial capacity to navigate these challenges. This concludes my remarks for the first quarter of 2025. Operator, please initiate the Q&A process.

Thank you. We will now start the question and answer session. Today's first question will come from David Marsh with Singular Research. Please go ahead.

Hey, guys. Thanks for taking the questions and congrats on the improvement this quarter.

Thank you, David.

Hey, David.

So my first question is just around revenue mix. I mean, typically it's kind of a wait for the SEC filing, but could you just provide a little bit of color on revenue mix between capital equipment adapters and software in the quarter and how it may compare to the prior year?

Yes. In the prior year, 2024, our mix of recurring revenue was about 50%, made up of both adapters revenue as well as service contracts, software, and similar items. For our recent Q1, our recurring revenue mix was 46%. So it actually decreased by 4 percentage points. However, that's actually a good thing since our overall revenue increase was driven by the fact that we were able to secure and deliver more systems. As a result, the overall mix shifted slightly, but we are still very happy with our recurring revenue base, as it provides a stable foundation moving forward.

Right. To add to Gerry's comments, in Q1, we shipped about $2 million worth of sockets, which was up compared to Q1 of last year. So the trend for our adapters, based on all of last year, shows a strong position. If this trend continues, it would be a good indicator for things to come. We're seeing activity in systems that we've shipped, and these trends are being monitored closely. The consumables are key indicators for our path forward, which we track daily.

Got it. That's really helpful. And then just transitioning to the expense side, your SG&A was down handsomely year-over-year. I mean, obviously, we know Gerry's been working hard to eliminate costs where he can. So, could you give us an idea of where that is trending for the year?

Yes. We are consistently looking for opportunities. We made good progress last year and have potential for further expense reduction and efficiency improvements, particularly in IT and automation. These efforts will allow us to continue driving cost reductions where possible, but we also need to ensure the right investments are made to support growth. While I wouldn't anticipate similar year-over-year expense reductions that we've seen over the last two years, our investments should improve overall company performance.

To add to Gerry's comments, this is a transformational year for us. We recognize the need to make some investments for the future, and though current business conditions may require cautious management, we will plan these investments strategically to align with our goals while fitting them into our existing expense profile.

Makes sense. If I could just get one more real quick before I jump back in the queue. You talked a lot about diversifying end markets, and there was specific mention in the press release about the semiconductor sector. Can you just talk about how things are advancing there?

Yes, I’d love to discuss this further. We attended the Embedded Show in Nuremberg, Germany, in March, which was followed by the trade show in Anaheim. The Embedded Show is not one we've frequently attended, yet we made some valuable contacts this time. I think we established around 20 to 22 good connections there. Following that, we engaged with a supplier under an NDA. Those discussions went tremendously well. This doesn’t translate into immediate business, but establishing these relationships early, especially at this level during their new product development stages, is extremely beneficial. Surprisingly, these conversations have progressed faster than I initially expected. While I can't quantify how this will turn into business, being involved with semiconductor companies at this stage is advantageous. We will report back more specifics in Q2 and Q3, but the progress has exceeded my expectations.

That's great news. Good to hear. Again, congrats on the quarter, guys. I'll yield the floor.

Thanks, David.

Thank you. The next question comes from Chris Vachovsky, a private investor. Please go ahead.

Good afternoon. Thanks for taking my question. I wanted to inquire if there is any technological reason that makes it important for a semiconductor house to have a preferred programmer vendor?

Yes, this is increasingly critical. As technologies like UFS and NVMe evolve, they have specific protocols that must be adhered to during programming. In the past, these were simpler tasks, but now they require intricate methods to emulate handshakes within the programming algorithm. This complexity calls for advanced equipment, into which we have made investments. Consequently, these partnerships are essential for us to engage with suppliers, as testing critical timing paths necessitates their feedback on whether we are on the right path. Data I/O has been slightly behind in this aspect, but we plan to catch up and position ourselves better by building these relationships and engaging more with regulatory entities around these protocols. The market will organically expand, especially given the future roadmap forecasting larger memory sizes. Adequately addressing this complexity is crucial for our market position.

Just to simplify, you’re saying that programming these memories can no longer be done using traditional methods. It requires a different approach because there’s much more data involved?

Yes, absolutely.

Are these programming protocols publicly available or are they shared with specific semiconductor companies?

We wouldn't share them publicly as they are part of our intellectual property. However, semiconductor companies will specify these protocols, which means they're accessible. Governing bodies publish these, so we'll be happy to share the sources where you can find this information.

Okay, understood. So there are new technological hurdles emerging in your business.

Yes, and in the forthcoming quarters, we'll be announcing our product roadmap with more detail.

Have you seen any improvement in orders in April, or is there still hesitation?

I can say that the uncertainty surrounding tariffs has created a stir, and while January was traditionally a strong month for us, Q2 is typically slower. January was robust this year, but February was better, and March slowed considerably due to this uncertainty.

Just to build on that, our recurring revenue is stable week to week, and we are satisfied with that consistency. We've experienced some delays and push-outs in systems sales as our clients assess how these issues impact them. We are closely engaging with our customers, as their actions will ultimately determine our own.

Do you monitor utilizations of your systems? Are they running optimally, or is utilization slowing due to the uncertainty?

We don't have access to our customers' utilization data. Security constraints prevent us from connecting to their networks. I wish we could capture such data, as it would enhance our capabilities for predictive maintenance and insights. Instead, we’re focused on monitoring other indicators closely according to customer interactions.

To follow up, we review early indicators like bookings, which directly lead to revenue, alongside sales metrics for accessories like adapters. Increases in adapter requests indicate higher usage of our products, which demonstrates that customers are utilizing them effectively.

This is also why we closely track adapter sales since they reflect product use. Customers may opt for more programming heads or flexible options in lieu of heavy CapEx outright, given their current uncertainties. We are consistently monitoring this behavior and maintaining close communication with our clients.

Thank you. I see no further questions at this time. I would like to turn the call back over to management for closing remarks.

Thank you once again, operator. To all listeners and participants in today's event, we appreciate your continued interest in and support of Data I/O. We are excited and optimistic about the opportunities ahead, especially as uncertainties around tariff regimes unfold. This concludes the call. Enjoy the rest of the day, and thank you for joining us.

Thanks, everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Thank you.