Data I/O (DAIO) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 12, 2026

CALL PARTICIPANTS

• Investor Relations - Jordan Darrow
• Chief Financial Officer - Charles DiBona
• President and Chief Executive Officer - William Wentworth

TAKEAWAYS

• Net Sales -- $4.9 million, down from $5.4 million in the third quarter of 2025 due to softness in the timing of adapter sales.
• Bookings -- $5 million, reflecting growth in the edge AI and robotics markets despite automotive sector softness.
• Gross Margin -- 58%, up 730 basis points from 50.7% in the prior year period driven by pricing discipline and operational efficiencies.
• Net Loss -- $2.7 million or $0.27 per share, compared to a net loss of $1.4 million or $0.15 per share last year reflecting higher nonrecurring operating expenses.
• Adjusted EBITDA -- Negative $71,000, excluding $134,000 in equity compensation and $1.4 million in one-time expenses.
• Platform Revenue -- 52% of total sales, increasing from 45% in the second quarter of 2026.
• Adapter and Service Revenue -- 48% of total sales, compared to 55% in the second quarter.
• V-TEK Acquisition Cost -- $23 million, comprised of $20 million in cash and $3 million in Data I/O common stock.
• Pro Forma Combined Revenue -- $10 million for the third quarter, representing a doubling of standalone revenue following the acquisition.
• Pro Forma Combined Backlog -- $8.8 million, including the addition of V-TEK and A&J Programming operations.
• Cash Balance -- $9.4 million as of Sept. 30, 2026, down from $10.8 million on June 30 due to transaction-related expenses.
• Working Capital -- $14.7 million, increasing from $10.8 million on June 30 following the conversion of convertible debt to equity.
• Private Placement Proceeds -- $13.25 million, secured in Oct. 2026 to fund the V-TEK acquisition and growth capital.
• Credit Facility -- $7.5 million, established as an asset-based revolving line with Western Alliance Bank in Oct. 2026.
• One-Time Expenses -- $1.4 million, with $800,000 related to M&A and financing activities in the quarter.
• ERP Transition Costs -- 16% of one-time expenses, associated with unwinding a prior commitment and transitioning information systems.
• Inventory Reserve Adjustments -- 20% of one-time expenses, representing a noncash adjustment during the third quarter.
• Operating Loss -- $2 million, compared to $1.4 million in the prior year period primarily due to nonrecurring transaction costs.
• Interest Expense -- $624,000, including noncash amortization related to June 2026 convertible notes.
• Backlog -- $1.5 million, decreasing from $2.1 million at the end of the second quarter.
• Deferred Revenue -- $0.9 million, down from $1.1 million as of June 30, 2026.
• Cost Efficiency -- 23%, representing the reduction in operating costs management attributed to the adoption of AI across business processes.
• Programming Service Market -- $500 million to $700 million, estimated by management as the addressable annual market for independent service providers.
• Programming Service Costs -- 30% to 40% of revenue, representing expenses for equipment depreciation, maintenance, and software.
• Estimated Pro Forma EBITDA -- $2 million, projected by management for the combined company's performance during the third quarter.

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RISKS

• Wentworth stated, "Automotive is still soft," noting that the company is managing operations to avoid cash burn while waiting for an industry recovery.
• Wentworth stated, "This will shake out like every other technology inflection point we've been through," referring to current volatility in semiconductor pricing and extended lead times.
• DiBona noted that "adapter sales were softer on timing," which contributed to the sequential decline in total revenue.

SUMMARY

Data I/O Corporation (NASDAQ:DAIO) completed the transformational acquisition of V-TEK and A&J Programming, a transaction management reported will double the company's revenue and expand its addressable market into data centers, AI, and photonics. The company secured $22.5 million in total growth capital and a $7.5 million credit facility to fund the acquisition and diversify its revenue streams away from a heavy reliance on the automotive sector. Management stated that the integration of V-TEK provides immediate access to programming services, shifting the business mix toward recurring software and service models. The company is applying its established AI-driven operational practices to the new assets to drive margin expansion and expects the acquisition to be accretive to earnings immediately.

• CEO Wentworth stated, "The NEW Data I/O has become a reality," as the company expands into data center, aerospace, and medical markets.
• Management reported that the company landed its first purchase order for the Optimus humanoid robotics division at Tesla two weeks ago.
• The company expects to achieve 50% of identified cost synergies within the next 90 days.
• Wentworth stated, "owning the equipment, obviously, our costs are less," when discussing the margin profile of the internal programming services business compared to equipment sales.
• Data I/O is developing a new programming platform scheduled for release at the end of 2027.
• Management noted that A&J Programming provides immediate access to silicon vendors and large original equipment manufacturers in Silicon Valley.

INDUSTRY GLOSSARY

• V-TEK: A semiconductor handling and packaging automation company acquired by Data I/O.
• A&J Programming: A Silicon Valley-based provider of device programming services focused on new product introduction.
• Programming-as-a-Service (PaaS): A service-based model where customers pay for device programming on an operational expense basis rather than purchasing capital equipment.
• Photonics: A technology using light to increase data transmission speeds and reduce power consumption in data centers.
• ERP: Enterprise Resource Planning software used for managing business operations.
• EMS: Electronic Manufacturing Services, referring to contract manufacturers for electronics.
• Optimus: The humanoid robotics division of Tesla.

Full Conference Call Transcript

Operator: Good day, everyone, and welcome to Data I/O's Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] 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.

Jordan Darrow: Thank you, operator. Welcome, everyone, to the Data I/O Corporation Third Quarter 2026 Financial Results Conference Call and Webcast. Due to the many important developments recently taking place with the company, during today's event, we are providing a slide show 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, Will Wentworth; and Chief Financial Officer, Charles 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, acquisitions, financing and capital markets initiatives, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, foreign exchange fluctuations, product releases, new industry participants and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied in such statements.

These factors also include uncertainties as to the impact of global and geopolitical events, international tariff and trade regulations, order levels for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing and other activities by competitors and 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 earlier today. Finally, 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 Charles DiBona, Chief Financial Officer.

Charles DiBona: 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 V-TEK acquisition, and I want to get to Bill's discussion of that transaction and where the combined company is headed. 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 onetime expenses. Of these onetime expenses, over half, some $800,000 worth were related to the M&A and financing activities in the quarter.

This level of onetime expenses is directly attributable to the volume of transaction activity in the quarter of M&A and financing transactions 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 noncash adjustment of certain inventory reserves. Excluding these onetime 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 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 onetime items. Net loss was $2.7 million or $0.27 per share compared to $1.4 million or $0.15 per share in Q3 of 2025. The net loss includes $624,000 of interest expense, which like the interest expense that we discussed last quarter, represents a noncash distortion due to the very quick amortization of the discount on the June convertible notes.

As well, the expenses also included a $75,000 of tax expense related to the dividend repatriation from our China subsidiary. Adjusted EBITDA, excluding equity compensation and onetime items, was negative $71,000 near breakeven for the second consecutive quarter. Cash at quarter end was $9.4 million, down from $10.8 million at June 30, reflecting operating cash usage in the quarter, including significant transaction-related expenses. There was no debt on the balance sheet as of September 30 as the convertible debentures had converted to preferred equity in July. Working capital was $14.7 million, up from $10.8 million in June 30, which included the $6.2 million of convertible debentures and current liabilities.

Subsequent to quarter end, we closed a second $13.25 million private placement and put in place a $7.5 million asset-based revolving credit facility with Western Alliance Bank. So that really concludes the financial remarks for the quarter. And with that, let me turn it over to Bill to walk you through the V-TEK acquisition and our strategic direction. Bill?

William Wentworth: Thank you, Charlie. We've got a lot to unravel. I'll try to plug in some notes along the way. We created a small 5-page, short 5-page deck to review the acquisition, but there's been also a significant amount of activity since the beginning of Q4, which I'll read some of those comments during the presentation. So the first page is the safe harbor statement as we release every time when we do our earnings call.

So a brief history on where our M&A journey actually started and actually started late last year when we hired an adviser, StoneX Benchmark at the time, sat 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 about an $80 million pipeline still available to pursue in the forward years. V-TEK 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 direct relationship between V-TEK and Data I/O has always been strong. They've actually been a vendor of Data I/O 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, obviously, I'll talk about that a little bit as we get into later 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 Data I/O 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. I'll get into the V-TEK business. There are 3 distinct divisions.

The division I knew very well and personally was the V-TEK division, which did a lot of packaging for semiconductors, both automated manual system supplies. They also have services as part of that group. Royce 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-wafer 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 V-TEK. Mitch and the team have done a great job of integrating that platform into their automation.

So if you think about what Data I/O, we build automation around the 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 Data I/O going back 2 years ago. Certainly, it was focused on the programming side of things. But as I start to look deeper at V-TEK and its capabilities in the markets it serves and some of those customers overlap with what Data I/O 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, which 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 I/O.

And as we started to get to know the management team and leadership, it was pretty clear that bringing these 2 companies together would strengthen not only the business itself in the domains and really reduce our concentration in automotive, 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. A&J Programming, that was certainly an asset that personally I was targeting just because of my experience in growing our programming services business, both regionally and globally. A&J has been in the industry for well over 3 decades.

I've known the leadership there and not personally, but knew of them, have 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 3 decades. Great brand, do a lot of NPI, quick turnaround and preproduction work. Like I said, the -- 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. Go to 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. Why V-TEK? 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, 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 grew Source 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. Silicon -- programmable silicon continues to increase and growth rate 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 unit volumes has doubled. We see flash-based microcontrollers really across the board, especially as 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 I'll announce 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. I mean it's -- 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 except, although we did land 3 new logos this year in automotive. So we won't add that. 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. But I think we're in a great position as far as our diversity and V-TEK 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, we'll be Data I/O 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 of a -- not a need, but a mandate. And we'll be talking more about that during this quarter and some announcements around the 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 Electronica in Germany. There was a customer, a potential customer that our sales team ran into where they manage old die 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 V-TEK and us side by side and looking at us as a holistic supplier their comments were pretty immediate and 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 Data I/O does and what V-TEK does is pretty strong and very evident and very clear. Access to larger high-growth markets. V-TEK has been playing in AI photonics. Obviously, that's a very large market. As a matter of fact, some of their core systems are booked out through Q2 already.

Photonics is -- it's really the only way you can reduce -- not the only way, but one of the major ways to reduce power 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 3 and 4, 5 years old. Some of those clients are V-TEK's clients. So Photonics is a big area of growth. They've been in aerospace and defense for a while, satellite communications and doing work for Starlink out of Tesla and SpaceX. That's actually a logo that we announced now. 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 2 weeks ago. We are awaiting a PO for another 1 to 3 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. As much as the negativity that's been around the AI swirl in the last couple of weeks and actually the 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 in semiconductors and lead times have gone out, this will shake out like every other technology inflection point we've been through such as 2001 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 on top of 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 and which will insulate us from being so focused on having to derive our revenue from automotive, which has really been the mainstay of Data I/O 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 do want 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 in services as we build better automation alongside V-TEK, that's one of their expertise is automation will help us drive better margins and also be able to service customers that probably better service rates than they get today from the current providers that are in the market.

From a financial upside, like I said, this is accretive to the business. It does double our revenues, so close to. And I think you'll start to see those numbers percolate through the end of Q4. As far as the acquisition, the some of the highlights on Page 5. I don't know where we are in the slide deck, but on Page 5, 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 of decades, and it really needed a big change. Services obviously was something that's been on the road map for a little while. It's not an easy thing to execute.

And so 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 of 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 value as far as the business goes financially and the diversity in domains and customers, but it gives us an immediate 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 I/O about moving to an OpEx versus a CapEx model. We had a conversation with a large CM the other day where they want to rent the machine for about 6 months. And instead of renting the machine, we offered Programming-as-a-Service, and they were very excited about us being able to offer that opportunity to them because they just -- obviously, this is new and have no idea, but 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 is just for a quick 6-month 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 great to be back in the programming services industry and business and the opportunities that Data I/O creates just by being the market position we're in, should allow us to significantly grow the A&J Programming business.

We certainly, based on bringing these 2 platforms, we become a much more strategic supplier to the semiconductor supply chain with V-TEK and its capabilities with stronger, more diversified revenue profile across the different diverse industries that we're in and customers. Significant long-term, near-term cost synergies, those have been activated. We should have probably a good 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 million -- or Charlie mentioned, we raised $22.5 million for this acquisition and for growth 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 the growth on the cash balance sheet to continue to grow, probably starting sometime in Q1 and continue to grow throughout 2027. And let's see, lastly, seasoned 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. So 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. And look, it's difficult to right out of the gate, get value from M&A. I can already see it within the first 3 weeks. So -- this is one of those ones that actually 1+1=2 or I would say 3 in this case.

So next page, Business transaction summary, Q3 combined pro forma. -- they give you an idea of kind of the combined numbers, just some basic KPIs. But if we were combined in Q3, we would be looking at a $10 million quarter, backlog about $8.8 million. As you see in the quarter, we've been able to do a great job operationally here at Data I/O 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 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 long-standing committed orders over multiple quarters. Q3 EBITDA probably in around the $2 million range or a little less.

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 probably increase by 100 or 200, 300 basis points. And why I can say that with some confidence is that -- at Source, we ran in the high 50s pretty consistently. And even after we sold to Avnet with the 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 help margins increase as well. And the consideration for the business, we paid $23 million. $3 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 KODA. They were great through this entire process.

It was great working with Bill Karol 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 want 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 advisers 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 think I'd like to conclude at that time. That's the -- and thanks for taking the time early this morning, a little early here in 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 are 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: We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Craig White from Devon Capital.

Unknown Analyst: 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 have one other question.

William Wentworth: Yes, sure. It is definitely a new market for Data I/O for sure. It's been a market that V-TEK has been serving, I'm going to say, for at least 4 or 5 years. And again, I'm guessing on that. I know some of the customers they have are 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 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 -- they're cut from the die, sorted, they're orientated. So there's vision inspection there' 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 V-TEK deals with. I hope that answers your question.

Unknown Analyst: Yes. Very interesting.

William Wentworth: A couple of the customer names will be Ciena and Ephos. Those are 2 of their main customers. So that helps you give an indication of the companies that they deal with.

Unknown Analyst: Yes. Yes, it does. And 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 details?

Charles DiBona: Yes. 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 that we would expect there to be positive accretion immediately 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 see -- realize some of those. Actually, we're starting to realize some as soon as next week.

And so whereas sometimes those are -- the synergy word is kind of -- it's got a bad reputation. You probably earned a bad reputation.

William Wentworth: Let me do it, but I can describe some of it. You're obviously going to have some clear overlap in certain roles and sales and some other areas. And -- but this is not an acquisition. This is not a roll-up, right? This is more of a cap and grow. But there are areas in manufacturing. They also have a machine shop. So we buy outside metal from other suppliers that is prepainted and predrilled. 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 of manufacturing capacity from a people perspective, but there'll be a movement of some of what we built 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 obviously, costs on certain systems could reduce based on location and build locations. But there are some obvious overlaps in some of the business that will create some of those synergies. And they were identified months ago.

And through a couple of the acquisitions of some folks that are going to be moving on due to the acquisition, and they were pretty much probably going to move on anyways from the acquisitions that V-TEK did. So yes, some of the kind of classic synergies -- and then you have some new synergies around materials, operations and things like that. One of the things that we've done, too, is at Data I/O over the last 2 years to increase and optimize the business, we were early adopters of AI. And it has created huge benefits for Data I/O and 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. V-TEK's not used 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.

Charles DiBona: 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 -- these entities to work together and sort of -- like Bill said, 1+1=3 in this case.

William Wentworth: There's a significant amount of sales synergies here as well.

Operator: [Operator Instructions] And our next question comes from Michael William from MB Family Office.

Unknown Analyst: Nice quarter. How important is it to your customers for Data I/O now having under one roof all the platform capital equipment, the device support engineering, the software and the programming services for you to offer them?

William Wentworth: Yes, it's a significant value. I mean, like I said, when -- back when Doug and I and Monty and a few other team members that are here from Source, we're growing Source into the global programming powerhouse that became. One of the things we wish we had was a Data I/O. As a matter of fact, when we sold to Avnet, it was one of the things we proposed to the management team there was to buy 1 or 2 of the programming houses just because it's not just having the equipment and lowering your cost and being able to produce products.

One of the things here, I can tell you the team here that's been here for some of them over 30 years, Dwayne Jones, our Vice President of Manufacturing. One of the -- and in engineering, one of the things that he mentioned, it'd always be great to have a place to try out the new equipment to make sure it runs the way we want to make sure it meets the specifications, has the tolerances that it was designed for.

Now we get to actually bring that equipment to life and put it in play in our own programming centers. and be able to put it through the test to really test this equipment out in the right way before we deploy it. We're not abandoning the CapEx market. I want to be very clear about that. There are customers out there that are always going to want to do it themselves, and that could be due to compliance or security or whatever. Automotive usually like to keep their supply chains pretty tight, so I like to see things under one roof.

So we'll continue to invest in our core business and our programming platform and our automated solutions because it's not only beneficial for our own services business, but our customers still need it, and we're still going to be heavily in that market. My goal -- our goal next year is we've got a new platform coming out at the end of next year that we believe will put Data I/O in the #1 position from a programming platform perspective. We're investing a ton of money in our programming platform. This company is what it's known for. It's what I've known it for over 40 years is that Data I/O was #1 in this industry for decades.

And I want to put them back on top, and that's our goal as a business. So overall, great question. Thank you for that. I think if you look at how we're investing our capital in new technology, new automated solutions and now having services as an offering to our customers, my expectation is we will be the best across all 3.

Unknown Analyst: Great. A quick follow-up. You mentioned programming services and your interest in it. How big is the programming services market potentially as compared to the capital equipment market -- can you explain the 2 go-to-market models for programming as a service?

William Wentworth: Well, thank you for reminding me because I was going to in the deck. So when I came to Data I/O just over 2 years ago, and I've been out of the programming industry. I was in the IT industry for 10 years prior to that. And it was just coming back to the market and really seeing that, one, Data I/O had a few more competitors than they did a decade or 2 ago. And the market size was -- had not really grown that much. It's been hovering around $130 million to $150 million a year. And with 3 other competitors in there, it doesn't leave a lot of room for growth.

So it was clear day 1 that we needed to expand into services and also take the platform and potentially move it to test and work with people such as like the Teradyne of the world and maybe get our engine into their board testers for the other side of the market. But if you look at how you provision data to semiconductors, to programmable semiconductors, either do it offline with equipment like ours, you do it with a service provider or you can do it at test. The programming services industry, and again, I'm giving you an estimate based on back-of-the-envelope calculation I've done, but I would estimate it between $500 million and $700 million a year in services.

And that's done -- like I said, it can be done in independents, contract manufacturers buy equipment from people like us. And then there's independent service providers are spread out across the globe. It's very fragmented. So there's the opportunity there to roll some of those companies up through acquisitions. I don't see us doing that. I see us doing an acquisition or 2 in certain regions just to bust in, so I don't have to do it organically. That to me, especially in places like Asia, where it's really difficult to get in and get customers right out of the gate, it's a longer growth one.

When we had -- when source -- when Supply chain started to shift, in '02, '03, '04 into Asia, specifically China and Southeast Asia, we had opened up in Singapore at the time. And that ended up being our largest programming center and was the largest programming center in the world with almost 80 automated machines in one space. We were doing probably well over 100 million units a year out of that location. So that's an area probably we will look for acquisition, but we also have already some organic opportunities to open up in Asia as well already.

So that being said, the overall market, if you look at those 3 areas, I'd say in total is a little over $1 billion, maybe $1 billion to $1.2 billion for programming and programming services and provisioning. Now there is security provisioning, which is going to add to that because -- and we'll talk more about that during Q4, be on the lookout for announcements in the next 30 days or so. That's going to add another level of revenue to us that will be attached to standard provisioning services. So it's healthy, good margins, high velocity.

It's not like CapEx where you book an order and you may get a couple of systems out of that and you get a nice bump of capital that comes in and then you wait another 3 months or another year because these machines do last a long time. So as you know, the CapEx market is pretty chunky and the capital that comes -- the cash flow that comes with it is chunky. The beauty about services is you're constantly getting cash flow in the door every day, every month, every week. And some of these deals when we go on site will be contractual.

So we are working on a couple of existing Data I/O customers about turning a CapEx model into an OpEx model on-prem.

Unknown Analyst: Great. Great. Could you expand upon the models for programming-as-a-Service? I was just a little confused on that. You said there's obviously several...

William Wentworth: Yes.

Unknown Analyst: several categories.

William Wentworth: Categories. main models you provide regional services, so like A&J is a regional programming center or you do on-site. So yes, those are the 2 kind of business models themselves. So you have your own location and customers in that region come in and use your services in that local region or you go on-site to the manufacturer where they're actually building the products and you put the CapEx there, you hire the people and you run the process yourself. Those are the 2 provisioning models.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Will Wentworth, Chief Executive Officer, for any closing remarks.

William Wentworth: Thanks. I really appreciate the time that people put up this early to listen to our call. We are extremely excited about this acquisition. I can't tell you how well the teams are already melding well together. And the interesting part is both V-TEK and Data I/O have been in the industry for a while. So these were folks that we have already known and had some relationships with. So the continuity within the management team is really strong already. And I'll tell you that's -- culture is a big part of having a successful acquisition. The cultures match really well. I will tell you that is something I learned at Avnet.

That's a company that's done a lot of great acquisitions over its history with lessons that I learned there that I took with me here. But also in my own experience working in private equity after I left Avnet. So like I said, M&A can be kind of intimidating and also can be daunting and also can cause a lot of problems with companies. And I've seen it over the years. I'd like to say I've been around some really, really intelligent people that have schooled me really well in this area.

And I can tell you this is one of those acquisitions that is going to bode well for Data I/O and its shareholders and create a significant amount of value going forward. So I thank everybody on the call and thank everybody who's listening that was part of this process. We couldn't did it without you and look forward to Q4 and really looking forward to 2027. Thank you.

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.

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