Earnings Call Transcript - DAIO Q4 2025

Operator, Operator

Good afternoon, everyone, and welcome to Data I/O's Fourth Quarter 2025 Financial Results Conference Call. Please note, today's 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.

Jordan Darrow, Investor Relations

Thank you, operator, and welcome to the Data I/O Corporation Fourth Quarter 2025 Financial Results Conference Call. With me today are the company's President and CEO, Bill Wentworth; and Chief Financial Officer, Charlie DiBona. Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position, 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 in such statements. These factors also include uncertainties as to the impact of global and geopolitical events, international tariff and trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing and other activities by competitors and other risks, including those described from time to time in the company's filings on Form 10-K and 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. Please refer to reconciliations in our earnings press release issued today after market close. Finally, 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'll turn the call over to Bill Wentworth, President and CEO of Data I/O.

William Wentworth, President and CEO

Thank you, Jordan, very much. Thank you for everybody dialing in to the call. I want to start off, obviously, this is a Q4 earnings call, but there's a lot that transpired over 2025. It was certainly a little more difficult of a quarter than we planned. There were a lot of things and headwinds that still continue with tariffs. But I want to assure everyone that that did not waver us from the continuation of our transformation. You have to get through these tough times, and you can't stop the transformation this company needed. Data I/O had some transformation work that was fairly heavy. We did invest a lot of money into the business, specifically our platform, and I'm very proud of the team and how we ended the year and how we've teed up this year, which I'll talk about shortly. The setup, our mission throughout '25 was to transform Data I/O for long-term growth. That plan is proving to be approximately 1 year ahead of schedule. I've been through personally quite a few transformations in my own business and with other companies, so this is something I'm fairly good at measuring. I'm very confident that we are ahead of schedule. There are things that could even speed that up throughout '26. We executed against 6 strategic priorities, modernizing the go-to-market, which you'll hear about a little bit later, investing in our core platform, which was #1, strengthening customer relationships. We've really got out in front of customers myself personally, probably really extended more of our employees into talking to customers, which is so important in order for transformation to really occur because our team needs to hear from all of our customers and suppliers in order for those transformations to really take hold and for everybody to get energized around those. We've also optimized business operations, IT infrastructure. We went through a fairly sizable cyber attack. We made it through that, and I felt extremely well. We were up and running within 11 working days, so we found out a lot about our infrastructure and some of those things that we needed to button up. That also continues as part of the transformation, and we've made great strides there. Moving to the cloud obviously offers additional security, getting things off-prem into the cloud and moving data into more secure applications that are also in the cloud. Again, that continues, improving operational processes and deploying AI company-wide, and you'll definitely hear more about that later in this conversation. Over the last past 18 months, we have made deliberate changes to the Board and executive suite to ensure that we have the right team in place. We added a Board member, and the executive team has been transformed, obviously, with some pivots here and there. I think we, for sure, have the right team on the field to execute the plans this year and return Data I/O to revenue growth and cash flow neutral to positive throughout the year. Again, transformations take time. I've been through these and they're not easy. I can tell you that the team has put in a ton of time. They've really stepped up and positioned Data I/O for a great 2026. Our new direction involves expanding our addressable market. Data I/O is shifting from our traditional programming CapEx market to servicing a broader data provisioning market, a significantly larger opportunity for the company. We're leveraging our platform to reach into 2 adjacent markets, programming services and programming tests with activity building for both. Yesterday, if you've seen the press release, this is one of the significant opportunities we feel is going to be important this year and going forward. I've been a big believer in partnerships ever since I've been in this business. It's really important. We're a small company. You can't just go it alone. Being able to forge a strong collaboration with IR really combines their security expertise with our provisioning expertise to create a very comprehensive device support model for security provisioning in the industry. They have a significant algo library aligned with our algo library, and we feel the solution is frictionless and fairly easy. I won't get into the details of how complicated security provisioning could be, but it's very difficult. We presented at a few of their conferences, and it's gone really well. We have business opportunities that we're now discussing with them and our collective customers. I would say the interesting opportunity I've had from shareholders and other meetings and podcasts is around, well, how does AI help Data I/O? Well, I would say during the year you've heard me make this comment many times; it doesn't really help us now. That has changed. If you remember back in the mid-'90s, the Internet boom obviously went through its changes but continued even through that pause. AI is changing things very fast. There's just too much pressure for us not to embrace it. So we're very excited about the setup, the tailwinds, and the new drive and demand for semiconductors as we see things start to pick up across the board. I expect this to be a multiyear growth cycle and new revenue opportunities for Data I/O, with new and existing customers confirming that Edge AI build-outs are real. Early customer alignment and interest validate our strategy and the framework for the company. As we enter 2026, we are poised to deliver organic revenue growth this year with very encouraging customer activity in Q4 and into 2026. I'd like to hand the rest of the conversation to Charlie DiBona, our CFO.

Charles DiBona, CFO

Thanks, Bill, and good afternoon, everyone. I'll take this time now to walk through our fourth quarter and full year financial results, covering revenue and bookings, our revenue mix, margins, operating expenses, bottom line, and then also some balance sheet items. Net sales in the fourth quarter were $4 million, down from $5.2 million in the fourth quarter of 2024. For the full year, net sales were $21.5 million compared with $21.8 million in the prior year. Similarly, fourth quarter bookings were $3.1 million, down 25% from $4.1 million in the prior year period, while full year bookings were $18.6 million, down 17% from $22.5 million in 2024. Regionally, 2025 bookings and revenues were strongest for customers throughout Asia as North America demand remained consistent with the prior year, but Europe declined. Moving forward, as a global company headquartered in the Western Hemisphere, Data I/O is well positioned to support customers migrating manufacturing facilities to the Americas. In terms of mix for 2025, consumables, adapters, and services represented 58% of total revenue for the year, providing a stable base of recurring revenue. As a result, deferred revenue rose to approximately $1.5 million on December 31, 2025, up from $1.4 million as of September 30 of the year. Capital equipment sales represented the remaining 42% of 2025 revenues. Demand for capital equipment continued to be negatively impacted by the realignment of technology spending, with AI-related data center investments at the forefront. In particular, the reassessment of EV capacity and manufacturing impacted the company's largest end market, the automotive electronics sector. Notably, sales to the automotive electronics sector represented 52% of 2025 bookings compared to 59% in 2024, while overall backlog as of December 31 was $2.3 million, down from $2.7 million at the end of September. That said, as Bill mentioned, we've recently seen very positive indications of demand for our products as the build-out of Edge AI is beginning to ramp up. Gross margins as a percentage of sales was 43% in the fourth quarter compared to 52.2% in the fourth quarter of 2024. Full-year gross margin was 49.3% for 2025 compared to 53.3% in the prior year. The decrease in gross margin reflects some mix shift as well as lower absorption of labor and overhead costs. Direct material costs remained relatively steady and consistent with prior periods as the company continued to actively mitigate the impact of tariffs and other inflationary pressures. Operating expenses for the fourth quarter were $4.2 million, which included approximately $312,000 in onetime expenses related to SEC filings, restructuring work, and the initial phases of our transition to a new ERP system. This compared to $4 million in the fourth quarter of 2024. Full year 2025 operating expenses were $15.7 million, of which $1.4 million represented onetime expenses primarily related to the company's leadership transition, investments in the core programming platform and information systems, as well as SEC filings and the remediation of the cybersecurity incident first identified on August 16, 2025. This compared to $14.6 million in 2024, wherein there were no onetime operating expenses recorded. Net loss for the fourth quarter was $2.5 million or $0.27 per share compared to a net loss of $1.2 million or $0.13 per share in the fourth quarter of 2024. For the full year, net loss was $5 million or $0.53 per share compared to a net loss of $3.1 million or $0.34 per share in 2024. Adjusted EBITDA, which excludes equity compensation, was negative $2.5 million in the fourth quarter compared to negative $1.1 million in the fourth quarter of 2024. Excluding onetime expenses of approximately $312,000 in the fourth quarter, adjusted EBITDA would have been negative $1.9 million. For the full year, adjusted EBITDA was negative $3.9 million compared to negative $1.4 million in 2024. Excluding the onetime expenses of $1.4 million, full year adjusted EBITDA for 2025 would have been negative $2.6 million. The company's balance sheet and liquidity remains solid. Cash at the end of the fourth quarter was $7.9 million compared to $10.3 million on December 31, 2024. The decreased cash balance reflects onetime expenses, technology platform investments, and IT spending through the year, partially offset by reduced inventory levels and increased accounts payable. Net working capital was $12.3 million on December 31, 2025, compared to $16.1 million on December 31, 2024. In addition to cash, inventories reduced by about $0.5 million as the team implemented programs to become leaner and more efficient. Finally, the company continues to have no debt on the balance sheet. Before wrapping up and before we turn to questions, I'd like to provide a framing for thinking about 2026, which is based solely on organic growth. First, we are targeting organic growth for 2026 over 2025, supported by early demand signals we are seeing from Edge AI infrastructure and continued strength in our recurring revenue base. Second, we have a growing pipeline for entry into the programming services and programming test markets, which represent meaningful opportunities to expand our addressable market. Third, as revenue increases, we expect improved absorption of labor and overhead costs, which should drive improved gross margins relative to what we've experienced in 2025. Fourth, on the expense side, we are targeting an additional $1 million in run rate reductions beyond the benefit of previously implemented structural and operational cost improvements starting in early 2026. Fifth, Edge AI is becoming deeply ingrained across all functional departments in the organization, driving efficiency and enabling us to do more with less. Finally, the combination of revenue growth and cost discipline gives us line of sight to positive operating cash flow by the end of 2026. Again, this preview only addresses organic operations and does not include the inorganic initiatives, which we're actively pursuing to accelerate our growth and build out. With that, I'll turn back to the operator for the Q&A portion of the call.

Operator, Operator

Our first question comes from David Williams with Benchmark.

David Williams, Analyst

So, Bill, good to hear from you, and thanks for all the updates. I guess maybe first, can you maybe talk a little bit about the semiconductor manufacturing and maybe what the reshoring does, especially as we come back to the Americas regions? What do you think that means for your revenue opportunity? And is that an area of growth and opportunity for you in the near-term?

William Wentworth, President and CEO

Well, Dave, thanks for the question. Great to hear from you. Semiconductor manufacturing coming back to the U.S. is great. Obviously, it creates a lot of jobs, which creates growth in other domains because of factories being built. I wouldn't say the semiconductor manufacturing coming back to the U.S. directly impacts us. What is impacting, again, as we talked about, is the AI build-out, and that's not at the hypervisor level. This is the edge of the network, right, to be able to have all this automation that's coming our way that's going to be AI-driven and AI-enabled. What we're seeing though is there's some reshoring going on. That's the other thing that we're noticing is not the semiconductor side, but just products being built and brought back to the Americas. We're seeing things like factories starting up and activity that we didn't think would happen until the second half of this year, starting early in the first half. It's been a little slow out of the gate, but the conversations are definitely picking up. We've got conversations with quite a few clients and new logos that were not part of our revenue plan, and they're very definitive about when their production is going to start and when they need systems. The plan that we put in place, our strategy, we've been displaying to these customers, existing and new. The comments are things like you're exactly the supplier we're looking for. You're hitting all the areas that we need for data provisioning, which is critical. In the past, we were in 1 box. Now we're in 3 boxes, and we'll get there obviously as part of the plan that we'll execute in an organic and inorganic manner. The great thing about the strategy is, David, that we have the platform. It's not like we have to go out and buy new technology or make some other investment, which does create risk when you do M&A. We get to use exactly what we've been investing in over the last year. Going into this year, we're just putting it in other areas of the data provisioning like security. I hope that answers your question.

David Williams, Analyst

Yes. Great color. And then maybe just speak to the AI-assisted software development and what that means...

William Wentworth, President and CEO

Yes, definitely. I'm very passionate about this. Personally, I spend a lot of time learning about AI through podcasts and other educational resources. When I joined the Board, one of the first things we focused on was leveraging AI to analyze technical documents from semiconductor companies, which typically took engineers 3 to 5 days to review for critical information necessary for algorithm creation. Now, the Doc AI we developed about 18 months ago, which used to cost around $120,000, would only cost about $100 today. That’s how much AI has progressed. We are now implementing a continuous improvement and continuous development process, which might be complex for some, but it's crucial for our DevOps and Agile practices. This process automates the coding and software testing functions, and importantly, facilitates software release. Recently, we achieved a significant milestone by using AI in our processes to release production code with very little human intervention. Our use of AI, particularly Quad, is widespread across all departments, as we form teams focused on bug fixes and enhancements, along with new software development planned for this year that will help reduce our technical debt and costs further. The advancements in AI are remarkable and are significantly improving our ability to develop and launch new products quickly. Additionally, in my experience with mergers and acquisitions, the usual synergy estimates are around 10% to 20% when consolidating overlapping roles. However, AI introduces an entirely new dimension to this, allowing us to evaluate companies for AI deployment opportunities that could improve their operations. This not only aids our current efforts but also accelerates our inorganic growth strategies and helps implement our new ERP system much faster. The initiatives we’ve set in motion with AI are paving the way for a smoother ERP transformation process. I wouldn't say it's easy for Charlie, who's leading the project, but it's addressing critical concerns typically associated with ERP implementations. Charlie, would you like to add anything?

Charles DiBona, CFO

Yes. I mean...

William Wentworth, President and CEO

I could go on and on about AI.

Charles DiBona, CFO

I won't take objection to the word easy. But it's certainly the speed at which we're doing what are fairly time-consuming tasks like mapping your old chart of accounts to the new chart of accounts, creating new chart of accounts, putting in new policies. The speed at which you can do that with assistance from AI, obviously overseen by people, making sure everything works. It's just accelerating and derisking the process. I think the biggest impact on ERP is the reduction in implementation costs as we go forward. It's amazing how quickly we're getting the ball in place.

William Wentworth, President and CEO

We have a current example. We just launched Salesforce Service Cloud 2 weeks ago. The formal launch was last week, a week ahead of schedule, which is rare when implementing new software. Service Cloud is now what we use for taking ticket information from customers when they have a challenge with any of our equipment or software, and that's where they enter the tickets. That project was originally scoped at nearly $250,000 eight months ago. With AI and other improvements, we executed it for $100,000 and completed it on time. After 5 days, you'll hear a lot of issues with substantial changes. I just talked to the Head of Service before running an errand and asked, "How is it going?" He responded, "5 days in, we're good," with no noise or challenges. There have not been any problems with customers being able to answer tickets. AI played a significant role in that.

David Williams, Analyst

Great, that was really insightful. I appreciate it. Charlie, I have a question for you regarding the balance sheet. How comfortable are you with it considering the strategy and what you anticipate moving forward?

Charles DiBona, CFO

Yes, I'm comfortable with it. Obviously, we did drain some cash last year. That's sort of the inevitable outcome of the investments and transformation we were undergoing. But we do see that a turning point is coming here as we are very focused internally on controlling costs. We're targeting at least $1 million of run rate savings and will realize a lot of that through the course of the year. I think we're a debt-free company right now with decent cash on hand, in a good position to execute on our strategy, both organic and inorganic. The balance sheet does not keep me up at night; ERP transformation does.</s>

William Wentworth, President and CEO

But I want to add to that, David, that coming into the business over 1.5 years ago, this company was very thinly threaded. You were going to need additional resources to do transformations; they don't happen on their own. I can tell you that AI has an impact in lowering the cost of the transformation, especially where we are today and moving forward. I won't have to hire a bunch of resources to continue the transformation because AI is picking up a lot of the slack and creating huge productivity increases, especially in engineering and software development. It helps in all areas and will create new sources of revenue for us.

Operator, Operator

Our next question comes from Michael Legg with Ladenburg Thalmann.

Michael Legg, Analyst

I wanted to dig a little deeper into the M&A pipeline and where you are there. Could you give us a little update on how that's going?

William Wentworth, President and CEO

Yes, definitely, Mike. As we've discussed, this is a significant part of my agenda and strategy. It goes back to October 2024 when we outlined the original strategy from the Board to expand our capabilities. We recently opened a data room for one of our opportunities just two nights ago, and another one is expected to be opened tomorrow. I also received a call from a CEO involved in one of our strategic initiatives about meeting at APEX to discuss acquiring their business, and we have two additional opportunities in the works. So, the pipeline is quite active, maybe a bit more than I would prefer, but it provides us with options, which is great. I fully anticipate progress this year; we wouldn’t be having these discussions if that weren't likely. Everything aligns with the strategy we talked about, so the pipeline is very active, Mike. Once we navigate through a few of these opportunities that align perfectly with our strategy, we will refresh that pipeline and revisit it next year.

Charles DiBona, CFO

And Mike, let me just follow-up on that. I want to emphasize that both Bill and I are very disciplined acquirers. We have walked away from a couple of transactions that did not make sense once we got into the numbers. We are not going to be reckless with the capital of the company. We have exciting targets that we are looking at, and we're enthusiastic about them. Still, we are not going to be in deal heat.

William Wentworth, President and CEO

And they're day one accretive; that's the important thing. Really accretive in a couple of cases. It's important, too, Mike, that I've done a fair share of M&A activity. There are roll-ups, and there are things that private equity firms have been doing for a long time. This M&A strategy is about placing companies with vertical capabilities and combining those with businesses that have horizontal capabilities. When you put such companies together, it accelerates growth by filling each other’s gaps. That's where M&A really makes logical and financial sense.

Michael Legg, Analyst

Okay. Great. And then obviously, we have some headwinds in the industry right now. You talked about good customer activity in the fourth quarter. Could you expand on that customer activity and what you're seeing?

William Wentworth, President and CEO

Yes. I wouldn't say Q4 had a lot of activity; there were some conversations. A lot of it was tailing off like we'll talk to you in Q1 and Q2. You always set up for next year, right? You do a big push trying to find out when budgets expire, what's left, and what the budget will look like next year. A good amount of our pipeline this year that are opportunities in our revenue plan, 75% of them are new from last year. So we've had conversations throughout the year, and they're not all new logos, but there's new activity. It's the reason we developed the manual product line. We have reps ready to set up orders in Q1 for our manual systems, which we should start to see next month, and to get those manual systems both here in North America and China. I just came from China, met with one of our largest customers who's a big supplier to BYD. We have new products coming. They asked for a solution, and we happen to be working on it. They offered to be our beta client, which is in our pipeline for the second half. There are a lot of exciting things across the board. Those conversations are turning into purchase orders as we get into the end of Q1 and definitely into Q2. I think the recent tariff adjustments could create some pent-up demand; I can’t tell you how much. That, along with the build-out of Edge AI, our existing customers, and the new plan we have to be in all areas of data provisioning, the customers love the story.

Michael Legg, Analyst

Great. And you mentioned you're a year ahead of plan since you took over, Bill. Can you give us some thoughts on 2 years ago, what you thought versus what you're seeing today, and why you're ahead of plan? What positive upside may you have seen that you didn't expect a couple of years ago?

William Wentworth, President and CEO

Yes, absolutely. It’s a great question. It's hard to measure, obviously. In year 1, there's a significant investment because you'll have to kill old contracts, swizzle the management team, and incur various onetime costs. We're paying for things that weren't fixed in the past 3, 4, 5 years. A lot of that was done in 2025. We're still investing in '26, but the investment right now is directly in new products. So there's no more cleanup. I would say the cleanup is pretty much completed. The tools we're using and the technology are getting us there faster. We are probably 6 months ahead of schedule. This is why we feel really comfortable with the revenue plan this year to achieve our goals.

Operator, Operator

Our next question comes from George Marema with Pareto Ventures.

George Marema, Analyst

So Bill, as you guys are moving into physical AI and in-line programming, what are you replacing out there? Who are you competing against? And internally, as a company moving into these new areas, what kind of changes in distribution and sales and marketing motions need to happen to fully realize this?

William Wentworth, President and CEO

Yes. The great thing is we don’t have to change anything. These are existing customers and some new logos that are large contract manufacturers we call on globally. They are tasked with new projects to build out the edge of the network. There's one campus we went to that was 80 acres. Next to them are Google, Verizon, and other companies building products for this build-out. Our direct handling of this is increasing. The reps we've had in the past were good, but we have also revamped that slowly. We've changed their contracts this year. We're very specific about what they need to do. If they don’t, they know we will go into these accounts directly. I want to ensure we control our revenue this year and in the future. Our team is passionate and knowledgeable. Most of them have been in this industry for quite some time, and that's the new blood we brought in. We're looking to add more sales resources through this year. That’s where our investment will be for growth.

George Marema, Analyst

Yes. And about the cash flow flipping positive, what kind of revenue do you need to achieve that?

William Wentworth, President and CEO

It's tough to say. Obviously, we’re optimizing the business monthly. There are some significant optimizations coming, some already done in Q1, which we will discuss after Q1. Charlie, do you want to comment?

Charles DiBona, CFO

Yes, obviously, we're not giving specific guidance on revenue. Still, we believe that upside on revenue and cost containment will intersect somewhere in the near future. If you look at our performance last year, you can project from that and say if both lines are moving positively, there's a point where they cross.

George Marema, Analyst

Okay. So perhaps in the back half of '26, you can flip it?

Charles DiBona, CFO

I think that's a reasonable type of expectation.

Operator, Operator

Our next question comes from David Marsh with Singular Research.

David Marsh, Analyst

Your predecessor was very focused on the electric vehicle market, which received a lot of attention. We are beginning to see new products emerging that are starting to capture some market share. I would like to understand if you're still targeting that market specifically and if it continues to be a source of revenue for you.

William Wentworth, President and CEO

Yes, absolutely. Automotive will remain a strong market for us. Some customers we talked to, one large German automotive company, Tier 2, said at Productronica they were not going to buy any CapEx for all of 2026. However, after our presentation to their larger team in Mexico, they want us to present to their global tech council next month because they were impressed with our technology and how it addresses their data provisioning challenges. Data provisioning is a larger conversation nowadays. It still comprised 52% of our bookings last year. It remains a strong market for us. The client I mentioned for beta testing is also an automotive client, a major provider to BYD, an EV company. We're working on solutions that will expand our market share while providing solutions they don't currently have.

David Marsh, Analyst

Got it. The agreement with IAR seems like a tremendously positive step. Are there other agreements you could potentially look to ink with other folks that might provide similar opportunities? Have you had similar conversations with any major electronic component suppliers?

William Wentworth, President and CEO

Absolutely. I'm a big fan of partnerships where both people win. The IAR agreement took a year to finalize. The company had fallen out of favor with Data I/O. It started at an embedded conference in Nuremberg, Germany. I walked over to their booth; my team asked me where I was going. I said I'm going over there because we should partner with them. They had a large security division that aligned with our provisioning expertise. The conversation broke the ice quickly because the person I ran into was someone I knew from Arrow. We had a conversation that led to this agreement. Their algo library and our algo library together will create a frictionless solution. To your point about other relationships, yes, I believe that as our IAR relationship grows, we'll have opportunities with their semiconductor relationships. As I said, we want to have as many at-bats as possible. That's the type of collaboration partnership we seek to drive organic growth and market share.

Operator, Operator

Our next question comes from Casey Ryan with WestPark.

Casey Ryan, Analyst

Great update. We've kind of picked over the bones here in this call.

William Wentworth, President and CEO

You got to get first in line.

Casey Ryan, Analyst

Well, one question about the gross margin dip, obviously tied to revenue, we all understand that. But what do you think is the rebuild? Is it over 4 quarters through the year? Or can it bounce back a little faster? Is 51%, 52% the right normalized rate in a normal quarter down the road?

Charles DiBona, CFO

I think it will sort of be through the year, though not necessarily linear. I think it will come back a little faster than that. It is tied to volumes, and there's some mix shift. Some new products we'll sell, particularly in the back half of the year, are higher margin, which will help. We're not giving firm guidance, but historically, that's probably a reasonable starting point. Mix will play a big part.

William Wentworth, President and CEO

Great question regarding margin, always on everyone's mind. As we build more value in our software, we’ll release a piece software next month that brings tremendous value. We’ve been demoing it with customers, and they see the value. It will enable us to increase our attach rate on our software for our equipment. Our current attach rate is around 20% to 30%. We should be able to double that throughout the year, which is significant.

Charles DiBona, CFO

It will increase both the attach rate and the retention rate. We're looking at boosting not only gross margins but the overall margin profile of the company and establishing a repeated revenue source.

William Wentworth, President and CEO

Many times, they would buy our software contractually. We would use it on other machines because they just weren't that sophisticated. Closing that loophole is something we should achieve this year.

Casey Ryan, Analyst

And one quick question about acquisitions to add services. Beyond being accretive, are you sensitive to size? Is there a minimum size you’re thinking about? Is geography relevant? Does it need to be a U.S.-based service?

William Wentworth, President and CEO

It's a little bit of both. Geographic strategy is important as we have significant operations in China. Derisking in Asia will strengthen that market because it's a strong one for us. In the U.S., it's easy to handle transactions. Those not only have to be geographically friendly but strategically friendly as well. The services industry is very fragmented, and I've been in it for a long time. There is opportunity there, and we plan to take advantage of that.

Charles DiBona, CFO

Both Bill and I have experience doing international transactions and domestic. There are complications with international, but also opportunities that come with that. We are comfortable trading where others might hesitate.

Operator, Operator

We have time for one more question before concluding the call. We will now take Howard Root, retail investor.

Unknown Attendee, Retail Investor

I'll keep it short. Bill, when you stepped in, you really had 2 sets of challenges. One was the market; the other was the product, the platform in that it wasn't integrated. Have you completed that work to integrate automatic and manual programmers?

William Wentworth, President and CEO

Yes, that work is done. We can now run both our manual engineering units and automation units on the same software. There is still some cleanup to do, especially in the handler side, but we're approximately 3 to 4 months away from cleaning that up. The integration is complete; that unified platform is key for us and we’ve communicated this to customers because this platform will also serve in services and tests when we reach that point. We're talking to customers about migrating to our LumenX platform; this will also be a revenue opportunity over the next 2 to 3 years.

Unknown Attendee, Retail Investor

Great. And about cash flow, just to follow-up. You ended the year a little under $8 million in cash. Near-term positive cash flow you're saying, but that looks like second half of the year, not first half. You mentioned acquisitions and the shelf that you filed; the stock being depressed to use as currency is dilutive. Can you run your business without issuing more shares to accomplish that? Or will you need financing to do what you want?

Charles DiBona, CFO

There are alternative sources we're exploring. We have relationships to seek nonequity sources of cash. I can’t say there wouldn’t be some equity component in the transaction, but I wouldn't expect a wholly equity type of acquisition. Size plays a role in how much cash would be required.

William Wentworth, President and CEO

If you look at how the deal is structured, some are favorable to cash. You don't need as much of it.

Charles DiBona, CFO

We're not looking to issue shares right now. That's not our plan.

William Wentworth, President and CEO

No, definitely not.

Charles DiBona, CFO

That's not our plan.

Operator, Operator

Ladies and gentlemen, at this time, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any closing remarks. Bill Wentworth, Chief Executive Officer.

William Wentworth, President and CEO

Thank you, operator. I appreciate everybody jumping on the call and your questions. That's far better than reading a script, and I get to speak from the heart. I'm proud of this team, and I'm looking forward to this year. It was a tough 2025, but those things are never easy. The lack of anxiety that's happening now is great; we still have a lot of work to do. That pace will not stop; I expect it to pick up. The team is ready for what we are going to embark upon this year, and through '27. Thank you again for your time. I'm always available for a conversation, so please reach out. Thank you, everyone, and have a great day.

Operator, 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.