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 1 on your telephone keypad. To withdraw your question, please press star then 2. 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.io 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 DeBona. Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial acquisition, acquisitions, financings, 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 the risks, including those described from time to time in the company's filings on Form 10-K and 10-Q 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 reconciliation in our earnings press release issued today after the market closed. Finally, accuracy and completeness of all 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 Wentworth, President and CEO of Data.io.

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, I'll be aware. I obviously love to take questions. So, for those who, if I didn't explain or you need some clarity, please hang on and 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. Sorry about that. Doing this remote from a cell phone. Anyways, I'll continue. Sales continues 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 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. 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 in neutral, Stop burning cash. Preliminary numbers for July show close to cash flow neutrality. Yes, it's only one month. It'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 set. and 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 email from a new client over in India and you know the demand for what they need as they clear up these new products is not easy they're looking for a few weeks turn around 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 industry right now is about 8 to 12 so that's another great start transformational given 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, the, you know, just trying to find any holes or issues with the business. I think we've done the Q of E 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 the 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. are. Having a seat at the table with suppliers because you have IP that's real and they need it for their businesses. And, you know, there's all these different compliance programs and regulatory programs coming out such as CRA in Europe and RED. And, you know, 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 this requirement or you cannot sell your product immediately so you know this is something I think from a timing perspective perfect for us we've engaged some of their customers we're we're getting up 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.io that honestly we wouldn't have had prior to. We had 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 and 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 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.io, 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 data as core of 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. 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 Vallejo. Automotive showing some early signs of recovery, industrial, medtech, 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 AAR, so that we can be a higher value within the engineering communities. paralleling the return for growth for program industry alongside along with the security mandates. DataRail is well-positioned with the 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.

Thanks, Bill. Good afternoon, everyone. I'm going to cover four areas today. First, a quick review of our second quarter financial results. Second, I'll dive briefly into the accounting treatment for the convertible debenture we closed in June because it has a meaningful impact on the reported net income and EPS. Third, I'll give an update on our 2026 business. And finally, I'll give another quick overview of where we stand with some of the strategic transactions that Bill discussed in his remarks. Let me start with the quarter. Net sales in the second were $5.2 million, up 59% sequentially from $3.3 million in Q1 and compared to $5.9 million in Q2 of last year. The sequential improvement reflects conversion of delayed Q1 orders and what we believe is an inflection in demand for capital equipment after a prolonged downturn. Second quarter bookings were $4.9 million, up from $4.2 million in Q1. We signed six new customer logos in the first half, three from automotive, and three from diversified technology markets that Bill mentioned. Consumable adapters and software and services represented 55% of total revenues, with platform sales at 45% of Q2 revenues, a shift from the 81-19 split in Q1, reflecting the rebound in capital equipment orders. Deferred revenues fell slightly to $1.1 million from $1.5 million. Meanwhile, backlog as of June 30 was $2.1 million, down from $2.6 million on March 31, reflecting operating improvements enabling quicker response to orders and improved order-to-ship performance within the quarter. Again, as Bill mentioned, we're getting our product out to our customers faster. Gross margin was 57% compared to 49.5% in Q1 and 49.8% in Q2 of last year. The improvement reflects the cumulative effect of positive mix shift, improved value-based pricing, increasing operational efficiencies, and greater overhead absorption on the higher revenue base. Direct material costs remain steady as we continue to mitigate the impact of tariffs and other inflationary pressures. Operating expenses were $3.7 million, including approximately $527,000 in one-time expenses, primarily related to the restructuring, but also consulting, IT, and placement expenses. Excluding one-time items, operating expenses were approximately $3.1 million, a decline both sequentially and from the prior year. By April, we achieved our target, as Bill mentioned, of total COGS in operating expenses below a $22 million annual run rate. Operating loss was $724,000 on $5.2 million of revenue, an improvement from $844,000 loss on $5.9 million of revenue in Q2 of 25, better performance on lower revenue. Net loss was $1.6 million, or 17 cents per share, compared to $742,000, or 8 cents per share in Q2 of 25. This increase was driven almost entirely by $873,000 of interest expense from the convertible debenture accounting, accounting for which I will walk through in a minute because it is unique to the situation that we faced. Adjusted EBITDA, excluding equity compensation and one-time items, was essentially break-even at positive $39,000 compared to a negative $1.75 million in Q1. On the balance sheet, cash at quarter end was $10.8 million, up from $5.7 million as of March 31st, reflecting net proceeds of $8.3 million from the June private placement. Net working capital was $10.8 million. On the balance sheet as of June 30, you will see $6.2 million of convertible debentures classified as short-term debt, which was netted from working capital. I want to flag that this was a quarter end snapshot only. The debentures converted into Series B preferred shares on July 8th, and the company currently has no debt outstanding. Removing those convertible debentures from short-term liabilities and the working capital calculation would have yielded a working capital of $17 million at quarter end. Now let me turn to the second part here, the walkthrough of the accounting on the convertible debenture, because because I know the $873,000 interest expense will draw questions. When we closed the $9 million private placement in June 17th, the proceeds were allocated across common shares, equity classified warrants, and the convertible notes using the relative fair value method based on standalone fair values determined by KPMG, our independent consultant. Approximately $5.9 million was allocated to the notes, which have a face value of $6.8 million. This difference, combined with the allocated issuance cost, created a total discount on the notes of approximately $1.5 million. Under the effective interest method, that discount is amortized over the expected life of the notes. Because the notes automatically converted to Series B preferred stocks upon shareholder approval, which both management investor and the investor expected promptly, the amortization period was not the five-year stated maturity of the notes, but the period from issuance to the anticipated shareholder vote. Approval was obtained on July 8th, giving us an amortization window of approximately three weeks. Amortizing $1.5 million of discount over three weeks produces a concentrated charge. Of the $873,000 in interest expense recognized in Q2, approximately $863,000 is non-cash and non-recurring accretion of debt discount and approximately $10,000 is the coupon interest at 4%. Again, the notes converted to preferred equity on July 8th, and there is no debt currently on the balance sheet.

Both the convertible notes and warrants – well, excuse me.

Let me just quickly turn to the update of the business framework we laid out in our first quarter call. Following the strong second quarter and significant progress on two planned acquisitions, we are reaffirming the 2026 business framework we laid out earlier this year. The pillars are unchanged. Organic revenue growth over 2025, acceleration of recurring and services revenue, including programming as a service, continued expansion within the programming services market, and operational and process optimizations driving improved margins, including the internal application of AI. The first task trajectory supports these targets, and the framework now incorporates consolidation of transformational acquisitions in the second half. We are not providing specific revenue guidance for the third quarter. As we said last quarter, the Q2 guidance was a one-time disclosure driven by the near-term visibility from Q1 slippage. Nonetheless, we remain confident in the trajectory, and the framework is tracking to plan. Finally, let me briefly update, give you further update on the three strategic transactions shaping data I.O. The $9 million direct investment closed on June 17th with net cash proceeds of $8.3 million. And the convertible notes converted to Series B preferred start as of the shareholder meeting on July 8th. The warrants remain outstanding and exercisable at $3 per share over five years. Our lead investor is now our single largest shareholder. transformational acquisition is on track. We have extended exclusivity through the end of August, as Bill mentioned, and as we progress due diligence and definitive documentation. Upon closing, as we discussed before, the acquisition is expected to nearly double our annual revenue run rate and boost earnings and cash flows. And finally, in July, we announced our intent to acquire IAR's embedded software security and IT-related assets. Combined with our programming platform, this creates a true end-to-end security provisioning solution that Bill mentioned, even as regulations like EU Cyber Resiliency Act mandate device-level security. We'll provide additional details as we progress toward our definitive agreement and an expected close. In summary, Q2 was an operational watershed, 59% sequential revenue growth, 57% gross margins, and break-even adjusted EBITDA as the strategic plans and operational efficiencies implemented over the prior 18 months began to bear fruit. The large reported net loss reflects a non-recurring, non-cash accounting charge that will not repeat. We have $10.8 million of cash, no debt, two acquisitions advancing that collectively continue the transformation of data I.O. into a company with greater scale and diversification, broader provisioning and security capabilities in reach, and new revenues and business models to exploit. With that, I'll turn the call back over to the operator for questions and answers.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you'd like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble a roster. Once again, if you have a question, please press star then one. And the first question comes from John Heckman with Landenburg. Please go ahead.

I've got on late, so maybe you already talked about this, but did you say something about the progress of the closing of your acquisition that you mentioned a couple months ago?

Yeah, we just mentioned we extended the exclusivity to the end of August. That's all we commented on, other than due diligence, following and tracking to plan and that.

Okay. So you're still pretty confident that that will happen? Remain confident, yes. So could you elaborate a little more on – I know you've spent some time and energy and money on billing out your team. You've added some new executives recently?

No, we haven't added any new executives, pretty much. No?

I thought you added somebody like just a couple weeks ago that used to work with you at your company.

No, we have a strategic consultant to come in to review some of our customer-facing activities and also look at the programming as a service side. But now whether or not that person becomes a full-time employee will probably bear fruit as we go through the quarter. I fully expect that, but no, we haven't formally added anybody new to the payroll.

Okay.

And then this might prove my naivete as far as the industry in general is concerned, but we're hearing a lot about shortages in the memory world due to kind of AI. is that affecting your customers and their demand for uh well using that same high-speed memory and that nvidia needs or ai requires i'm sure those customers are being adversely affected you know there's always going to be a ripple effect through a technology when you have the newer technology um being in such high demand if the technology they have in the fabs can produce, you know, produce the, let's say, different flash technologies that aren't as cutting edge, and they could use that technology to build those flash memories, it's absolutely going to have an impact, and we can't avoid it. But for the most part, what we've seen is, at least on the UFS side, we haven't seen lead times go out too far. You know, we do – there's a client on the acquisition that had some allocation challenges with a few memory parts, but it's not as widespread as the high-speed memory needed for cell phones, and it's more specifically AI.

Okay. Thank you. Appreciate it.

Yeah, no problem.

Once again, if you have a question, please press star 10-1. Since there are no further questions, this concludes the question and answer session. I would like to turn the conference back over to Bill Wentworth, Chief Executive Officer, for any closing remarks. Please go ahead.

Yeah, thank you. Thank you, Operator. Appreciate that. You know, obviously, there's a lot of changes going on, and the industry itself is going through some significant changes, like the last question, things like allocation and price increases and things like that. But, you know, it's great when things are slow, you don't worry about those things when an industry such as tech has picked up like it has. And it's starting to broaden its reach outside of AI as far as the demand for semiconductors as things like edge computing start to build out, autonomous anything, AI-driven robotics and industrial automation. those things will continue to expand and you're starting to see that demand affect the overall semiconductor market. So yeah, lead times have pushed out. But I think the industry has learned a lot since 2001 and they do a much better job of managing through that. Obviously, this is a very unique time as the amount of infrastructure that's being built out right now is beyond, And I think anybody who's been in this industry as long as I have, we haven't seen anything like this. So you just don't know how that's going to affect. But I would say in conclusion that we're in a great position, especially because a lot of the technologies we're dealing with are not related to that specific industry. But that industry is driving other companies and technologies and bringing new products to life, which helps us, and driving significant volumes of that, too. So I would say as we become a more highly valued vendor, it is one of the main reasons why buying this security asset was so important to us because it gives us a pretty significant differentiator against our competitors, but also we feel a huge customer need that's coming up soon. So, you know, I see that obviously helping a lot. One of the things I did mention early on in my comments is between the two assets, we're picking up almost, I'd say, 60 to 70 active accounts that would use our technology that we have not been in. So that's a lot of new logo and new domain growth. So being able to realize those revenue synergies that will be right in front of us soon is, you know, and that's not really accounted for yet on my side of the sense other than doing some FP&A and those numbers and trying to gauge an eye on, you know, how that will help cash flow generation and things like that. But even that, I would say that analysis was fairly conservative, I'd say below the midpoint. So, anyways, I think we're definitely in a great position now for data error to return to continued growth, both inorganically, for sure, but organically as well. We're off to a very good start in Q3. I feel very confident about the target that we set for ourselves internally of reaching that target, which makes me look forward to Q3's earnings call. But, you know, stay tuned. There's going to be more announcements coming out over the next, you know, 30 to 60 days that are significant. And so I'd like to close with those remarks and hand it off to the operator.

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.