Earnings Call Transcript - DAIO Q2 2025

Operator, Operator

Good afternoon, everyone, and welcome to the Data I/O Second Quarter 2025 Financial Results Conference Call. Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Jordan Darrow, Investor Relations. Please go ahead, sir.

Jordan M. Darrow, Investor Relations

Thank you, operator, and welcome to the Data I/O 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 Henne. 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 relating 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 Forms 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 onetime 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 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.

William O. Wentworth, CEO

Thank you, Jordan, for that introduction. I also want to express my gratitude to everyone who has joined the call and taken the time to listen to our discussion today. As you may have seen in the report, our bookings have improved sequentially from Q4, Q2, and Q2. This improvement has been a significant focus for us, aimed at steering that booking number in a positive direction. However, it has yet to be reflected in our backlog figures. I anticipate that will change in the second half, and I will elaborate on that shortly. The large system order underscores our dedication to our core programming platform and the new universal platform that we plan to launch between now and the end of the year. This investment is crucial due to the increasing complexity of programming technology, particularly in memory, which has become considerably more challenging. We require a platform capable of managing these new technologies and the evolving standards that seem to change almost annually, or at least every two years. This complexity has necessitated our investment in our core platform, and that order illustrates our commitment, as one of the technologies involved was UFS flash memory. Both UFS and NVMe are among the key technologies we are emphasizing due to their complexity, and they are projected to grow at annual rates of 14% through 2030, which is double the rate of the semiconductor market. This provides a clear rationale for concentrating on these technologies and advancing our platform as a whole to accommodate the diverse range of products we offer. Our ultimate aim is to consolidate everything onto one platform by late 2026 or early 2027, which will also help mitigate a significant amount of technical debt the company has been carrying. In the second half, I can assure you that our product mix appears more promising. We will delve into the margin discussion later, and I anticipate your inquiries on this topic, as we are fully aware of its importance. We have six major events lined up between September and November, all centered around our new product roadmap. These shows are some of the largest in their respective regions, spanning from China to Germany, where productronica takes place. India now hosts productronica as their tech market has expanded notably, and this will be our first time showcasing our new products at that event. Additionally, China has its show in October, along with several other significant events, including the largest one in Guadalajara, Mexico, in September. This will greatly enhance our lead generation efforts. These announcements will drive considerable value and offer clarity on Data I/O's trajectory and technology roadmap. Importantly, these roadmaps are not developed in isolation; they are created through collaboration with our semiconductor partners, with whom we have cultivated stronger partnerships since the first quarter of this year. This collaboration allows us to plan for the next 10 to 15 years because technology is not going to slow down. We must ensure that our platform has the capacity to integrate these new technologies, which we are prepared to do. Everything regarding our milestones is on track, which is encouraging. While things can get a bit tight, we feel confident about these launches for the second half. Regarding our product roadmap, I think that covers everything for now. I will now turn the call over to Todd Henne for our financial update, and I look forward to the Q&A. We have a lot to discuss, and I'm eager to engage in that conversation. Todd?

Todd Henne, Interim CFO

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 were $5.0 million, down from $6.2 million in the first quarter of 2025 and up from $5.1 million in the second quarter of 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 of 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% of second quarter 2025 bookings compared to 59% 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 recurring 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 improved 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 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 30, 2025, was $2.8 million, down $200,000 from March 31, 2025. Gross margin as a percentage of sales was 49.8% in the second quarter of 2025 as compared to 51.6% in the first quarter of 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 remained 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 onetime 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 onetime 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 onetime spending in the second quarter of 2025 put us into a loss on operating income, net income and adjusted EBITDA basis. That said, and looking at the cash flow and 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 onetime spending purposes. I'd like to provide additional color and perspective on these onetime items. We are making investments as well as critical enhancements to our technology platform and putting in place a roadmap for the future. These investments are onetime 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 onetime 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 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. Ongoing items in the second quarter of 2025 for technology and IT-related growth initiatives amounted to $170,000. Total onetime investments and expenses in the second quarter 2025 were approximately $480,000, which reduced our profits, adjusted EBITDA and cash in the period. Backing out onetime 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 2024 operating loss of $566,000. Again, backing out onetime 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 onetime 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 I/O's net working 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 onetime 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?

Operator, Operator

Our first question today comes from David Marsh from Singular Research.

David P. Marsh, Analyst

I just want to start out, if I could, with 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 the kind of double counting you were saying for CFO services in the back half of the year?

Todd Henne, Interim CFO

Yes. 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.

William O. Wentworth, CEO

Some of the consulting is in there.

Todd Henne, Interim CFO

Some of it is also related to consulting within our executive group, and that is included in the same line item.

William O. Wentworth, CEO

I expect that by the end of the year, we will have fully utilized the savings we've identified. We conducted a thorough IT discovery in our infrastructure and uncovered significant areas for reduction. We pinpointed about $512,000 in annual IT spending reductions. Currently, we are halfway toward achieving that goal, and I anticipate completing the remaining changes before the year ends, although I cannot provide a specific timeline due to the complexities involved. We're aiming to shift more operations to the cloud, which will enhance our security. Ultimately, we will have improved infrastructure at a much lower cost, making this initiative very beneficial. Additionally, I expect the consultants' costs to be around $0.5 million annually, possibly more, given their valuable contributions in IT. I've also convinced a couple of experienced individuals nearing retirement to stay on, as their extensive knowledge is crucial in developing our new programming platform and pursuing a more vertically integrated growth strategy we identified in Q2. This strategy also includes expanding our services, which I've discussed with some shareholders. Apologies for the lengthy explanation, but I wanted to ensure all of that was communicated clearly, Dave.

David P. Marsh, Analyst

No, no, that's really helpful. I appreciate that color and detail. Hey, so Bill, I guess I kind of want to dial in here a little bit on UFS flash. You had a lot of commentary, obviously, in the press release about it. And obviously, great news on these new orders. But this is a part of the business that's been kind of challenged with kind of lower yield rates historically. Could you just talk about what Data I/O can do differently that might produce some better yield rates? And just talk about a little bit more about...

William O. Wentworth, CEO

Thank you for the question. I really appreciate it. Regarding UFS, when Luminex was initially launched, it was presented as a product rather than a platform. Through my exploration of its capabilities, which actually started in Q4, I identified significant technology gaps within the platform itself. These were substantial issues. At the start of the year, I motivated our engineering team to completely reevaluate Luminex, which we have done. We've also brought in external consultants and incurred some one-time charges in Q1 that we didn't get to discuss, which I wish we had, as it would have shed more light on those figures. Our investment aims to achieve yield rates of 99.8% or 99.9%, which have been standard for memory devices since the advent of flash technology. UFS can be likened to a hard drive, with multiple layers similar to how a hard drive operates. There's also a small component within the memory that directs data to different sections of the wafer or memory area. Therefore, it's somewhat like a mini hard drive, albeit operating through flash cells and a small set of instructions. This is why UFS utilizes specific handshake protocols that are absent in eMMC, which is essentially just a sizable memory chip. UFS presents a unique set of challenges. Without proper architectural planning for this technology, achieving desired outcomes is nearly impossible. We had to invest in advanced equipment to enable our engineers to pinpoint the reasons behind our low yield rates. When I visited Asia in December, it was chaotic, primarily driven by UFS issues, with yield log files showing erratic performance across locations, and no one understood the cause. Upon returning from that trip, my investigation into the platform revealed the reasons behind these challenges. Since January, after John Duffy took over our hardware department, I instructed him to design a new platform. This was a significant task, and he's done an excellent job motivating our engineers. Currently, we’re testing an older contact technology and have achieved a 100% yield in tests, though it's important to note that this is based on a small sample size. We cannot claim victory just yet, as there are still lingering intermittent issues, but we have a clear path forward. Additionally, we are exploring alternative socketing technologies that I believe will enhance our contacting capabilities. Effective contact is critical for our platform, as any imperfection can significantly impact yield rates. Therefore, we are considering a more vertical integration strategy around socketing and entering that market, which is substantial at $7 billion. Securing even a small portion of it could positively impact Data I/O's revenue over time, given the solid margins in this market. I apologize for the lengthy response, but improving yield remains our primary focus.

David P. Marsh, Analyst

Got it. If I could ask one last question before I yield, regarding gross margin, this appears to be a low point for the company compared to the last couple of years. Could you provide more insight on that? Also, what are the expectations for the second half of the year, if you have any information on that?

Todd Henne, Interim CFO

We received an order in June and shipped out about six systems before the end of the quarter, which came from one of our larger customers. They don't include many I/Os but focus on loading programs. This led us to prioritize the 4.0 in that order since they were incorporating LumenX heads into the systems, though not as much as we would prefer. These were smaller systems with fewer I/Os, and with six of them combined with a 7,000 and a couple of 3500s, it created a lot of pressure due to the lopsided mix. Consequently, this will likely lower our results. In the second half, we have a diverse range of products on the system side, with the 3000s, 5000s, and 7000s all being similarly weighted in Q3 and Q4. With the manual launches, we anticipate more discussions around our systems as we enhance the product line. However, we don't expect any revenue from the manual system launches in the latter half of the year. From early demos and customer conversations, they're eagerly awaiting the product release to make purchases. We've already seen interest in about 15 manual systems. While this doesn't amount to significant revenue yet, it will contribute to growth. Furthermore, we have a substantial opportunity with our previous system customers, as we have delivered over 500 systems over the past decade, each of whom could potentially purchase at least two manual systems. This should lead to increased customer engagement and help us understand their future plans, including for 2026. This is why we've seen a decline in margins; we've incurred additional costs in materials related to prototyping for V1 and reskinning V0, which impacted margins without being linked to specific revenue.

Operator, Operator

Our next question comes from Casey Ryan from WestPark Capital.

Casey Ryan, Analyst

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 to sort of expand and getting into new customers, right, and talking to people who maybe knew you but hadn't chosen me in the past because that feels like a big expansion area, right, long term?

William O. Wentworth, CEO

It's a good question. Currently, new conversations will largely stem from lead generation at the six shows we have scheduled for the second half of the year. We're not completely out there selling, but with several new product launches on the horizon, we expect to deliver more value to existing customers than attract new ones at the moment. On the customer front, the automotive sector continues to be significant, though we face challenges. For instance, our representative in South Korea, a major revenue source, had initially forecasted $3.5 million for 2025, but has generated none due to tariff issues affecting our customers and leading them to pause capital expenditures. This has impacted our revenue in the first half of the year more than we would have liked. The months of March, April, and May were particularly difficult, but June showed improvement as we began to capitalize on some of that delayed spending, primarily in automotive, which increased our dependency on that sector from 58% to 66%. Although we want to diversify our domains to stabilize revenue and reduce vulnerability to industry-specific downturns, efforts are ongoing. Monty and the sales team are actively refining our strategy, implementing new sales approaches, and enhancing our consultative processes. We’re also investing in IT infrastructure, particularly by adopting Salesforce Service Cloud, which integrates with our CRM and will enable our field service team to become revenue-generating. This group will undertake health checks and operator discussions to offer training and identify opportunities to enhance productivity. We're starting initiatives, such as milk runs, in September, post-summer, to ensure we maximize the benefits from Salesforce Service Cloud when it goes live in about 12 weeks. The field team will be equipped with iPads for data entry, and while we won't transfer a lot of data from the old system due to configuration issues, we will retain the key data. We're focused on strengthening our customer relationships, particularly with contract manufacturers who inherently have a more diverse customer base. We've shipped machines to certain facilities, one dedicated to automotive, while others serve broader markets. We need to manage these operations by domain to comply with regulations. My experience has taught me the importance of avoiding over-concentration in any one area; back in 2001, a heavy focus on networking and telecom led to significant challenges in the industry. This is a necessary focus for change.

Casey Ryan, Analyst

Right. Okay. Good. Well, that's actually very helpful. overview.

William O. Wentworth, CEO

We just can't get out of automotive's way. They like us.

Casey Ryan, Analyst

You're just too popular.

William O. Wentworth, CEO

I guess so.

Casey Ryan, Analyst

The bookings growth was impressive, showing a quarter-over-quarter increase of 26%. While that percentage is significant, especially from a relatively small base, I'm curious if you believe we can maintain bookings at this level. Is it possible that bookings could continue to rise throughout the year, rather than just being recognized?

William O. Wentworth, CEO

They should and they will. We're rolling out new products. The positive aspect of the booking numbers is that while systems can be a bit challenging depending on the type, the fact that the order was for 5000 units was advantageous because we were able to build them more quickly. They are simpler machines to manufacture. The order came from China, and the Shanghai facility handled both the production and delivery. This situation was unique, which is why we focused intensely on achieving high yields with UFS technology. Currently, the sweet spot for UFS is at 3.1 and around 128 gigabytes, but there are already 256-gigabyte versions available, with 512-gigabyte and 1-terabyte versions expected in 2027. The significant point here is that we were able to book and ship a substantial number of those systems within the quarter, which positively impacted our results.

Casey Ryan, Analyst

Okay. All right. Terrific. And then sort of getting to the gross margins, I guess I'm a little less concerned about it, but quarter-to-quarter. But tell me about the spread of the margins across your products. How widespread do we have to think about in terms of mix? I mean, are some at 70% and some at 30%? Or is everyone kind of in this 45%?

William O. Wentworth, CEO

That's a great question. The Board raised a similar inquiry yesterday. We need to further investigate this to get a clear picture. At the start of the year, manufacturing implemented better true cost accounting at the labor level to accurately assess our product margins. I've asked Dwayne Jones, our VP of Manufacturing, who has been with us for 30 years, to oversee this. He is eager to track the data as we produce. We are currently conducting true activity-based accounting in manufacturing and are gaining insight into the precise margins of our products. Our manual systems are projected to have margins comparable to or even exceeding sockets due to the leverage we gain on the platform, allowing for potential price increases. I've noticed that we tend to mark up products we don't manufacture quite high, but we haven't marked up our core platform sufficiently. We're going to begin categorizing these expenditures internally to ensure that our spending reflects the revenue generation and gross margin contribution to the company. This will help convey the value of investing in our core capabilities, which focus on building programs rather than just analyzing data. The PSV line is well past its prime, having been in operation for about a decade. We are exploring new automation designs and anticipate starting a project plan by Q1. Our goal is to simplify our systems, which will result in lower costs and improved margins. We're also approaching the market differently, rather than integrating everything into one platform. While we will likely continue with the 7000 and make enhancements to it, such as changing the heads to increase speed and UPH, larger systems that move in multiple directions tend to have more breakdowns. We provide customers with maintenance information, but adherence varies. Transitioning to a single gantry and a high-speed pick head could yield around a 50% increase in machine throughput while reducing manufacturing complexity and footprint. This design should enhance our customers' uptime, lower maintenance costs, and boost throughput, providing them significant value. Additionally, we're considering separating some I/O functions, such as marking and tape and reel, into independent systems. Tape and reel will still function within the programming automation platform, but there is a clear need for a dedicated system for those services, which can complement programming or operate independently in supply chains. We envision offering a package of two systems that work well together, giving customers greater flexibility in managing their supply chains. For instance, if parts arrive with issues like bent reels, they could conduct vision inspections without programming. This could broaden our market in automation overall. The core focus is programming, but why not offer a versatile machine at a reasonable price that supports additional services? Programming houses and contract manufacturers would greatly appreciate this addition to their supply chains.

Operator, Operator

Our next question comes from George Marema from Pareto Ventures.

George Marema, Analyst

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.

William O. Wentworth, CEO

I recently updated the work-from-home policy, and while it wasn't universally popular, the collaboration in the last month has been impressive. The software team is now working together on specific days, and you can really see that collaboration increasing. This is going to translate into significant value in the second half of the year. Some of the software team even managed to fix the old product, and when we showcased it last week, I was genuinely impressed by the value it will provide to our customers. There's something exciting happening in the building right now.

George Marema, Analyst

That's great to hear. A couple of 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?

William O. Wentworth, CEO

It didn't replace anything. Clearly, the Chinese EV market is thriving both domestically and internationally, particularly where tariffs on their vehicles are not overwhelming. This was an additional order from a customer who already had 20 systems, which contributed to their existing demand. Therefore, the configuration and pricing aligned with our expectations. It was an excellent order for us to secure. The UFS technology is already in use by them; they were moving to version 4.0 since they were planning a new investment in systems that will utilize the 4.0 protocols. As mentioned earlier, the current focus is on version 3.1, which they use in our systems and are tackling the yield challenges associated with it. Initially, they were hesitant to place an order without assurance that we could address these issues effectively. Our team worked tirelessly for eight weeks to achieve great results, which has instilled confidence in them that we can resolve the challenges with version 3.1, a problem that competitors are also facing. Once we overcome this yield issue, I believe there will be significant pent-up demand within the sweet spot of the market. While I can't assert this with absolute certainty, I suspect that many customers have been holding back on offline programming until this issue is resolved. They are managing to achieve sufficient yields to build their products, but they wouldn't be satisfied with the current situation either. We're instilling hope that we can fix this issue, and I believe we're close—potentially four to six weeks out from a solution, although it might take up to eight weeks. We aim to have version 3.1 resolved by the end of this quarter.

George Marema, Analyst

So let me go with that. So if you get that solved and then the 4.0, 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?

William O. Wentworth, CEO

No, it was the same adapter revenue and that hasn’t changed. It may actually increase as they adopt more UFS across their platform. It's not limited to Asia; we're seeing interest in Korea and Europe as well. Interestingly, there isn't much UFS in Mexico yet, but it's on the way. With the growing adoption of UFS and NVMe, which is expanding at a 14% CAGR, we actually have the bench equipment ready to work on it; it was just never put into action before. It's challenging to assign a dollar value because, for instance, in Korea, customers are opting for 7000s instead of 5000s. They're significantly increasing usage, particularly in consumer markets and some in automotive, driving high volumes of UFS. In Korea, they configure systems mainly with LumenX without flash. Thus, providing a straightforward answer is difficult since it varies by region and market.

George Marema, Analyst

Yes. Suffice to say, it's a large opportunity, though, yes.

William O. Wentworth, CEO

Yes, 14% represents twice the overall semiconductor market, so it would be unwise not to pursue this. A significant portion of our engineering efforts is dedicated to this area. In the last quarter, I eliminated nearly all the programs that were previously part of the business because they were not focused on our core objectives and weren't addressing the issues effectively. My involvement as a Board member recently helped me understand the complexities of the UFS technology. Until you dig deeper, it's challenging to grasp the real situation. Reports may claim various problems have been solved, but many have not, not due to lack of direction but because of the challenges in identifying key areas to address. From my hands-on experience, we've narrowed it down to four or five critical areas of our technology, with socketing being particularly crucial for device connectivity. The LumenX platform has eight sites, which was adequate for eMMC but insufficient for UFS. Transitioning to a new platform that reduces this to four sites significantly enhances our ability to manage each pin on the device, which is essential due to the complexity involved. We plan to resolve these issues with the M8 system, but M4 will launch in November. We've achieved notable results even on the existing 4.0 platform, despite its intricate communication requirements. Suppliers have improved from 3.1 to 4.0, although some implement protocols inconsistently, contributing to the complexity we face. We need the appropriate bench equipment to detect and address these variances. The team is gaining valuable insights from these challenges, and we aim to enhance our participation in industry consortiums, ensuring we have representation in discussions about protocols and standards. We are positioning ourselves to lead in the future.

Operator, Operator

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.

William O. Wentworth, CEO

I want to express my gratitude to everyone for joining our discussion. We're really excited about our direction, and the team's energy seems to be growing week by week. Some individuals who retired are now reconsidering because of their expertise, and I would love to keep them involved, given their extensive experience. One key aspect we aim to highlight in our customer presentations is why clients should choose Data I/O. For instance, Dwayne Jones has been with us for 30 years, which is significantly longer than one of our competitors has even existed. We need to showcase and utilize the deep knowledge within our team, as it is crucial in tackling complex problems and fostering excitement. Moreover, we currently have interns who are enthusiastically learning about the business, and many of our top hardware engineers started as interns just a few years ago. As we accumulate more expertise, it's imperative that we are recognized as leaders in this industry, which we're committed to achieving. I also appreciate everyone's efforts during a challenging quarter; the first two months were tough, but we finished strong. My aim is to navigate the first half of the year with minimal setbacks, as I believe the second half will show improvement. Thank you, everyone.

Operator, Operator

And 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.