Executive Summary

Q3 2025 net sales were $5.4M, flat YoY and down sequentially from $5.9M; gross margin improved to 50.7% (from 49.8% in Q2), but higher one-time expenses (~$585k) drove a wider net loss of ($1.36M), or ($0.15) EPS .
Bookings increased over 7% YoY to $5.1M; eight PSV7000 systems with LumenX programmers were booked across Asia and Mexico; backlog ended at $2.7M with deferred revenue ~$1.4M .
Management emphasized strategic progress: Unified Programming Platform, margin uplift initiatives (pricing, supply chain, labor efficiencies), and remediation of a cybersecurity incident with minimal cost; new CFO appointed and a boutique bank engaged for M&A aligned with growth strategy .
Versus S&P Global consensus, DAIO missed revenue ($5.39M vs $5.80M*) and EPS (-$0.15 vs -$0.10*); coverage is thin (1 estimate each), suggesting estimates may need to reset lower given mix/one-time costs. Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

Bookings rose over 7% YoY to $5.1M; eight PSV7000 systems were booked, with three shipped in-quarter and seven remaining in backlog, supporting EV-related demand and UFS use cases .
Sequential gross margin improved to 50.7% on a higher-margin product mix/configuration, aided by PSV7000 demand and steady direct materials despite tariffs/trade pressures .
Strategic execution: launch momentum for Unified Programming Platform, multiple industry awards for LumenX-M8, cybersecurity remediation completed with process/IT strengthening; management targeting services, embedded applications, and socket manufacturing to diversify revenue . “We are well-positioned to layer on highly incremental, customer-driven product innovation in 2026 and beyond… powered by a single Unified Programming Platform” .

What Went Wrong

Net sales declined sequentially ($5.4M vs $5.9M), and net loss widened to ($1.36M) due to ~($585k) one-time expenses tied to cybersecurity remediation, leadership transition, and platform/IT investments .
Recurring revenue (consumables/services) fell to 24% of total, down sharply from 50% in Q2 and 46% in Q1, reflecting softer socket consumption amid slower unit processing at customers .
Macro/external headwinds: EV manufacturing reassessments, Europe capital equipment spending pressures, tariff/trade uncertainties; management highlighted rare earth supply risk leading to a customer factory shutdown for three weeks . “For right now, it’s still pretty shaky” regarding trade/macro .

Financial Results

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD)	$6.176M	$5.948M	$5.393M
Gross Margin %	51.6%	49.8%	50.7%
Operating Expenses ($USD)	$3.565M	$3.804M	$4.127M
Operating Income (Loss) ($USD)	($0.377M)	($0.844M)	($1.393M)
Net Income (Loss) ($USD)	($0.382M)	($0.742M)	($1.362M)
Diluted EPS ($)	($0.04)	($0.08)	($0.15)
EBITDA ($USD, GAAP)	($0.272M)	($0.687M)	($1.263M)
EBIT Margin %	-6.10%*	-14.19%*	-25.83%*
Net Income Margin %	-6.19%*	-12.47%*	-25.25%*

Values retrieved from S&P Global for rows marked with *.

Segment/Mix breakdown:

Mix Metric	Q1 2025	Q2 2025	Q3 2025
Consumable Adapters & Services (% of revenue)	46%	50%	24%
Capital Equipment (% of revenue)	54%	50%	76%

KPIs:

KPI	Q1 2025	Q2 2025	Q3 2025
Bookings ($USD)	$4.6M	$5.8M	$5.1M
PSV7000 Systems Booked (units)	—	10 (order in backlog/deliveries H2-2025)	8
Backlog ($USD)	$2.9M	$2.8M	$2.7M
Deferred Revenue ($USD)	~$1.5M	~$1.3M	~$1.4M
Automotive Bookings Share (%)	66%	66%	78%
Cash ($USD)	$10.5M	$10.0M	$9.7M
Net Working Capital ($USD)	>$16.0M	$15.6M	$14.4M
Debt	None	None	None

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY/Q4 2025	None provided	None provided	Maintained: No formal numeric guidance
Gross Margin	FY/Q4 2025	None provided	Qualitative: sequential improvement over time via pricing/supply chain/labor efficiencies	Qualitative uplift expected
Operating Expenses	FY/Q4 2025	None provided	One-time items to taper; cost optimization underway (IT savings ~$300k annualized cited in PR; ~$512k potential IT spend reduction discussed)	Optimization underway
Strategic Initiatives	2025–2026	—	Product launches (manual systems, automation refresh), services entry, embedded partnerships; M&A advisor engaged	Expanding scope

Management did not issue explicit revenue/EPS guidance; commentary indicates margin initiatives and product-driven bookings momentum .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Unified Programming Platform & Product Roadmap	Refreshed manual programmers (LumenX-M8, FlashCORE III-M4); roadmap to be detailed; increased consultative selling	Continuous innovation around LumenX; manual/automated solutions; future long-term platform; awards for LumenX-M8	Strengthening execution; external validation via awards
UFS/NVMe technology & yields	Emphasis on complex protocols; investment in bench equipment; partnerships with semi houses	Progress on UFS yields; 4.0 support validated; working to solve 3.1 yields; multi-site architecture changes; socket/contact focus	Technical traction improving; expected to catalyze demand
Tariffs/macro & supply chain	Q1: tariff/trade uncertainties; dual manufacturing in US/China; Europe/Americas recovery; Asia slowed	Europe pressured; Asia relatively stronger; rare earth supply risk; cautious tone on macro/trade still “shaky”	Headwinds persist; selective regional strength
Automotive concentration & diversification	Desire to diversify beyond automotive; consultative approach; EMS/CM focus	Auto bookings 78%; diversification via services/embedded/socket; reps reporting Europe business down 50–60%	Near-term auto dependence persists; diversification plans intensify
Margin management	Q2 mix pressure; activity-based costing; pricing changes; supply chain optimization	Sequential gross margin improvement; initiatives to sustainably raise margins (pricing, labor, direct sales)	Positive sequential trend; structural uplift targeted
Cybersecurity remediation	Not highlighted in Q1/Q2	Incident remediated; ~($585k) one-time expenses in Q3	Addressed; costs elevated in Q3
M&A/partnerships & services	Early-stage dialogues; strategic relationships with semi houses	Boutique bank engaged (25 targets); embedded tech partnerships; services entry plan; sockets market adjacency ($7B)	Accelerating strategic options

Management Commentary

“We made important strategic progress… implementing strategies to sustainably improve our gross margin profile, and advancements in programs to deliver long term growth” — William Wentworth, CEO .
“We are planning for a future around continuous innovation to our Lumen®X programming platform… powered by a single Unified Programming Platform” .
“Automotive electronics… represented 78% of third quarter 2025 bookings… eight PSV7000 systems… booked in the third quarter 2025” .
“We’ve begun a thorough review of gross margin enhancement strategies… likely to include pricing modifications… labor and costing efficiencies, supply chain optimization, and a focus on more direct sales” — CFO .
“Cybersecurity incident… resulted in an improvement in our corporate processes and strengthening of our IT systems… the cost… moderated by the annualized reduction of an estimated $300,000 in spending” .

Q&A Highlights

Platform evolution and adjacent markets: Management outlined next-gen platform targeting embedded tester integration (multi-billion market), services, and sockets ($7B market), aiming to broaden served market and recurring revenue profile .
UFS yield resolution as a demand unlock: Team is close on 3.1 yields with demonstrated 4.0 support; architecture changes (M8→M4 sites, contact/socket improvements) intended to reach 99.8–99.9% yield standards .
Margin levers: Higher consumables margins (~60–70%), pricing discipline on custom systems, reduced consultant/IT spend over time; management sees path back to ~55% gross margins with better rigor .
Macro/tariff caution: Europe remains weak; Asia/Mexico showing pockets of strength; rare earth supply shocks are a risk; tone remains cautious on trade .
Clarifications: One-time expenses breakdown (~$585k in Q3; ~$480k in Q2) and impact on adjusted EBITDA and cash; absent these, adjusted EBITDA would have improved meaningfully .

Estimates Context

Metric	S&P Global Consensus	Actual (Q3 2025)	Surprise
Revenue ($USD)	$5.80M*	$5.393M	-$0.41M (−7%)
Primary EPS ($)	-$0.10*	-$0.15	-$0.05 (more negative)
EBITDA ($USD)	N/A (no consensus)	-$1.263M	N/A
Coverage (# of estimates)	Revenue: 1; EPS: 1	—	Thin coverage

Values retrieved from S&P Global (marked with *). Limited analyst coverage suggests estimates are less robust and may need to reset given mix, one-time costs, and macro commentary.

Key Takeaways for Investors

Near-term print was mixed: sequential margin improvement but lower revenue and wider loss on one-time costs; expect volatile quarters until macro/tariff conditions stabilize and recurring mix normalizes .
Demand catalysts in H2/Q4: productronica demos (Nov 18–21) and Unified Programming Platform launch, plus growing UFS use cases, could support bookings and backlog conversion into early 2026 .
Track UFS yield progress: successful resolution of 3.1 yields should unlock purchasing and retrofit cycles; management signals weeks-to-quarters timeline for improvements .
Margin uplift thesis: pricing discipline, cost accounting, direct sales focus, and IT savings create a path to structurally higher gross margins; consumables/services carry higher margins and scale with installed base .
Diversification plan: entry into services, embedded applications, and socket manufacturing aims to reduce auto concentration and smooth CapEx cyclicality; M&A advisor engaged to accelerate .
Regional lens: Asia/Mexico pockets are stronger; Europe is pressured; monitor tariff/trade and rare earth supply headlines for order timing risk .
Estimates likely to drift: with only one estimate each for revenue/EPS, expect consensus to incorporate lower recurring mix and one-time costs; thin coverage amplifies surprise risk. Values retrieved from S&P Global.

Overall narrative: execution on platform/yield and margin initiatives are the stock’s medium-term catalysts; near-term trading sentiment hinges on H2 bookings cadence, product launch reception, and visibility on diversifying beyond automotive concentration.

DATA I/O CORP (DAIO)·Q3 2025 Earnings Summary