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    DAIO
    Earnings call· Jun 2026(Q2 FY26)

    DATA I/O Q2 FY26 earnings call DAIO

    Aug 12, 2026 Source

    Executive summary

    Data I/O Corporation Q2 FY26 — Strong Sequential Revenue Growth and Margin Improvement

    Data I/O reported strong sequential revenue growth and significant gross margin expansion in Q2 FY26, driven by an inflection in capital equipment demand and operational efficiencies. The company is actively transforming its business through strategic acquisitions, including IAR's security assets, and expanding into new domains like robotics and global communications, aiming for greater scale and diversification. While a reported net loss was impacted by noncash accounting charges, the underlying operational performance showed substantial improvement, with adjusted EBITDA reaching breakeven.

    Highlights

    5

    • Net sales increased 59% sequentially to $5.2 million in Q2 FY26.

    • Gross margin significantly improved to 57% in Q2 FY26, up from 49.5% in Q1 FY26.

    • Adjusted EBITDA reached positive $39,000 in Q2 FY26, compared to negative $1.75 million in Q1 FY26.

    • Achieved goal of reducing total COGS and operating expenses below a $22 million annual run rate by April.

    • Secured 6 new customer logos in H1 FY26, including 3 in automotive, 2 in robotics, and 1 in global communications.

    Concerns

    2

    • Net loss was $1.6 million or $0.17 per share in Q2 FY26, primarily due to $873,000 in noncash interest expense from convertible debenture accounting.

    • Backlog decreased to $2.1 million as of June 30, 2026, from $2.6 million on March 31, 2026.

    Guidance & targets

    8
    CategoryTargetConfidence
    Programming-as-a-Service (PaaS) Contracts
    1 to 3 contracts booked
    medium materiality
    High
    Total COGS and Operating Expenses Annual Run Rate
    Below $22 million
    high materiality
    High
    Breakeven Revenue
    $5.25 million to $5.5 million
    medium materiality
    High
    Device Turnaround Time
    4 weeks
    low materiality
    High
    Organic Revenue Growth
    Growth over 2025
    high materiality
    High
    Recurring and Services Revenue
    Acceleration
    medium materiality
    High
    Programming Services Market Expansion
    Continued expansion
    medium materiality
    High
    Operational and Process Optimizations
    Driving improved margins, including internal application of AI
    high materiality
    High

    Operational metrics

    13
    Net Sales
    $5.2 millionUp 59% sequentially
    Q2 FY26

    Reflects conversion of delayed Q1 orders and an inflection in demand for capital equipment.

    Gross Margin
    57%Up from 49.5% in Q1 FY26
    Q2 FY26

    Highest level since Q2 FY23 with 30% lower revenue.

    Operating Expenses
    $3.7 millionDecline sequentially and from prior year (excluding onetime items)
    Q2 FY26

    Includes onetime expenses; core operating expenses declined.

    Operating Loss
    $724,000Improvement from $844,000 loss in Q2 FY25
    Q2 FY26

    Better performance on lower revenue compared to prior year.

    Net Loss
    $1.6 millionIncreased from $742,000 in Q2 FY25
    Q2 FY26

    Increase driven almost entirely by noncash interest expense.

    Interest Expense (Convertible Debenture)
    $873,000
    Q2 FY26

    Result of amortizing a $1.5 million discount over approximately 3 weeks due to rapid conversion of notes to preferred stock.

    Adjusted EBITDA
    $39,000Compared to negative $1.75 million in Q1 FY26
    Q2 FY26

    Essentially breakeven, reflecting significant operational improvement.

    Cash and investments balance
    $10.8 millionUp from $5.7 million as of March 31
    Q2 FY26

    Reflects proceeds from private placement.

    Net Working Capital
    $10.8 million
    Q2 FY26

    The $6.2 million of convertible debentures were classified as short-term debt at quarter-end, impacting the reported figure. Debentures converted to preferred shares on July 8.

    Convertible Debentures Face Value
    $6.8 million
    Q2 FY26

    Face value of notes from the $9 million private placement, with a portion allocated to notes and the remainder to common shares and warrants.

    New Customer Logos
    6
    H1 FY26

    Reflects expansion into new domains and customer base diversification.

    Revenue Mix (Consumables & Software Services)
    55%Shift from 81% in Q1 FY26
    Q2 FY26

    Shift reflects rebound in capital equipment orders.

    Revenue Mix (Platform Sales)
    45%Shift from 19% in Q1 FY26
    Q2 FY26

    Shift reflects rebound in capital equipment orders.

    Industry KPIs

    5
    MetricValueDetails
    M a contribution—
    Design wins product cycle ramps6new logos
    Order visibility backlog policy—
    Recurring software services mix55%%
    Supply demand imbalance lead times—

    Orderbook & backlog

    3
    Bookings$4.9 millionQ2 FY26

    Up from $4.2 million in Q1 FY26

    Deferred Revenue$1.1 millionQ2 FY26

    Fell slightly from $1.5 million

    Backlog$2.1 millionJune 30, 2026

    Down from $2.6 million on March 31, 2026

    Reflects operating improvements enabling quicker response to orders and improved order to ship performance within the quarter.

    Deals & partnerships

    3
    IARAcquisition of embedded software security and IT-related assets

    Announced intent to acquire in July. Will continue commercial relationship with IAR for compiler and debugging software. Expected to differentiate Data I/O against competitors and fill a customer need for regulatory compliance (e.g., EU Cyber Resiliency Act).

    UndisclosedTransformational acquisition

    Exclusivity extended through the end of August. Due diligence and definitive documentation are progressing. Management remains confident in the acquisition.

    Lead InvestorPrivate placement of $9 million$9 million

    Closed on June 17. Proceeds were allocated across common shares, equity classified warrants, and convertible notes. The convertible notes had a face value of $6.8 million and were classified as short-term debt at quarter-end before conversion.

    Risks & headwinds

    2
    Memory shortages due to AI demandCurrent

    Not quantified, but acknowledged to be affecting some customers using high-speed memory.

    Mitigation: Industry has learned to manage through such situations better than in the past; Data I/O's technologies are not directly related to the specific high-demand AI industry, but there is a ripple effect.

    Geopolitical events, tariffs, trade regulationsOngoing

    Not quantified

    Mitigation: Company continues to mitigate impact of tariffs and other inflationary pressures on direct material costs.

    What to watch in Q3 FY26

    4

    Transformational Acquisition Close

    Next quarter (Q3 FY26)
    CurrentExclusivity extended to August 31
    TargetClosed

    Why it matters

    This acquisition is expected to nearly double annual revenue and significantly boost earnings and cash flows, fundamentally altering the company's scale and financial profile.

    The transformational acquisition is on track. We have extended exclusivity through the end of August, as Bill mentioned, and we progress -- as we progress through diligence and definitive documentation.

    Q&A highlights

    3

    Can you provide an update on the progress of the transformational acquisition mentioned previously, specifically regarding its closing?

    Management confirmed that exclusivity for the acquisition has been extended to the end of August and that they remain confident in its completion, with due diligence tracking to plan.

    “Yes. We just mentioned we extended the exclusivity to the end of August. That's all we commented on other than due diligence long and tracking to plan and that. So...”

    asked by Jon Hickman · answered by William Wentworth

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Acquisitions and Business Transformation

    Data I/O is undergoing a significant transformation, highlighted by two key acquisitions. The company extended exclusivity for a 'transformational acquisition' to August 31, which is expected to nearly double annual revenue and boost earnings and cash flows. Additionally, the acquisition of IAR's embedded software security and IT-related assets will create an end-to-end security provisioning solution, leveraging Data I/O's existing LumenX platform. This security acquisition is expected to open new revenue streams, including software platform sales, annual support contracts, licensing fees, and tokens, and is domain-neutral, accelerating diversification beyond automotive.

    02

    Operational Efficiency and Cost Reduction

    The company achieved its goal of reducing total COGS and operating expenses below a $22 million annual run rate by April of this quarter. This efficiency drive has contributed to significant margin improvement and a preliminary cash flow neutrality in July. Management aims to further enhance operational efficiency, including reducing device turnaround time to 4 weeks from the industry standard of 8-12 weeks, to meet increasing customer demand and improve service.

    03

    Market Demand and Diversification

    Data I/O reported an inflection in demand for capital equipment, with Q2 bookings at $4.9 million, up from $4.2 million in Q1. The sales funnel continues to expand, with 6 new customer logos secured in the first half of the year across automotive, robotics, and global communications. The company is actively diversifying its customer base and reducing dependence on automotive, with new domains like robotics expected to drive significant revenues in the second half of next year. The security acquisition is also seen as a key differentiator, addressing new regulatory mandates like the EU Cyber Resiliency Act.

    04

    Financial Performance and Accounting Impact

    Q2 FY26 net sales were $5.2 million, a 59% sequential increase, with gross margins improving to 57%. Adjusted EBITDA reached positive $39,000, a significant improvement from Q1. However, the reported net loss of $1.6 million was largely due to a noncash, nonrecurring interest expense of $873,000 related to the accounting treatment of a convertible debenture. This debenture converted to Series B preferred shares in July, eliminating the debt from the balance sheet and ensuring this charge will not repeat.

    05

    Programming-as-a-Service (PaaS) Initiative

    The Programming-as-a-Service (PaaS) initiative is progressing, with the company currently in the data collection stage for proposals. Data I/O expects to have proposals ready by the end of Q3 FY26 and aims to book 1 to 3 contracts in Q4 FY26. This new business model is anticipated to contribute to the acceleration of recurring and services revenue, leveraging the company's existing LumenX platform and expanding its market reach.

    AI-generated summary of the company’s earnings call. Not investment advice.