Good afternoon, everyone, and welcome to the Data.io Second 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 today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Jordan Darrow and Best of Relations. Please go ahead, sir.

Thank you, Operator, and welcome to the Data.io Corporation Second Quarter 2025. Financial Results Conference Call. With me today are the company's President and CEO, Bill Wentworth, and Interim Chief Financial Officer, Todd Henning. 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, or 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 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 Forms 10K and 10Q with the Securities and Exchange Commission, 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. 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'd like to turn the call over to Bill Wentworth, President and CEO of Data.io. Thank you, Jordan, for that introduction.

I've made the call. If anybody's seen the report, you know, bookings were up sequentially from Q441, Q246, and Q258, respectively. That's obviously been a focus for us is to get that booking number going in the right direction. And the backlog number, I see that in the second half, and I'll talk a little bit more. The large system order reflects our commitment to our core programming platform. The new universal platform will be rolling out between now and the end of the year. And the reason for this investment is the complexity of programming technology has gotten a lot more difficult. And so the commitment to that is we need to have a platform that can actually, technologies and the complexity that come with them and the changing standards, complexity is driven the need, so obviously in that order reflects one of those technology memories. And both UFS and NVMe, which are two technologies we are focused on, not the only ones, but between now and that we have to serve, and eventually end up on one platform, which is our ultimate goal, sometime the end of, you know, 2026, beginning of 2027, which will also help reduce a significant amount of technical debt the company's been carrying. The product mix looks better. We'll get into the margin discussion later and also look forward to any Q&A around that because obviously I'm sure there'll be some – we're well aware of September and November. This is all Tronica. India now has product Tronica because their tech market has their show. on. And these are roadmaps that were not just done on the back, airing data with more significant partnerships. Everything from a milestone perspective is on track, Q&A. I wanted to talk about it.

So look forward to your questions. Thank you, Bill, and good day to everyone. It's a pleasure to speak with all of you today. In my remarks, I will address our recent financial performance in more detail. My comments today will focus on key points of interest for the second quarter of 2025, recent trends and our outlook for the second half of the year net sales in the second quarter of 2025 or five point million dollars down from six point two million dollars in the first quarter 2025 and up from 5.1 million in the second quarter 2024 first quarter 2025 revenues were elevated due to the completion of a large order received in the first quarter of 2024 we were also awarded a large order toward the end of the second quarter 2025, which is expected to be shipped and recognized as revenue in the second half of the year. Automotive electronics as a primary business segment represented 66 percent of second quarter 2025 bookings compared to 59 percent for all of 2024. Asia, led by China, has been relatively strong, particularly within the EV sector of automotive electronics. Europe and the Americas continue to be pressured by pent-up capital equipment spending due to tariff and trade uncertainties. Despite this headwind, consumable adapters and services provide a stable base of reoccurring revenue, which represents 50% of total revenue in the second quarter. Moving on to new bookings, the first two months of the second quarter carried forward similar activity from the first quarter order activity, which were impacted by the aforementioned tariff uncertainties. Conditions approved in June, as evidenced by the large order we announced, and have continued to remain active in the third quarter to date, even though certain of the international trade negotiations remain an issue. Second quarter 2025 bookings were $5.8 million, up from $4.6 million in the first quarter of 2025 and $5.6 million in the second quarter of 2024. Backlog as of June 30th, 2025 was $2.8 million, down $200,000 from March 31, 2025. Gross margin as percentage of sales was 49.8% in the second quarter 2025, as compared to 51.6% in the first quarter 2025 and 54.5% in the prior year period. A lower margin product mix and configuration of automated systems driven by a large customer order led to reduced margins. Direct material costs remain steady and consistent with prior periods. Ongoing supply chain planning and other actions have been mitigating the impact of new tariffs, trade and inflationary pressures, including shifting material sourcing and product manufacturing. While our top-line performance was affected by tariff and trade negotiation pressures, we really have not been meaningfully impacted on the manufacturing side due to earlier mitigation and workaround strategies that are possible given our diversified supply chain and manufacturing operations in the U.S. and China. More recently, we are seeing some smaller items creeping in, like, for example, aluminum, that have been hit with higher tariffs in certain parts of the world. We are not an aluminum buyer directly, but there is a small percentage of that metal in some of our system parts we purchase. We are taking steps to avoid this increase in price and note that it is currently in very small and limited amount within our overall cost of goods sold. Operating expenses for the second quarter of 2025 were $3.8 million, up from $3.6 million in the first quarter of 2025 and $3.3 million in the prior year period. Second quarter 2025 spending included approximately $480,000 in one-time expenses, which are part of the company's investments in the core programming platform and information systems, as well as for leadership and other human resources transition requirements. While savings from prior improvements in operations and more recent investments are expected to continue to positively influence financial performance, the one-time spending items are being brought to light to provide transparency into what we are doing and where we believe we'd be under normal conditions. For comparison purposes, first quarter operating expenses including annual spending on public company costs pertaining to audits, regulatory fees, and NASDAQ fees of approximately $300,000. The additional one-time spending in the second quarter of 2025 put us into a loss on operating income, net income, and adjusted EBITDA basis. That said, in looking into cash flow in the balance sheet, we used a very small amount of cash in the quarter, primarily for investments, as we've touched upon during the call, and for the other one-time spending purposes. I'd like to provide additional color and perspective on these one-time items. We're making investments as well as critical enhancements to our technology platform and putting in place a roadmap for the future. These investments are one-time in nature, which amounted to approximately $165,000 in the second quarter of 2025. We also made the important decision to invest in the establishment of two other key functional areas. One, our new sales and marketing strategies, and two, the framework for ongoing growth and future business line expansion. Additional one-time expenses included costs related to HR and the CFO transition, for which we spent about $145,000 in the second quarter of 2025. We expect to make an announcement of a permanent CFO in the third quarter of 2025, but I will remain on board for a brief period of time to ensure a smooth transition. Therefore, we expect some double spending in the third quarter of 2025 and possibly the fourth quarter of 2025 on the CFO transition. One-time expenses in the second quarter of 2025 for technology and IT-related growth initiatives amounted to $170,000. Total one-time investments and expenses in the second quarter of 2025 were approximately $480,000, which reduced our profits, adjusted EBITDA, and cash in the period. Backing out one-time expenses in the second quarter of 2025 would have left us with an operating loss of $364,000 versus the reported second quarter operating loss of $844,000 and the second quarter of 2024 operating loss of $566,000. Again, backing out one-time expenses, adjusted EBITDA would have been $43,000 versus the reported adjusted EBITDA loss of $437,000 and positive adjusted EBITDA of $3,000 in the prior year period. Working within this framework, it would seem that our cash balance absent the one-time expenses would have been approximately $480,000 higher or nearly $10.5 million as of June 30, 2025 versus the reported amount of $10 million at the end of June 2025 and $10.3 million as of December 31, 2024. Based on this analysis, we can see that our financial performance and cash management reflect an improved cost structure and effective handling of our inventory and other short-term assets, all while we invested for more productive operations and future growth and scaling of the business. Data.io's networking capital of over $15.6 million as of June 30, 2025, was slightly lower than $16.1 million at the end of last year, largely reflecting one-time spending through the first half of the year, which also included public company and other annual costs paid in the first quarter of 2025. Finally, the company continues to have no debt. This concludes my remarks for the second quarter of 2025. Operator, would you please start the Q&A portion of the call?

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you'd like to ask a question, please press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from David Marsh from Singular Research. Please go ahead with your question.

Hey, thanks guys for taking the questions. I just wanted to start out, if I could, a quick housekeeping question. With regards to the $480,000, Todd, can you tell me how that hits the P&L in terms of SG&A, R&D, how it might hit the P&L, and how we could think about that going forward in particular around, you know, around the kind of double counting you were saying for CFO services in the back half of the year?

Yeah, really, David, it hits multiple areas. I mean, primarily the area it's going to hit is going to be the G&A category because that's where the IT spending goes. That's where the finance spending goes. That's where HR goes. So a majority of that is going to be on the G&A line.

Some of the consulting is in there as well.

And also the executive. There's some consulting in our executive group, and that's also in the same line item.

And that I would expect to kind of run out by the end of the year. So we're seeing across, we did a lot of IT discovery, and so we identified all the spend. One of the consultations through each vendor. We've already seen what we think. We've already identified about $512,000 worth of our IT annually. And so we'll probably like the rest of that to be thin enhancers on security. So there's a lot of, you know, we'll end up with far better, you know, annualized if I use the number. Some might be increased because of the work that they're doing specifically in IT. So that's going to be years of knowledge. And they've been super helpful in defining our new programming platform, Vertically Integrated, which is one of our new growth strategies that we've now been moving forward. And that's also expanding into sort of long-winded answer. But I just want to get all that out there.

No, no, that's really helpful. I appreciate that. appreciate that color and detail um hey so bill i i guess you know i kind of want to dial in here a little bit on on uh you know usf ufs flash you know a lot of commentary obviously in the press release about it and um you know obviously you know great great news on the you know on you know on these new orders um but you know this is a this is a part of the business that's been kind of challenged, you know, with kind of lower yield rates historically. Could you just talk about, you know, what, you know, what data I can do differently that might, you know, produce some better yield rates and, you know, just talk about a little bit more about the app.

Thanks for the layup. I drew it almost like a hard drive. It's got multiple layers, just a small part of what's inside the memory architecture for why I went to Asia in December. If I came back from that, it's a pretty big introduction. He's done a phenomenal job of getting the engineers rallied around this. And I will tell you, technology, because we haven't, there's other socketing contact and capability. Because the next most important thing to our platform is the ability to contact a device. If you can't make, margins are pretty solid.

Got it. And then if I could just sneak one last one in here before I yield. Just gross margin. This is kind of a low watermark for the last couple of years that we've seen for the company. Can you just kind of, you know, obviously, Todd, I caught your comments on mix, but maybe you could just give a little bit more color on that and kind of just what the expectations are, you know, maybe for the back half of the year, if you have any of that available.

Actually, another layup. Thank you. So order came in the early demos and conversations. We've had a ton of money, but conversation with customers, but also get us more exposure into what they're thinking and where their businesses are going also for 2026. We also had some additional costs and cost materials with prototyping for V1, reskinning.

Yep, very helpful. Hey, thanks, guys. I'm going to yield the floor.

Our next question comes from Casey Ryan from West Park Capital. Please go ahead with your question. Good afternoon, everybody.

Thanks for the update. Hey, real quickly, I think we've talked in the past about wanting to expand beyond automotive, and I know that this takes time. Would you be happy to give us sort of a qualitative view of how it's going, sort of, you know, expanding and getting into new customers, right, and talking to people who maybe knew you but hadn't chosen you in the past? Because that sort of feels like a big expansion area, right, long-term.

Right, right. That's a good question. And, you know, unfortunately right now, I would say, you know, the new conversations are really going to be driven by the lead generation from the, you know, I wouldn't have these new product launches coming up and that we know is going to drive more. So, you know, we're kind of in that in-between moment. But certainly on the customer, you know, yes, automotive continues to be big because it's been very large. And when you have, you know, these, when they forecast, but, you know, they were earmarked for $3.5 million of revenue. They've done zero. We would have a far, April and May, we focus, Monty and the sales team are all over that. We are changing, you know, almost being far more consultative. With the investment, they may not know about our product line where they could get more throughput, better productivity. supply issues, if they have any, like really drive a lot more value. And regions, we find that data will already be in there. There's a new contract manufacturers. I mean, contract manufacturers have diversity built into their customer base already. We had a couple of machines for the reason, but one of the facilities.

Okay, good. Well, that's actually a very helpful overview.

We just can't get out of automotive.

You're just too popular.

Yes, I guess so.

So the bookings growth was really good, right, quarter over quarter, I think 26%, which is a big number on small numbers, so I understand that. But, you know, do you feel like we could continue to see bookings at this level, or is it reasonable to think that bookings could actually keep rising as we can see the year?

Oh, yeah, no, they should, and they will. I mean, we're rolling out new products. The good thing about the booking numbers, and so systems are a little more challenging, like type. You know, the fact that they were 5,000 actually was a good thing because we could build them faster. They're easier machines to make. China, I mean, the order was in China. The Shanghai facility built them and delivered them. That's why we would focus so hard on getting over this UFS, compliment or be able to show that we can actually be able to get high yields on UFS technology because there are multiple products.

And then, you know, sort of getting to the gross margins, I guess I'm a little less concerned about it, but, you know, quarter to quarter. But tell me about the spread of the margins across your product. You know, how wide of the spread do we have to think about in terms of mix? I mean, are some at 70 and some at 30, or has everyone kind of been this 45?

No, like, you know, that's a good question. Actually, the board asked that question yesterday. We need to do a little bit more homework on that so we can identify. One of the things that manufacturing implemented, you know, at the beginning of the year is that we didn't do a good job to understand what our margin on manufacturing, understand the exact, maybe even more, actually leads to a much lower cost, a little differently than putting, so we'll do some increased speed. When you have a large system that moves in multiple directions, it's far less to build and far simpler to manage. Lower maintenance costs, but also individually in their supply chain. And once again, if you would like to ask a question, please press star and then one, and press star and two.

Our next question comes from George Morema from Perito Ventures. Please go ahead with your question.

Good afternoon, Bill.

Hey, George. How are you?

I'm well.

Well, first I just want to say I'm absolutely thrilled with the team's energy and the big positive cultural shift going on there. It's like an entrepreneurial startup, and I'm just thrilled about this.

I will tell you, I changed the work from home policy a few weeks ago. Not everybody loved it, but I will tell you in the last four weeks, it's amazing the amount of collaboration. I've got the software team in here all together. They're here on fixed days. You can see the collaboration growing, which is – it will just extend into the value that will be driving in the second half. I mean, some of the software team came out and fixed the old product. When we get this thing out there, it is the amount of value that it's going to give our customers. We did the demo last week. I mean, it's –

That's great to hear.

A couple questions. One is on this $1.4 million EV order from China, what kind of penetration does this represent into this company, and does it meet all their needs, and what does this replace that they were using? It didn't replace. Obviously, the Chinese EV market is doing very well inside of China and also outside of China where they don't have massive tariffs put on their cars and can actually sell them. So, you know, that is, they were an existing customer, already had 20 systems. So this was adding to their demand. So an existing customer, and that's why, you know, the configuration was what we expected, at the point we kind of knew, and the UFS technology is something that they already use. It's also, so that was 4.0 because they were going to make a new investment. And those, since we've solved this yield issue, I believe there's pent-up demand in the sweet spot right now. So I can't say that, you know, confirmatory, you know, with 100% confidence. It's just a feeling, but. Let me go with that. So if you get that solved and then the 4.0, like, can you sort of describe, best you can, sort of what kind of dollar market opportunity does that represent for you guys if you solve these problems?

And also, does the profile of this solution have the same type of recurring adapter revenue, or is it less or more or about the same?

Oh, no, it was the same adapter revenue and all that. Yeah, none of that changes. If anything, they probably would increase, obviously, as they move into more of using UFS across. They put in dollars because it's also a market.

Yeah, suffice to say it's a large opportunity, though.

Yeah. Oh, well, of course. And like I said, 14%, it's twice the overall semi-governmental camp. So, yeah, it would be crazy not to conquer. Where literally it wasn't solving the problem. You know, of course it says we solved this, we solved that. And Reacts was okay with EMMSE, not okay with just a bigger area of ground. So the team is going to be a real mission at those large committee meetings when they start talking about the protocols and stuff.

And, 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.

For taking the time to listen to our spiel, it seems to be increasing week after week. We've got some people that retired, and now they're thinking, I don't know if I'd love to keep them around. These are people with 20, 25, 30 years of experience. That's one of the other things that we're really going to start to do. Why do you choose Data.io? I can tell you Dwayne Jones has been here for 30 years. that's 10 years longer than DeddyFrog, one of our companies. Educate the knowledge. It just needed to be unlocked, and that's what we're doing. And I think it's obviously helping us solve these complex problems and get to where we need to go. We've got some interns in here now that are learning, and we're engineers. We're those five years ago. As we build more and more knowledge, we need to be viewed as the experts in this space, and that's what we're doing. This was not easy. The first two months were ugly, and we had a great – my goal was to get through the first half a little unscathed, I guess, and not too many scars, because I know the second half.

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.