Data I/O Corporation (DAIO) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Data.io's third 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 remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jordan Darrow of Investor Relations. Please go ahead.

Thank you, Operator. Welcome, everyone, to the Data.io Corporation Third Quarter 2026 Financial Results Conference Call and Webcast. Due to the many important developments recently taking place for the company, during today's event we are providing a slideshow presentation. The slides will be available within the investor relations section of the company's website for further reference. With me today are the company's president and CEO, Bill Wentworth, and Chief Financial Officer, Charlie DeBona. Before we get started, I'd like to thank all of our sponsors for their support. Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position, acquisition, 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, and the ability to record revenues based on the timing of product deliveries and installations. 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 one-time 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 earlier today. Finally, accuracy and completeness of all discussions on this call, including forward-looking statements, should not be unduly relied upon. Data.io is under no duty to update any forward-looking statements. And now I'll turn the call over to Charlie Bona, Chief Financial Officer.

Thanks, Jordan, and good morning, everyone. I'm going to keep my remarks brief because while in many respects, notably margins and normalized performance Q3 was a very strong quarter, the real story today is the completion of the VTech acquisition, and I want to get to Bill's discussion of that transaction and where the combined company is headed.

Thanks, Jordan. And thank you, everyone. I'm going to keep my remarks brief. Well, the next, I would be margins of normal life performance, Q3, was the third day is completion of the task. And I want to get to build just where combined companies have been.

So let me quickly walk through the Q3 numbers and then hand it over. Net sales in the third quarter were 4.9 million compared to 5.2 million in Q2 and 5.4 million in Q3 of last year. Platform revenue was up both sequentially and year over year, but adapter sales were softer on timing. Third quarter bookings were $5 million, up slightly from Q2. Revenue mix shifted further towards capital equipment at 52% of revenue, with consumable adapters and services at 48% of total sales. Gross margin was 58%, up 100 basis points from 57% in Q2, and up over 700 basis points from 50.7 in Q3 of last year. Margin expansion continues to reflect pricing discipline, the sale of several high-margin platform units, and improved operational efficiencies. Operating expenses were $4.9 million, which included approximately $1.4 million in one-time expenses. Of these one-time expenses, over half, some $800,000 worth, were related to the M&A and financing activities in the quarter. This level of one-time expenses is directly attributable to the volume of transaction activity in the quarter of the year. of M&A and financing transaction in the quarter as we simultaneously wrapped up our first private placement while advancing an acquisition, a second private placement, and a credit facility, all of which closed in October. A further 16% of expenses were tied to our ERP transition, particularly the unwinding of our prior ERP commitment, which had been entered into several years ago. And another 20% was related to a non-cash adjustment of certain inventory reserves. Excluding these one-time items as well as the equity compensation, adjusted EBITDA was negative $71,000 compared to negative $563,000 in Q3 of 2025. Given our current gross margin profile, this implies an organic cash-neutral revenue in the range of $5 million per quarter. This is materialized. materially lower than we were where the business was a year ago. Operating loss was $2 million compared to $1.4 million in Q3 of 2025. The increase is driven by the one-time items. Net loss was $2.7 million or 27 cents per share compared to $1.4 million or 15 cents per share in Q3 of 2025. The net loss includes $624,000 $600,000 of interest expense, which, like the interest expense that we discussed last quarter, represents a non-cash distortion due to the very quick amortization of the discount on the June convertible notes. As well, it all the expenses also included a $75,000 of tax expense related to the dividend repatriation from our China subsidiary. The next slide, please. Adjusted EBITDA, excluding equity compensation and one-time items was negative 71,000, near break-even for the second consecutive quarter. Cash at the quarter end was $9.4 million, down from $10.8 million at June 30, reflecting operating cash usage in a quarter, including significant transaction-related expenses. There was no debt on the balance sheet as of September 30th as the convertible to ventures had converted to preferred equity in July. Working capital was $14.7 million, up from $10.8 million in June 30th, which included the $6.2 million of convertible debentures in current liabilities. Consequent to quarter end, we closed the second $13.25 million private placement and put in place a $7.5 million asset placement. asset-based revolving credit facility with Western Alliance Bank. That really concludes the financial remarks for the quarter. And with that, let me turn it over to Bill to walk you through the VTech acquisition and our strategic direction.

We've got a lot to unravel. I'll try to plug in some notes along the way. We created a small, you know, five-page, short five-page deck to review the acquisition, but there's been also a significant amount of activity since the beginning of Q4, which I'll bleed some of those comments in during the presentation. So, first page is the Safe Harbor Statement, as we release every time when we do our earnings So a brief history on where our M&A journey actually started. It actually started late last year when we hired an advisor, StoneX, a benchmark at the time, Seth. down and reviewed what we felt were a bunch of good fits for a pipeline of M&A activity, which we still have probably about an estimate of about an 80 million dollar pipeline still available to pursue in the forward years. VTech was chosen as the first company to bring into the portfolio due to really some of the market segments they serve, the diversification of their account base, the The direct relationship between VTech and DataRail has always been strong. They've actually been a vendor of DataRail for over a decade. I've known the company personally, being in the industry for 30 years. Good names, solid operational efficiencies, but also just strong management team. their location in Minnesota. So I'll talk about that a little bit as we get into whether in the deck the synergies and the opportunities for the business to expand manufacturing capacity and capabilities. But it was certainly, in my view, the best fit for this company for DataRail for the transformation that was needed for the business, and we needed a significant transformation across the board, and really all factors in how you would measure a business from a KPI standpoint. When I went into the VTech business, there are three distinct divisions. The division I knew very well and personally was the VTech division, which did a lot of packaging for semiconductors, both automated manual systems, supplies. They also have services as part of that group. This was an acquisition they did back in the middle of the 2000 decade, I think around 2010, 11, somewhere in there. That was a test platform, which tests die, essentially, post-COVID. Post-wait for manufacturing, you cut the die, and then it gets sorted, and it can go directly into tape and reel or other packages or just sorted in other media. That was an acquisition that's been very beneficial for VTech. Mitch and the team have done a great job of integrating that platform into their automation. So if you think about what data is, does, we build automation around a programming platform. That's our IP. They build automation around ROYCE, which is their test platform. So this greatly expands our markets that we can serve across the semiconductor supply chain, which is really the vision I had for Dataro going back two years ago. certainly was focused on the programming side of things. But as I started to look deeper at VTech and its capabilities and the markets it served, and some of those customers overlap with what DataRail provides as far as programming equipment. So, and actually made even more sense as we started to go down the path and have the conversations. What started earlier this year, probably around the beginning of March, is when we reached out. They were not in an auction process. They were specifically targeted by myself and the team as an asset that made sense to bring into Data.io. And as we started to get to know the management team and leadership, it was pretty clear that bringing these two two companies together would strengthen not only the business itself in the domains and and really reduce our concentration on one of which we'll get deeper into in a few slides, but overall give us scale and scope to really grow this business in the coming years. ANJ programming, that was certainly an asset that personally I was passionate targeted, just because of my experience in growing about programming services business, both regionally and globally. A&J has been in the industry for well over three decades. I've known the the leadership there, and not personally, but knew of them. has always had a great brand in Silicon Valley. They did a lot of work for Silicon vendors and large OEMs, and they've been a staple of the Valley for, like I said, well over three decades. Great brand, do a lot of MPI, quick turnaround, and pre-production work. Like I said, if you talk to any customer that they serve, you'll get nothing but glowing remarks about their reaction time and their ability to meet customer demand when needed. All right, the next slide. Also, this acquisition will be accretive, and the revenues will approximately double the overall revenues of the company. So, like I said, it gives us scale and scope, not only in capabilities and operationally give us scale and scope, but also gives us scale and scope from a revenue perspective as well. Um, YVTech. As I said, I've mentioned some of this already in the previous comments. This accelerates our programming as a service that we announced back in April. As you know, as some of you may be aware, I announced Doug Adams coming on as our global head of global operations, all customer-facing activities, which includes device support, field service, but mainly programming services. Doug was my COO at Source. We successfully resourced to a $100 million services company over 20 years, and that was all done organically without any acquisitions. The opportunity in the marketplace is larger than it was back when we were running Source before we sold it to Avnet. You know, Silicon, programmable silicon, continues to increase and grow within a lot of different domains in the industry. I calculate from 2001 to now. The amount of programmable silicon as far as devices, as far as units, as far as unit volumes, has doubled. We see flash-based microcontrollers really across the board board, especially as the Internet of Things, which I know has been talked about for well over a decade, but when you look at autonomous anything or robotics, which announced an opportunity that turned into an actual purchase order in Q4. Pretty excited about the new logo we just landed. the amount of programmable silicon continues to grow. Automotive is still soft. You know, we're toeing the line and making sure that we stay above board and we don't burn any cash or burn that much as we grow through this. But the expansion now has really started to begin outside of automotive, which really excited us, although we did land three new logos this year in automotive. So we won't end. That industry will turn around at some point. Obviously, as the geopolitical issues start to fall to the side and gas starts to lower, that will only benefit our core customer base. I think we're in a great position as far as our diversity, and VTech definitely strengthens that quite a bit. So programming as a service, it's something that's very much needed in the industry. As I said, the amount of volume of programmable content continues to climb. It's also something that is very important to OEMs. These discussions will most likely be as we grow that business, will be data are talking directly to OEMs. And one of the main reasons is the protection of their IP. A lot of cases, what's getting imaged into these parts is their intellectual property. And given the geopolitical situations around the world and the challenges, security is becoming more and more important. more of a, not a need, but a mandate. And we'll be talking more about that during this quarter and some announcements around a security platform that we're working on to acquire as well. The consolidation of the supply chain. We have a team over at a big trade show called Elektronica in Germany. There was a customer, a potential customer that our sales team ran into where they manage old dye or old technology. Some of that technology gets programmed, but it also needs to be cut and packaged. And the interesting conversation was already out of the gate with VTech and us side by side, and looking at us as a holistic supplier, their comments were pretty immediate. pretty on point as far as the value that we can bring to them as a supplier. So already conversations we're having in getting into new businesses, but also the connection between what DataO does and what VTech does is pretty strong and very evident and very clear. access to larger high-growth markets. VTech has been playing in AI, photonics, obviously that's a very large market, meta In fact, some of their core systems are booked out through Q2 already. Photonics is really the only way you can reduce, not the only way, but one of the major ways to reduce power in robotics. and reduce heating and increase cooling needs for data center and as far as GPUs go. That is a big market. It's growing. That market, some that are only three and four or five years old, some of those clients are VTECs clients. So photonics is a big area of growth. They've been in aerospace and defense for a while. Satellite communications are doing work for VTECs. Starlink out of Tesla and SpaceX. That's actually a logo that we, which amounts now, we've We've been working on the humanoid robotics division called Optimus at Tesla. So we had a demo system in there over the last couple of quarters. They placed their first PO two weeks ago. We are awaiting a PO for another one to three more systems this quarter. Pretty excited about that opportunity. The amount of programmable technology, especially microcontrollers, is pervasive through this technology. These are one of the areas that we've talked about growing into that, autonomous driving and other parts of the technology supply chain that's starting to really take off, really driven by AI, is As much as the negativity that's been around the AI swirl in the last couple weeks and actually last several months, without AI, you can't bring these things to life. So as much as we will go through some turbulent times and obviously pricing and semiconductors and lead times have gone out, this will shake out like every other technology and technology inflection point we've been through, such as 01 and other recessions we've been through in this industry. I've been through most of them. This will shake out, but the people that will come out top are the people that have a robust, resilient business, which is why this acquisition is so important to us at this time, given that we have multiple different markets we can serve, which will insulate us from being so focused on, you know, and having to derive our revenue from automotive, which has really been the mainstay of DRL for the last decade. So this does bring us a significant amount of relief and resiliency to the business and allows us to focus on multiple different domains with solutions that we have today and also in the future. I would like to make a comment that we continue to invest in our core platform. We do have some new products being rolled out in Q1, which we're pretty excited about. And those products also not only help our core business and help our customers produce more faster with better technology, but this also will have a profound effect on our services business. This will also help us drive better margins and services as we build better automation alongside VTech that's one of their expertise is automation, will help us drive better margins and also be able to service customers probably better service rates than they get today from the current providers that are on the market. From a financial upside, like I said, this is a credence to the business. It does double our revenues, so close to. And I think you'll start to see those numbers for a way through the end of Q4. As far as the acquisition, these are some of the highlights on page five. I don't know where we are on the slide deck, but – on page five, that's where we're at now. Really, this is a transformational acquisition. And like I said earlier, the company had been struggling to grow for a couple decades. And it really needed a big change. Services, obviously, was something that's been on the roadmap for a little while. It's not an easy thing to execute. And so, you know, bringing people like Doug and myself and Monty, who have well over 100 years of experience in programming services, we've opened up, I can't tell you, countless sites probably, a couple dozen worldwide over the years of our industry experience. And it's not an easy thing to do. And so, yes, we could have done it organically. It would have taken longer. The acquisition, among the many highlights that it adds in value as far as the business goes financially and the diversity in domains and customers, but it gives us an immediate get access to programming services. And we're already in discussions with some significant opportunities already, and we're already talking to existing customers of Data.io about moving to an OpEx versus a CapEx model. We had a conversation with a large CM the other day where they wanted to rent the machine for about six months. And instead of renting the machine, We offered programming services and they were very excited about us being able to offer that opportunity to them because they just, obviously this is new and had no idea, but they said that's much more beneficial to them. It costs them less. They don't have to install the machine. They don't have to run electrical and air. And this was just for a quick six-month opportunity. opportunity. But if we service them well, it may continue. So those are the opportunities that now rest at our feet that we can now be aggressively pursue. It's extremely exciting. I can't tell you, it's it's it's great to be back in the programming services industry and business and the opportunities that Data Rail creates just by being the part of market position we're in should allow us to significantly grow the A&J programming business. We certainly, based on bringing these two platforms, we've become a much more strategic supplier to the semiconductor supply chain with VTech and its capabilities. with stronger, more diversified revenue profile across the different diverse industries that we're in and customers. significant near-term cost synergies. Those have been activated. We should have probably a good 50-50 50% of our synergies actioned in the next 90 days. Some of those are already actioned today. And like I said, we raised about $22.5 million for this acquisition and for both capital. We sit really well on the balance sheet and compared to our past. We have a pretty good cash balance and that's been building already through this quarter. That's going to ebb and flow probably in the first 60 to 90 days, but we expect growth on the cash balance sheet to continue to grow, probably starting sometime in Q1 and continue to grow growth row 2027. And lastly, season leadership team, I can't speak enough about Mitch and the team he's built over there. Extremely solid, very strong operationally. There's a lot of things that they can help us with on both, like I said, automation and engineering and just having that scale and scope. They've got available capacity, so as we grow into the services business and need to build more machines, they have capacity there for us to grow into. That was another benefit of the acquisition. Like I said, just overall, it pretty much has clicked every box you would want doing M&A. And M&A is hard. I recognize that. I've done enough of it. Some of the leadership team has had a lot of experience or some experience in doing M&A. It's, look, it's it's it's difficult to right out of the gate get value from M&A. I can already see it within in the first three weeks. So, this is one of those ones that actually one-on-one does equal to, or I would say three in this case. So, yes. Let's see, next page, business transaction summary, Q3 combined pro-form. Would that give you an idea of kind of the combined numbers, just some basic KPIs? But, you know, if we were combining Q3, we would be looking at a 10 million quarter, backlog about 8.8. As you see in the quarter, we've been able to do a great job operationally here at Data.io by booking and shipping in the same quarter. So you'll see the booking and shipping numbers be very similar as we really have fine-tuned, and a lot of it's been through communication and also better preparing our account executives for the information needed in order to to ship things on time and make sure that the systems are configured the right way. And the teams worked really well together to get that done. So we'll continue to probably book and ship a lot of what we book and ship in the quarter, except when we get larger, longstanding, committed orders over multiple quarters. Um, Q3 EBITDA, what we were doing around the 2 million range or less. Um, the high margin on programming services, very similar to where we sit today in that high 50 range. But I would expect programming services for us over the long term to be a to probably increase by 100 or 200, 300 basis points. And why I can say that with some confidence is is that at source we ran in the high 50s pretty consistently. And even after we sold the Avnet with the back off back office tax, we still ran in those high 50s. Now, owning the equipment, obviously our costs are less. So I'd expect that to generate. And you can expect kind of programming costs, about 30 to 40% of that is the cost of the equipment, depreciation, sockets, maintenance, software contracts, things like that. So we should pick up some basis points, a few hundred basis points on the margin for programming services. And obviously, as we create new solutions that have a high velocity of throughput that will also have margins increase. as well. And the consideration for the business, we paid 23 million. Three million of that was actually taken by the family office in equity. That shows the conviction of the folks that sold the business, and I want to thank the folks at CODA. They were great through this entire process. It was great working with Bill, Carol, and team. And they, I can tell you, are very excited about the future of the business. And it was great working with them. It was a long road. We went through some challenges getting there, but the great thing was I think on both sides we both wanted to see this deal work because we knew the benefits for both the employees and the shareholders alike would be highly beneficial, and we never lost sight of that. So thanks for the entire team and all the advisors that worked on this deal and any of you that are listening I want to thank you and I'll see some of you in New York the second week of December. I'd like to conclude at that time. That's the, and thanks for taking the time early this morning. here on the West Coast, but we're trying to get through this bright-eyed as possible. But really appreciate the time and all the people that were involved in this. It was a fight worth fighting, and I think you'll see nothing but great things coming forward. And we still have a lot of other things we're working on to grow the business and bring more value to the company and our customers. At this point, I'll hand it off to Jordan, I believe, or? Operator. Operator.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Craig White from Devon Capital. Please go ahead.

Yes, hi, good morning. Thanks for taking my call. Can you talk a little bit about the photonics industry, since it seems like that's a new end market for you? And then I had one other question.

Yes, sure. It is definitely a new market for DataRio for sure. It's been a market that B-Tech has been serving, I'm going to say, for at least four or five years. And again, I'm guessing on that. I know some of their customers they have are small. just incubated in 2023 for their product sets. But it's a market they've been serving. These are very small parts that go really into and around the silicon so that this is kind of the very small parts that allow light to transfer to the memory, and that's where obviously the power cooling and speed, because obviously with light you don't have the resistance that you would with copper. So those are the technologies that they're dealing with, and these parts have to be, you know, they're, cut from the die, sorted, they're orientated so there's vision inspection, there's a test and a sort that these parts go through, and then they get packaged for manufacturing. So that's the process in which the photonics, at least the photonics part of the supply chain that VTech deals with. if that answers your question. I can give you a couple of the customer names would be Sienna and I. Yes, yes, thanks. Very interesting. I can give you a couple those are two of their main customers. So that helps you give an indication of the companies that they deal with.

Yes, it does. Thank you. Then you talked a lot about the acquisition and the synergies. Can you discuss some of the more important financial and operational synergies? Any other.

Yeah, you know, we're not going to give forward guidance as Bill mentioned. We're looking at roughly doubling the revenue of the company. And we're looking at, you know, that we would expect there to be positive accretion in the immediately, it's an accretive acquisition right out of the gate here. There are a number of areas where we're looking for operational synergies and to improve the cost structure of the combined entity. We haven't given any guidance and we're not quite prepared to do that yet as we sort through that, but we'll start to realize some of those. actually we're starting to realize some, you know, as soon as next week. And so, you know, Whereas sometimes those are, you know the synergy word is kind of a It's got a bad reputation. Probably earned a bad reputation.

probably earned a bad reputation. Let me jump in. I can describe some of it. You're obviously going to have some clear you know, overlap in certain roles and sales and some other areas. And and but this is not a this is not a um acquisition. This is not a roll-up, right? This is more of a cap and grow. But there are areas in manufacturing. Uh they also have a machine shop. So we buy outside metal from other, you know, suppliers that is pre-painted and pre-drilled. So things like supply base will reduce costs. We've identified quite a bit there. the expansion into Minnesota for manufacturing, because we are fairly cramped here in Redmond. It's also a fairly expensive place to build. We have a lot of other new products coming here, so it's not a reduction in manufacturing capacity from a people perspective, but there'll be a movement of some of what we build here to Minnesota, which will also help. reduce costs, lower labor rates. But we will still build things like our IP here, new system development, things like that. So I don't want to scare our good folks here in Redmond. That's not going away. But, you know, obviously costs on certain systems could reduce based on location and build location. But there are some obvious overlaps in some of the business that will create some of those synergies. They were identified months ago. And through a couple of the acquisitions of some folks that are going to be moving on to the acquisition and they were pretty much probably going to move on anyways. from the acquisitions that VTech did. So, um, so yeah, some of the kind of classic synergies, and then you have some newfound synergies around materials, operations, and things like that. One of the things that we've done too is at Data.io over the last two years to increase and optimize the business, we were early adopters of AI. And it has created huge benefits for Data.io in reducing our costs by well over 23%. I mean, as you can see in Q3, we pretty much held our line of being keeping costs below 22, even from a run rate was below 21 this quarter. I don't take that for gospel. That's not going to – I don't know. I don't see that staying. But we're in the range exactly where I expect us to be. techs not use any AI whatsoever. And so Mitch and myself and the team have identified areas that we can optimize their business, and they're very excited to get engaged with our team. I hope that helps. Yes, I just sort of emphasize that these are.

very tangible cost benefits that we can see. But again, the real value here is in the synergies on the upside and the ability of this company to work together, you know, these entities to work together and sort of, like Bill said, one plus one equals three in this case. There's a significant amount of sales synergies here.