Data I/O Corporation Price & Performance (DAIO)

Thank you, operator, and welcome to everyone. This is the Data IO Corporation fourth quarter twenty twenty four financial results conference call. With me today are the company's President and CEO, Bill Lenworth and Chief Financial Officer and Vice President, Gerald Ng. Before we begin, I'd like to remind you that statements made in this conference call concerning future events, results from operations, financial position, markets, economic conditions, supply chain expectations, estimated impact of tax and other regulatory reform, product releases, new industry partnerships and any other statements that may be construed as a prediction of future performance or events 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 by such statements. These factors include uncertainties as to the impact on global and geopolitical events, international 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 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 Forms 10 ks and 10 Q with the Securities and Exchange Commission.

Our press releases and other communications. The accuracy and completeness of forward looking statements should not be unduly relied upon. Data IO is under no duty to update any forward looking statements. And now, I'd like to turn the call over to Bill Wentworth, President and CEO of BID. IO Data. Thanks, Jordan. Appreciate the handoff. Comments, I'm going to be following the press earnings release released a short time ago and try to follow along that path and add some color along the way. To some of the things that we've started to see some traction and early traction.

Since becoming CEO October 1, myself and the team have been in deep discovery throughout the business. Our findings have taken us through pretty much every functional department. Looking for opportunities both to expand and where we the company has had success in the past, but also look for other opportunities to create some operational leverage and expand the business into new markets. Given my experience over the last thirty years, thirty five years, in the programming services business and opening up a regional programming center back when I was 22 years old and built up to the largest global programming center in the world. It gives me a unique insight to I feel what customers need and want and need towards the future. So So being in this space as long as I have and it's been really pleasure getting back into it and on brought back a lot of great memories and it shows that I still have a significant amount of passion for this is it really has been great to meet the team and get back engaged in this industry. It's a very unique interesting niche industry, but there's a lot of unique qualities about it that make it really special.

So in the post kind of initial phase of discovery, We've started using a consultative sales approach. And what I mean by consultative, it's really programming and programming an operation creating an operation, there's a lot of unique attributes that customers need to know when taking this process on. As not just buying a big automated system plugging it in.

And just throwing in product in one end and having it come out the other end and having it be done correctly. There are processes pre and post that have to be initiated and should be thought through and taking on this process and bringing things in house and even adding some of the experiences myself and some of the other team members such as Monte Reagan, who's been in this business for twenty, twenty five years, we can share with our customers and share with our providers best practice that we've experienced throughout the years. Again, I mentioned Monty, he's our newly appointed VP of Sales and Marketing. And has really driven this consultative sales approach. And we've seen some really good initial results granted it's a small sample size, But if we look at kind of cycle time of sales, which typically from conversation to close was over one hundred and forty days in the past. And this is just an early sample size in the first two months of this year. We've gotten it down to 70.

So we can see the traction. The conversation is being recognized customers understand they really appreciate this consultative approach because they really feel like we're building a partnership with them and we're there to help them not just buy capital equipment, but help them put it to use the right way so that are successful. As you know, one of the first moves I made early on is trimming some of the executive team And really that's I was brought in to make change. And it was really just more wasn't just a signal, it was really looking at where the business was going understanding the people that were here to set those directions. We're really not, I think, in the best interest of the company. And best interest of the market and our customers. So it made sense to kind of part ways and and set that new direction. And sometimes change is accepted, sometimes [indiscernible] as we trim that management team, I think we got we were able to get the focus on the areas that matter to our customers. And really take those ideas to market.

So since joining DataRoute, Jerry Ng Data continued to reduce our operating expenses. We continue to find opportunities to Example, we've deployed an AI agent to reduce time to in our device request and algorithm process. We will continue to use technology to operationalize and automate what [indiscernible] are a lot of opportunities to continue that trend. We will continue to exploit those areas and improve our operating capability, which will give us additional operating [indiscernible] One of the other main goals as I've talked to a lot of shareholders over the last four or five months is really building out our algorithm library. This is not something in the past that you've heard a lot about But back in the early 80s and 90s when Dataaro had probably 75%, 80% market share, They had the greatest library. And that library of algorithms is what really creates the buying decision. As a consumer such as myself. If I've got to support a wide range of customers and products, I have to have a large library. Of algorithms of parts that we support. So that is something that's going to be in real focus and it's it's one of the many KPIs we'll be tracking on a day to day, week to week, month to month basis because it will talk to the growth and the consumption of our platform.

That being said, you'll see these KPIs and you'll hear about them more and more in the future. It's clear that these strategies are spot on and the numbers are starting to Now we need to start doubling down for acceleration for the growth of the business. We do have line of sight as I mentioned earlier to the operation leverage. We continue to see improvements in revenue and growth and the indications are positive. [indiscernible] generation programming platform for the future. We brought in some thought leadership very exciting stuff that we'll be talking out to throughout the year. Deploying our manual programming platform, so sometime around summer and improving our algo and adaptive development and delivery. These are that is the one area that a customer comes to you for request of supporting a device that means they want to use your platform. So it's how you support them, how fast you support them and the it gets you to gain market share. These investments along with other investments I've talked about today collectively enable us to tap into a much longer addressable market. Than in the past. And in my experience, I've seen companies and not just Data out, other companies this space.

Not And it's important that we stay engaged with the semiconductor suppliers customers intimately. So we understand where they're going with their product development. And also make sure that we have the technology available to them to buy. And consume and be able to solve that problem. So in closing, and I would say that this has been what I've tasked to do and return the company to profitability and accelerate our top line growth and market share. This is something I've done several times in my career. It's actually uniquely fun in a way if you've done it before because the results when you get there are quite rewarding. So I would like to pass it off the financial review to Jerry Ying.

Thank you, Bill, and good day to everyone. I look forward to outlining and elaborating on our recent financial performance in more detail.

My comments today will focus on key points of interest for the fourth quarter and the full year 2024. [indiscernible] recent performance has been impacted by automotive electronics uncertainty, and limited customer capacity expansion. Resulting in lower [indiscernible] Percent from the prior period. For the 2024 sales were $21,800,000 down 22% from $28,100,000 for 2023.

The booking and revenue declines were greatest in the America and European Data, Overall, automotive electronics represented 59% of our 2024 bookings. As compared to a higher 63% for 2023. While overall revenue performance was below expectations, we do have some positive performance to highlight Despite the current automotive market headwinds in The Americas and Europe, Asia revenue grew at 14% for the year. Our European channel booked a 10 system $2,800,000 order in Q1 of twenty twenty four, with initial shipments occurring in this past fourth quarter, Reoccurring revenue such as adapters and services remain steady. Representing 50% of full year's revenue and providing a steady base to help offset the softness in system sales. Finally, order backlog remains strong at $3,500,000 as of December 31, up 700,000 from the start of the year. And will contribute to shipments and revenue recognition as we enter 2025. Moving on to gross margin, For the fourth quarter, and for the full year, was at 5253% respectively. Down from 58% achieved in 2023. The lower margin percentages primarily reflect lower sales volume, related and related absorption of fixed manufacturing and service costs. However, our performance benefited from material cost reductions quality improvements just general operational efficiencies This was reflected in our actual 2024 production and service spending which decreased 250,000 or 4% from the prior year.

Operating expenses in Q4 were $4,179,000 or 5% from the prior period However, fourth quarter spending included approximately 500,000 in one time charges from the previously announced organizational and leadership changes and an additional 120,000 for strategic technology platform investments. These one time charges and investments will contribute to future savings in 2025.

Full year expenses were $14,600,000 down $1,100,000 or 7% from the prior year. Excluding the one time fourth quarter charges noted earlier, Full year expenses would have been down $1,700,000 or 12% from the prior year. The company did incur a net loss of $1,200,000 for the fourth quarter and $3,100,000 for the full year as compared to a net profit of $144,000 in the fourth quarter and $486,000 for the full year 2023. 2024 revenue decrease of $6,300,000 and gross profit declined of four forty basis points contributed to the gross profit decline of 4,600,000.0 which was partially offset by the $1,100,000 in operating expense reductions. For the full year, adjusted EBITDA was a loss of $1,400,000 compared to $2,300,000 gain in 2023.

Moving to the balance sheet. We continue to maintain a healthy cash position In addition, trade receivable agent remains very [indiscernible] and inventory levels are sufficient to cover our backlog and anticipated sales. Accounts receivable was $4,000,000 as of December 31, with DSOs improving to sixty days compared to sixty nine days at the end of twenty twenty three.

Inventory at $6,200,000 increased 300,000 from the beginning of the year in anticipation of future backlog reductions. From bookings earlier in the year. Net working capital was 16,100,000.0 at the end of twenty the company continues to have no debt. We ended the year with down $2,000,000 from the $12,300,000 from the start of twenty twenty four. Due primarily to the loss stemming from the lower revenue 2024. Cash benefited from continued customer collections, and lower operating expense. Cash optimization between corporate and our international remain a focus including the $3,400,000 of cash repatriated from our China subsidiary the second quarter of twenty twenty four. As reported earlier in the year. We have more than enough cash and working capital to cover current and future operating needs. But we'll continue to focus on having the capital needed to fund [indiscernible] strategic and operating investments as needed.

Looking ahead, our entire team and channel partners are focused on driving sales improvement. By leveraging the new go to market and product strategies, which Bill had noted earlier. Improved cost structure achieved through the past year is expected to contribute to our ability to make future business investments as well as mitigate emerging supply chain uncertainties. Including tariffs, and inflationary pressures. Overall, we remain very solid financially with a strong cash position. No debt, and improved costs and operating structure. Which will enable us to proceed [indiscernible] of the new reimagined market approach. Again, as Bill alluded to, That concludes my remarks for the fourth quarter of twenty twenty four. Operator, could you please start the Q and A process?

Certainly. We will now begin the question and answer session. Today's first question comes from David Marsh with Singular Research. Please go ahead.

Yes.

Hi. Thank you guys for taking the questions. Good afternoon.

Hi. Hi, Dave.

So, Jerry, just want to start, want to make sure I heard you right.

So So it sounds like [indiscernible] in the fourth quarter. And so as we rolled forward, we should we could kind of expect a commensurate [indiscernible] [indiscernible] your kind of SG and A and R and D, is that an accurate statement?

That is an accurate statement in the sense that they should be nonrecurring as we walk into the New Year. But Dave, of course, we will always continue to look at our spending levels continue to drive efficiencies. And at the same time, potentially redeploy and expand investments as needed. But you are correct, the one time expenses in Q4 should not occur 2025. Okay. That's great. And then just kind of turning more to the sales side, Bill, more for you. I think that Q4 was probably a little light of What most people who follow the company were probably expecting I'm sure there were a lot of puts and takes there. Can you just talk about and obviously with the political change in The U. S. [indiscernible] It has an impact overall on the market. I mean, can you just talk about the sales funnel and kind of what it looks like right now and kind of help help us structure expectations for the year.

Yes, sure. Obviously, with the given change in [indiscernible] the political environment and obviously all the tariff wars that seem to be going on. Obviously, there's a lot of concerns out there about slowdown this year's growth perspectives and things like that. And yes, Q4 was definitely not the Not what anybody would expect, but that trend was going on since really the beginning of last year. The bookings have been tilting towards $5,000,000 quarter over quarter and [indiscernible] year slowed. And there's a big impact from a in the automotive industry. Given when you're in really captured by one industry that there's any title shift there, you're going to feel the pain. And it's one of the reasons why we're going to expand and focus on other the market And that's what I've talked to some of the shareholders about this in some of the conferences is about that service provider network and that's franchise distribution, contract manufacturers, independent service providers like my old company Source and there are Source like companies out there. There's a lot of opportunities there. They do feed they do obviously sell to a lot of different markets. And industries. So that gives you built in diversity just by selling to those.

And that grouping probably consumes more of our technology than any other group in the industry itself. They Data all tended to they shifted away from a focus on that that space. One is because look, they get a lot of demand from their clients because they feed a lot of customers. The arrows and the admins of the world, they feed a significant part of supply chain globally. And so the requests that come in from varying different customers across very large technology space in the semiconductor space does leave it to be challenging especially in the algo and device requests. You get a lot of them. So you have to fund that activity And look, from my early numbers and getting reengaged with those companies, Now there's a significant percentage [indiscernible] It's better than 25%, 30%, 35% of those. And there's a significant amount of requests. So we have to position the company as service customer segments such as such as service providers, services and support that they need can be hugely beneficial to growth.

So I appreciate that. Yes, I appreciate that. Going into this year, I would say our background our our bookings are strengthening. I'd say Q1 is definitely better than Q4. I can say that with some confidence. How much better we'll see? We've got one of my favorite months coming up March because there's no holidays than St. Patrick's Data, but should get through that pretty good. So you get a lot more shipping days in March. It's usually a pretty strong month. It's a good indicator, I think going into the summer of what you can look like as far as manufacturing looks like and the manufacturing spend. Yes, the political environment doesn't help give a lot of confidence. But as you see in the headlines, you see companies like Apple making investments in The U. S. Because of what's going on. There is a de risk of China moving to other geometries and geos in the world and we got to make sure we're in position to capture that. Supply chain shifts are nothing new to this industry. I've been through many of them. I look at back in the 90s when North America OEMs were selling manufacturing facilities all over the globe and moving to And so you have to be in position for these supply chain shifts in order to grab that market share.

We're creating plans to to do just that.

Great. Thank you so much. Appreciate that color. Get back in the queue.

Thank you. The next question comes from Igor Novioreso with Lares Capital. Please go ahead.

Hello, Bill. Hello, everybody. I'm a little bit new to the company and new shareholder. So I think you have your work cut out for you. Let's just say that.

I have actually a few questions and I'll maybe ask a couple and get to the monopolize the conversation. But let me ask what you this everybody is talking about is tariffs. So you have a big benefit facility in U. S. You have a big manufacturing facility in China. How much of your product needs to cross from U. S. To China and from China to U. S? I mean, what if you can quantify the tariff impact? Let's just assume that it will stay and whatever was announced would actually take place.

This is Jerry and I'll kind of try to tackle that question. Number one, obviously, we are an international company. With multiple manufacturing footprints and a broad distribution of [indiscernible] And so that actually is beneficial to us a certain degree from a tariffs perspective. I. E, not all products are coming outside of The U. U. S. Into The U. S. And where U. S. Is your company example, So that's that's number one. Number two, Where it's pretty fairly well leveraged company. In short, if you look at our gross profits, it's fairly relatively high. And if you look at our actual material costs, it actually is fairly reasonable in terms of its own contribution to our profit. The point I want to make there is while we obviously are actively managing and wanting to mitigate tariff and inflation, The ultimate impact on our material costs and our profitability is somewhat minimized given our strong leverage. Number three, we are actively looking at mitigating [indiscernible] And we can do that in a couple of different layers. Number one, to the extent that we can bypass products coming into The U. S, and going directly to end customers through the rest of the world.

Allows us to mitigate Number two, products that do come into The U. S. To the extent that we can actually bring in sub components that are at lower value versus in items that's another example of our ability to potentially mitigate tariffs. Number three, to the extent that we do have to pay tariffs, for stuff coming into The U. S, U. S. Government does allow us for some sort of duty recovery. For stuff that ultimately leaves the U. S. And those are just some examples of things we're doing to try to mitigate tariffs to the extent that we can.

And to add on to that, tariff discussion, obviously, we owe it to our customers to have other plans in case things get worse, right? And that's always a possibility. And you have to have contingent [indiscernible] to move things like Adaptor manufacturing out of China we have to or at least a portion of it. We would never move all of it because we have a significant amount of business in China itself. So are things we are looking at to do.

Now to build on that, one of the benefits of the COVID years was the fact that we had to become resilient in our ability to basically cover for any disruption in [indiscernible] And that clearly was the case during COVID years with China. Our operations in China as well as in The U. S. So we do have where it makes sense and where it's efficient do have some strong resiliency that allows us some flexibility as well.

Facility in Remington can build all products. We have other partners we had to to build our adapters as a backup if needed and we can turn that switch on fairly quickly.

So we've got both short term actions, short term mitigations as well as some longer term strategic directions that clearly is better disposed of.

All right. I think that's a lot of information, a lot of details. My other question and it's a bit of a speculation, but this obviously, first thing I noticed that Asia is doing well. And U. S. And Europe not so much. And obviously, as you main segment is automotive. How much is it attributed to the success of Lexus vehicles in Asia and sort of below trend less success in U. S. Versus internal combustion vehicles. I mean my speculation is that you sell a lot to vehicles and there is a whole lot more electronics, right?

Yes. Well, it's like automotive is a very It's one that my old services company actually entered the mid-90s and that's when automotive really started to use technology and as far as your [indiscernible] engine control modules, the complexity of those modules using various different CAN microcontrollers start to expand I think back at when we first entered the automotive market, there was probably an average of 22 microcontrollers.

In a car. That's that includes some flash The expansion of technology inside the cockpit has obviously gone well beyond that and [indiscernible] electrification has caused even more. But combustion engines, engine based cars still use a ton of technology. It's not just all electric. I mean electric cars still only represent 10% of the overall and we grew far further than obviously grew beyond 10% year, especially in 2017, other years where we captured a lot of this UFS and EMMC programming. It's not just automotive. There's a lot of that large density flash that's also used in consumer based electronics, which we have some pretty good and China at large in Mexico. So yes, electrification is a part of that, but I would still say combustion engine cars still drive a significant amount of overall content companies like Bosch and Continental and others they sell to mostly those combustion engine manufacturers. So I would say it's a little bit of both. Did electrification bring a portion of of additional demand, sure, but it was the demand driven by as much as your standard kind of vehicles we've been driving for years.

Thank you. The next question comes from George Marama with Perito Ventures.

Please go ahead.

Yes. Hi, guys. Thanks for taking the call. Happy to see the energy and changes of foot at Data IO.

I was wondering with the changes taking place in the expanding the aperture to new verticals, and to looking at sales processes, If you look out into 25, In terms of timelines and key milestones, do you think you can inflect to some sequential kind of lift off these sort of $5,000,000 quarters or something? In 2025? Or is that more of a 2026, 2027 kind of phenomenon you think?

Well, do you want to take a first stab at that, Sharon?

Well, obviously, first foremost, we at Dedo, I don't give forward looking guidance. But that being said, I think George, what you've articulated is correct. No, I think that we've kind of averaged around 5,000,000 plus or minus per quarter this recent quarter. And clearly management makes expectation is to put initiatives in place allows us to take it from five to six and beyond. And so that's clearly, clearly the goal. Some of the strategies that Bill articulated is going to take time. As we all know, both product go to market and then eventually customer impact does take a little bit of time. And so we do hopefully anticipate that that those the benefits will be as we walk into 2025 and find time to improve on that. Want to provide some facts here. We do have a nice backlog And so that backlog, which is what we've communicated, will help us in the near term And so I think in the end, our goal is to improve revenue where we may have a little bit of assistance with a strong backlog to help us early on. And then hopefully the other imperatives improvements we make will help on the back think to add some color to that, I I think back at the consultative sales approach that we started and just January alone really this quarter.

It was something that Monty and I discussed He started the same week I did back in because we both were out of this market for about five years. So it's been fun getting back engaged with it and looking back at some of the things that we did as even a supplier as a consumer of the technology and Monty came from BP. So he's been on this equipment side I've been on the consumption side of it. But also hired them and worked with them fifteen years directly.

So he was on the service side as well. So I think when we look through and reflect back on our history, the market really hasn't changed that much and the dynamics have been changed that much. It's really taking the things that we felt that we would have wanted [indiscernible] As our suppliers to expand kind of our needs as a customer. We've taken that approach and really melded it into a really good consultative conversation to have with our customers. And again, it's only been our direct sales force that's been using this approach so far and we've seen a really good some really good traction early on. And so as we fine tune this discussion and turn into a sales playbook, which we will be in the next month or so, We'll be rolling that out to our reps probably in late Q2, probably summer.

We'll be piloting with a couple of our stronger reps that have a little more technical capability and understanding of supply chains. And roll that out and which should accelerate what we've seen already.

Okay, great. Sounds great. Thank you. Thank you. The next question comes from David Cannon with Cannon Wealth Management.

Please go ahead.

Hi, guys. Thanks for taking my questions.

Could you, Jerry, give us a more deep is going to come down to? I know there was some one time Are we going to get below $3,400,000 a quarter run rate Dave, you're going to make me look at my numbers. I think we've been I think again, a couple of things about our expenses. Number one, because we are a public company, our because of audit, SEC filing and things of that nature. [indiscernible] So, to your question on the $3,500,000 let's say run Data, I think we've been averaging 3.3, 3.2 think in 3.5. Again, these are all factual information that's available Clearly, the expectation is that we continue to hold our expenses to the lowest level possible while making appropriate strategic investments in the business. The to the earlier question regarding the one timers, the one timers have a two double impact Number one, the expenses in the current year should not occur next year. And then when we would hold up some of these expenses will reap savings the next year. And so that being said, one would hope that we are able to then drive use those savings to make appropriate investments in the business and at the same time cut ahold of expenses relatively steady.

So To your question, Dave, I think our expectation would be to hopefully continue to hold our expenses as tight as possible. Until we can see recovery on the top line. And to make sure that our expenses don't lead the top line recovery.

Okay. And then in Q1, I mean, we're we're two thirds of the way through Q1. Did you see an improvement in orders? I believe for Q4, you guys called out orders or bookings were like $4,200,000 Did you see a better run rate starting the New Year? And could you give us any color on that, Bill?

Well, given that we typically do not forecast Dave, based I think on my commentary, you heard in that that I saw improvements over Q4. So to say that we were going to have a four, four quarters keeping that's not the trend line. The trend line is increasing I don't want to predict economic given we have our biggest ship month. We have some great backlog of orders. We've been able to pull in some things through conversations. [indiscernible] we'll just we'll see how the quarter ends, but [indiscernible] The signs are good. Yes.

So the data on that one, you are correct.

Our $4,000,000 bookings performance in Q4 was the low mark for the year. And clearly, our expectation is to reverse that in the upcoming quarter in terms of our bookings performance. And then of course that should lead to improved revenue from a conversion point of view. And then again similarly if you look at our backlog we have an okay backlog that should also be beneficial. So I think the expectation is that we would hope to drive improvement in both bookings and revenue. But again, no, our team does a good job of book and ship. Which then basically means we've got a do our job in closing the bookings and getting the conversion. And if we do then Just as an example, Dave, even just our adapter activity is up 49%. I mean, so it's all that turn to orders now, but just that activity increase you're going to book a portion of that, which would be a a lead. And that's the reoccurring number that's a good foundation of our business. It's why it's one of our focuses to attract TSRs and Adaptive sales. It's a key indicator of who's using our platform. So these I know these are things you haven't heard about the past, but these are the keys to driving the business and driving growth.

All indications are we're doing the right things.

Okay.

And then you had in the past you spoke about Data IO being overly dependent on the automotive market and that you felt it was low hanging fruit with programming centers and other verticals. So could you speak to in the New Year, some of the progress that you've made reaching out to those other verticals? And is that are you starting to see that translate to Yes, I'll go right to the adapter. KPI. Is that with the service providers were up 20% early so far this year. And adapter activity and sales So that is an indication of our platform getting used And the more your platform gets used, that turns into sales of automated systems obviously because if they're using your platform more and more and they continue to put in more DSRs and you land that business, going to need additional equipment. So that's how you take market share. So yes, in that category early on, we still have some things we really need to work out and how we service that side, as I said, are they do have a higher demand of requests. But if you don't put the focus and attention on it and So even in the early on where we haven't really made any major major other than really focusing on on what we have today, the resources we have and deploying them to those pieces of those resources towards that that category.

We're seeing positive signals. That tells me it's a place we should invest for.

Okay. And Bill, just a follow-up on what you said regarding adapters. I want to make sure I'm understanding this correctly. So you're tracking adapters, people that are using product Are you saying that in the past, I mean, it's logical the friendliest audience is your existing customer.

Are using product in order for follow on orders and the like. So are you saying that in the past the company wasn't really tracking the adapters and going to those customers and saying, hey, we've got new systems. Can we getting in front of them and is that what you're saying that some of these opportunities were just not really being capitalized upon? They were not really Yes, I wouldn't say there are really opportunities. You have to look at the customer base. So if you think of an automotive customer, right? And automotive is the reason why it's such a great industry is they don't oscillate demand that much other than when you have a bubble like electrification, right, which was a bubble. Right? People everybody thought they were going to get X amount of percentage of market share. I've seen this through the industry when you go back to 02/2001. Every telco and network percent percent market share. Let's say you have a bubble. And so that happened in the automotive industry as well. So that being said, in automotive supply chain and the bill of materials for a car once you've built that model, it doesn't change.

One, because any change takes you have to build out. I won't get into the technical details of their operation that they have to get certified. But that being said, it's any change takes a while. So typically, your bill materials for a car stays pretty steady state for five years until they redo that model. So you don't get a lot of new device requests. You get the initial for the win of the devices they're going to use. But this is why service providers are so important and critical to us as a business in this is where there was a defocus of this market group probably going back five, six, maybe even ten years. And so the problem is that when you don't service that group, you don't get as many device requests. Your library doesn't grow. And so that's a negative. And so it's not just adapter sales of existing business and platform and run rate. It's also getting new device requests to build ADAPTIS for your platform in order for them to consume more. So it's just as much as run rate business but more importantly, it's new device requests. [indiscernible] Yes. Thank you for calling that out.

I'll go back into queue.

Okay.

Thank you. The next question comes from Jeff McCaffrey, Retail Investor. Please go ahead.

Hi, good afternoon, guys. Thank you very much for call so far. Definitely one of the most helpful I've listened to from the team in years. So greatly appreciate it. I appreciate that. Yes, no, this has just been fantastic. I greatly appreciate it. One thing I wanted to see if we could elaborate on my education is you're talking a lot as far as expanding the TAM with the service providers and the contract manufacturers. Can we talk a little bit about what the like the end markets that those guys will be selling into kind of the expansion away from auto that those guys can help drive? What are one or two of the end markets that you're It's honestly great question. By the way and it's being in the tech industry and this particular grew up in distribution. Dad started as an entrepreneur and owned a distributor called Linex. And sold that to Anthem which then became Arrow. So ICA was kind of born into the supply chain. Distribution, which I know very, very well, obviously, saw my company back in 02/2008 to Avnet, which is now Avnet global programming center is Source Electronics. And we did that.

Transaction was a great transaction, great team over there. You look at distribution, automotive is actually a don't want to say today because it's been a little bit while since I've been involved intimately involved with distribution. But it was never a large portion of their revenue. Matter of fact, when I sold Source to Avnet, the liabilities that you carry to the potential liabilities you take on in supplying the automotive industry are quite daunting. Mean, if you don't if you do not execute their fines can go up to $1,000,000 So it's not something you take on lightly. You have to be almost perfect or you have to be perfect. So it was something that from a terms and conditions standpoint, this should content you can't ignore that market and they couldn't right? But I would say, what they serve is a vast amount of different parts of the supply chain that supports all technology. Products, whether it's consumer, whether it's garage door opening systems, consumer electronics, IoT. I mean, they go on and on and on. And that's why I don't know if you remember back in the day when Froy Valley was CEO of Avnet and I know Phil has been on a couple Kramer would come on and he'd introduce Roy and Avnet as the supermarket of the world of electronics.

Because they support everybody. So there's no one in this that drives their content, they support a vast variety of vertical markets and that's what makes them such a great customer because of the diversity. Honestly. [indiscernible] No, that helps. That helps a lot. And one last I hope is kind of simple in a sense is I know before the election, there was a lot of talk with the automotive uncertainty based on who wins and what mandates as far as EVs or combustion. Kind of what would be the political endgame going forward? So with that now settled, is that being settled versus the now introduction of tariff uncertainty what's been greater? Is it the, okay, now we know, okay, it's not going to be all about EVs, every second of the day.

Versus, oh, crap, here are the tariffs.

Which one of those has been a better or bigger offset in your opinion so far?

A better offset? [indiscernible] Let me say it more simply.

The certainty around Trump being in the White House and the impact on auto industry greater than the impact that we're seeing so far around the tariff.

Yes. Again, let me me tackle the tariffs a little bit. Again, from a finance operational perspective, I think identifying ways to manage and mitigate tariffs I think it's a little simpler. [indiscernible] We know our supply chain, we know our logistics, we know our flow. We know what we pay today, and we know what we might pay tomorrow. And we know I said earlier, different tiers of action we can take to try to mitigate that So from a risk mitigation action perspective, it's a little easier to to execute against. Not to say it's easy, but it's easier. I think that obviously when you start to think top line that's always a little more difficult to because we don't directly control that. So I think the whole issue of how are the overall economy and the markets going to progress particularly in Europe and The Americas and Mexico think those clearly would be a bigger uncertainty.

I think one of the things you have to think about in this war of words that's gone on since January 6 of when I'm going Start to really start saber rattling. Interesting to hear this Ukraine. And because if you think about electrification of cars, Electrical cars have six times the amount of rare earth metals than a combustion car. So I find it interesting that all of a sudden we negotiated a new contract for Ukraine. Now I'm not going to get but understanding the overall supply chain because that's what semiconductor start with as well. And so when you think through this whole AI thing, which I call the new oil, look, who knows what's going to happen? This is a battle that I think has just begun and has been going on behind the for a while. We have to mitigate any possibility of major disruptions in the supply chain and that's why you're seeing companies shift I've gotten different percentages from people on the ground in China. From also from The U. S. And there's a varying de risk going on between 20% and upwards of 50%. I don't know which one's right. But we need to prepare for that.

And you know what, with that, there's actually opportunity. Because if you put yourself in the place of that shift, you win. So that's how I look at it.

Thank you.

There are no more questions at this time. I would now like to hand the call back to management for closing remarks.

I really appreciate all the questions. I was really hoping for a lot today. So it was great considering I've been around for a couple of these calls. And I really do appreciate those questions It's super helpful and it gives me a chance how I think and then the challenges. You're always going to be challenged in business and it's how you meet those challenges. How you think through them think it through them as early as possible. So we're really excited about the strategies laying out. Like I said, it's a small sample size being in this industry as long as I have and people like Monty Reagan and others that have been in this company for twenty, twenty five years, thirty years, some of them When I've shared this with them, a lot of them have worked from the [indiscernible] So when you compare those conversations together, things really click together and they're like, oh, yes, that makes sense. So it gets the team motivated. They're really excited to be working on the core platform of the business, which That's you're going to hear that a lot and that term has been in this industry for fifty years.

So, we're excited where we're going. The team is extremely energized And just looking forward to it. To a future and making progress quarter over quarter and that's the plan. We have a a bunch of announcements we'll be making at the time. Based on some milestones and you'll be hearing more about that as the quarters come on. We have been selected to present at the first ever GEO Investor Investing Virtual Investor Conference on March 6, '6. So I suggest if you can attend or view I'll be doing a fireside chat with conference and hopefully be one of those Microcap small cap stocks to look at for this year. At this point, I'd like to conclude the call. Enjoy the rest of your day. Thanks again for joining us and I really appreciate the questions people.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.