– First Half Net Sales Grew 18% YOY, Backlog Hit Record $10.7 Million; Company Expects Minimum 25% Revenue Growth for Fiscal Year ending February 29, 2024-
-Conference Call on Thursday, October 12, 2023 at 10:00 am ET-
MILTON, NY – (NewMediaWire) – October 12, 2023 – Sono-Tek Corporation (Nasdaq: SOTK), the leading developer and manufacturer of ultrasonic coating systems, today reported financial results for the second quarter and first half of fiscal year 2024, ended August 31, 2023.
Second Quarter Fiscal 2024 Highlights (compared with the second quarter of fiscal 2023 unless otherwise noted). The three-month periods ended August 31, 2023 and 2022 are referred to as the second quarter of fiscal 2024 and fiscal 2023, respectively.
● Net Sales increased 50% to a record $5,639,000, driven by strong shipments to the clean energy, medical and industrial markets, resulting from the easing of previous supply-constrained bottlenecks. Net Sales increased 57% compared to $3,603,000 reported in the first quarter of fiscal 2024 (ended May 31, 2023).
● Gross Profit increased 48% to $2,801,000 and Gross Margin decreased 70 basis points to 49.7% due to product mix.
● Operating income increased 219% to $566,000, primarily due to the increase in gross profit offset by increases in operating expenses, which include the costs of additional professional headcount and other inflationary cost increases.
● Income before taxes nearly tripled to $683,000, fueled by positive operating leverage from the rebound in quarterly sales.
● As of August 31, 2023, the Company had no outstanding debt and cash, cash equivalents and marketable securities totaling $12.3 million.
● Backlog continued to expand primarily from growing orders from the clean energy sector and reached a record $10,707,000 on August 31, 2023, a 112% year-over-year increase and an increase of 26% compared with backlog of $8,500,000 on February 28, 2023.
● Revenue growth of at least 25% is expected for the full fiscal year, ending February 29, 2024, due to increasing shipments from record backlog and projected continued easing of supply chain issues in the balance of the year.
“Sono-Tek reported its strongest quarter ever for the second quarter ended August 31st,” said Dr. Christopher L. Coccio, Chairman and CEO. “Significant improvements in supply chain issues allowed us to ship a number of previously delayed orders from backlog as well as new orders, resulting in record net sales of $5.64 million, compared to net sales of $3.76 million last year, an increase of $1.9 million or 50%. Sales for the first half increased to $9.24 million from $7.81 million last year, or 18%.
“Backlog at August 31st more than doubled to $10.7 million compared to $5.0 million last year and was up 26% from $8.5 million at the end of fiscal 2023. This is the highest reported backlog in our history, and it reflects the increasing order activity from the clean energy sector, including an order valued at $2.19 million that is the largest order from the sector to date, as well as the largest in Sono-Tek’s history.
“Over the past year, we’ve announced a total of $5.59 million in large new orders from the clean energy and medical markets. These orders represent the transition to production scale systems from several customers that we’ve been working with in the R&D phase of design and development. These orders are also the first phase of orders resulting from our deliberate strategy shift to supply large integrated machine solutions with accelerating average selling prices. These sophisticated ultrasonic coating platforms continue to be designed around our proprietary ultrasonic atomization technology, which lies at the heart of every Sono-Tek machine and is where Sono-Tek began more than 40 years ago.
“We’re pleased with these early results of our ongoing transition strategy to larger, more complex systems for production applications, involving multiple and repeat orders. We’re confident that shipments of previously delayed and new orders will continue to positively impact our sales for the remainder of the fiscal year and we’re expecting at least 25% year-over-year growth when we end FY2024 next February,” concluded Dr. Coccio.
Second Quarter Fiscal 2024 Sales Overview
Net sales increased 50% to $5,639,000 in the second quarter of fiscal 2024. The increase was primarily driven by increased demand for Multi-Axis Coating systems which are commonly used in the clean energy and medical device markets. Integrated Coating System sales accelerated from growing market acceptance of the newly developed float glass coating platform. Fluxing system sales dipped this quarter although quoting activity remains strong for these products. OEM sales dipped as well due to many OEM partners having previously built up excess inventory to combat supply chain concerns. This was largely offset by an increase in spare parts and service related revenue, which is a growing revenue stream that is accounted for in the Other product category.
Sales to the Alternative/Clean Energy market grew 161% and were positively impacted by a growing number of Sono-Tek’s customers transitioning from our R&D systems to production scale systems that carry much higher average selling prices. Sono-Tek platforms are used in the manufacturing of critical membranes for carbon capture, green hydrogen generation and fuel cell applications. Medical sales rebounded strongly with 117% growth. Industrial Sales grew 104% due to the recent introduction of several new generation systems.
Approximately 57% of sales were to the U.S. and Canada compared to 44% in the comparable period of fiscal 2023. Sales to the U.S. and Canada increased by 94% and were positively impacted by the continuing trend to onshoring in addition to several U.S. government initiatives that are investing in the clean energy sector and advanced research markets. Asia Pacific (APAC) sales decreased by 35% primarily due to decreased sales to China.
Backlog on August 31, 2023 reached a record high of $10,707,000, a 112% year-over-year increase and an increase of 26% compared with backlog of $8.5 million on February 28, 2023 (the end of fiscal year 2023). The increase in backlog resulted from growing orders from the clean energy sector.
Second Quarter Fiscal 2024 Financial Overview
Gross profit was $2,801,000, an increase of 48% compared with $1,896,000 for the second quarter of fiscal 2023. The gross profit margin was 49.7% compared with 50.4% for the prior year period, primarily due to product mix.
Operating expenses were $2,235,000, a 30% increase from $1,718,000 in the prior year period. The increase was largely due to an approximate 10% increase in headcount, which is primarily composed of technical professionals hired to support our increasing growth and expansion for large platform custom engineered systems. Research and product development costs increased 56% to $789,000 primarily due to increased headcount, salaries and the higher costs of research and development materials and supplies, which are directed to the Company’s ongoing focused growth initiatives. Marketing and selling expenses increased 22% to $945,000 primarily due to increases in headcount, salaries, commissions, travel and trade show expenses, partially offset by a decrease in insurance expenses. General and Administrative expenses increased 15% to $501,000 primarily due to increased salaries and professional fees, partially offset by a decrease in stock-based compensation expense.
Operating income increased 218% to $566,000 compared to $178,000 in the prior year period. The current period’s operating profit growth is a result of the increases in revenue and gross profit partially offset by an increase in operating expenses. Operating margin for the quarter increased to 10% compared with 5% in the prior year period.
Interest and dividend income and unrealized loss on marketable securities increased to $124,000, primarily due to the current high interest rate environment.
Net income was $541,000, or $0.03 per share, compared with $162,000, or $0.01 per share, for the second quarter of fiscal 2023, primarily due to an increase in gross profit and interest and dividend income partially offset by an increase in operating expenses and income tax expense. Diluted weighted average shares outstanding were 15,773,665 compared to 15,775,156 for the prior year period.
First Half Fiscal 2024 Overview
Total sales increased by 18% to $9,242,000 compared to $7,815,000 for the first half of fiscal 2023. Gross profit increased 14% to $4,578,000 for the first half of fiscal 2024 compared with $4,003,000 in the first half of fiscal 2023. The gross profit margin was 49.5% compared with 51.2% for the prior year period. Operating income decreased 15% to $474,000 compared with $558,000 for the first half of fiscal 2023. Operating margin for the first half of fiscal 2023 decreased to 5% compared with 7% in the first half of fiscal 2023. Net income increased to $595,000, or $0.04 per share, for the first half of fiscal 2024 compared with $468,000, or $0.03 per share, for the first half of fiscal 2023. Diluted weighted average shares outstanding were 15,775,032 compared to 15,770,544 for the prior year period.
Balance Sheet and Cash Flow Overview
At August 31, 2023, cash, cash equivalents and marketable securities totaled $12.3 million, Sono-Tek had no debt on its balance sheet and stockholders’ equity was $15.3 million.
At August 31, 2023, the Company had received approximately $3.4 million in cash deposits from its customers. These deposits are downpayments from customers for current orders.
Capital expenditures in the second quarter of fiscal 2024 were $97,000, which were invested in ongoing upgrades to the Company’s manufacturing facilities. Sono-Tek anticipates capital expenditures will total approximately $500,000 in fiscal year 2024.
Conference Call Information
Sono-Tek will hold a conference call to discuss its second quarter and first half of fiscal year 2024 financial results today, Thursday, October 12, 2023 at 10:00 am ET. To participate, please call 1 (844) 481-2752 at least 10 minutes prior to the start of the call and ask to join the Sono-Tek call.
A simultaneous webcast of the call may be accessed through the Company’s website, Events & Presentations | Sono-Tek or at https://event.choruscall.com/mediaframe/webcast.html?webcastid=JYQ8lLKN
A replay of the call will be available at 1 (877) 344-7529, access code #4027026, through October 19, 2023. A replay of the call will also be available on the Company’s website for one year at www.sono-tek.com.
Sono-Tek Corporation is the leading developer and manufacturer of ultrasonic coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on parts and components for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive.
The Company’s solutions are environmentally-friendly, efficient and highly reliable, and enable dramatic reductions in overspray, savings in raw material, water and energy usage and provide improved process repeatability, transfer efficiency, high uniformity and reduced emissions.
Sono-Tek’s growth strategy is focused on leveraging its innovative technologies, proprietary know-how, unique talent and experience, and global reach to further develop thin film coating technologies that enable better outcomes for its customers’ products and processes. For further information, visit www.sono-tek.com.
Safe Harbor Statement
This news release contains forward looking statements regarding future events and the future performance of Sono-Tek Corporation that involve risks and uncertainties that could cause actual results to differ materially. These “forward-looking statements’ are based on currently available competitive, financial and economic data and our operating plans. They are inherently uncertain, and investors must recognize that events could turn out to be significantly different from our expectations and could cause actual results to differ materially.
These factors include, among other considerations, general economic and business conditions; political, regulatory, tax, competitive and technological developments affecting our operations or the demand for our products; inflationary and supply chain pressures; residual effects from COVID-19 pandemic; the recovery of the Electronics/Microelectronics and Medical markets following COVID-19 related slowdowns; maintenance of increased order backlog and timely completion and shipment of related product; the imposition of tariffs; timely development and market acceptance of new products and continued customer validation of our coating technologies; adequacy of financing; capacity additions, the ability to enforce patents; maintenance of operating leverage; maintenance of increased order backlog; consummation of order proposals; completion of large orders on schedule and on budget; continued sales growth in the medical and alternative energy markets; successful transition from primarily selling ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems; and realization of quarterly and annual revenues within the forecasted range of sales guidance. We undertake no obligation to update any forward-looking statement.
For more information, contact:
Stephen J. Bagley
Chief Financial Officer