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Sono-Tek Reports Sales of $3.48 million in Second Quarter Fiscal 2021 and 50% Increase in Net Income and Provides Second Half FY2021 Sales Guidance

  • Second quarter revenues increased 4% to $3.48 million; second quarter gross margin was 46.6% versus 46.2%
  • Second quarter net income increased 50% to $178,000
  • First half FY2021 sales of $6.9 million increased 12% year-over-year; net income of $346,000, more than doubled from the $140,000 reported in the prior year period
  • Backlog increased 45% to $5.1 million from February 29, 2020
  • Second half of fiscal 2021, ending November 30, 2020, is expected to continue on the increasing sales trend experienced in the second quarter, as global industrial businesses continue to recover.

MILTON, N.Y. – (NewMediaWire) – October 14, 2020 – Sono-Tek Corporation (OTCQX: SOTK), the leading developer and manufacturer of ultrasonic coating systems, today reported financial results for its fiscal year 2021 second quarter and year-to-date period ended August 31, 2020.

Dr. Christopher L. Coccio, Chairman and CEO, commented, “In the second quarter of FY2021, Sono-Tek recorded 4% revenue growth and a 50% increase in our bottom line compared to last year’s second quarter. The increase in net income reflects growth in revenue and gross profit as well as tight expense control and reductions. The Coronavirus has impacted some of our customers, particularly in the timing of orders, but we have been able to win orders in other areas to maintain some of our pre-Covid positive momentum, as demonstrated by the first half of the year 45% increase in backlog. We believe that our performance has been excellent given the uncertainties that most businesses have faced this year.”

“The growth in sales was driven by a significant shipment of an integrated coating system for the industrial market valued at $400k, plus a strong quarter for Multi-Axis coating machines sold to the Alternative Energy market, which combined to offset the slight decrease in sales of fluxing systems and other smaller units. The Alternative Energy market growth was driven by US companies interested in electrolyzer and fuel cell coating equipment, which is associated with carbon reduction energy supply. Our Medical business experienced a dip in revenue as several orders were put on hold due to COVID, but we are optimistic these will come back as various countries come back online,” continued Dr. Coccio.

“Our strategy to provide customers with a high level of application engineering support, in combination with large complex ultrasonic coating systems that are often highly customized, continues to cushion our business in these difficult times. For example, in July we announced a $1.5 million order for a highly engineered proprietary 6-axis ultrasonic coating system for an important European customer in the electronics industry. This order is among the largest orders that we’ve received in our history and is a direct result of the close collaboration between our engineers and the customer.  These types of orders have increased in frequency over the past few years, and importantly, have increased our average revenue per order from tens of thousands of dollars to hundreds of thousands of dollars currently.”  

“As a result of the increase in our backlog this quarter, we are expecting third quarter revenues to increase over the second quarter and for this trend to continue through the balance of the fiscal year, ending February 28, 2021. Sono-Tek’s flexibility in quickly refocusing its efforts to those countries that are operational has been helpful in softening the impact of the pandemic and will continue to be a part of our strategy for the foreseeable future,” concluded Dr. Coccio.

Year-to-Date Fiscal 2021 Results (Narrative compares with prior-year period unless otherwise noted)

  Six Months Ended August 31, Change
  2020 2019 $ %
Net Sales $     6,909,000 $     6,168,000 741,000 12%
Gross Profit 3,182,000 2,852,000 330,000 12%
          Gross Margin 46.1% 46.2%    
Operating Income $           386,000 $           97,000 289,000 298%
          Operating Margin 5.6% 1.6%    
Net Income   $         346,000   $         140,000 206,000 147%
          Net Margin 5.0% 2.3%    
Diluted Earnings Per Share $                0.02 $                0.01    
Weighted Average Shares – Diluted 15,531,000 15,377,000    

Second Quarter Fiscal 2021 Results (Narrative compares with prior-year period unless otherwise noted)

  Three Months Ended August 31, Change
  2020 2019 $ %
Net Sales $     3,481,000 $     3,346,000 135,000 4%
Gross Profit 1,621,000 1,547,000 74,000 5%
          Gross Margin 46.6% 46.2%    
Operating Income $          201,000 $          92,000 109,000 118%
          Operating Margin 5.8% 2.8%    
Net Income $          178,000 $          115,000 63,000 55%
          Net Margin 5.1% 3.4%    
Diluted Earnings Per Share $0.01 $0.01    
Weighted Average Shares – Diluted 15,533,000 15,399,000    

Second Quarter FY2021 Review

Sales growth during the second quarter of fiscal 2021 was driven by a significant shipment of an integrated coating system for the Industrial Market valued at approximately $400,000, combined with a strong quarter for Multi-Axis coating systems sold to the Alternative Energy markets.  The sales increase in these product lines more than offset the second quarter’s sales decrease in fluxing systems and in the Other product category.

From a product sales perspective, the Alternative Energy market showed significant growth, primarily driven by sales to US – based companies for electrolyzer coating equipment used for fuel cell manufacturing and advanced carbon emission reduction technology. The Company also recorded a strong quarter from the Industrial market resulting from the latest developed float glass coating platform shipping to a US – based customer.   Quarterly demand and revenue in any of the Market or Product baskets typically varies due to the size and timing of orders, as a result, the multi-quarter totals at year-end are often more significant than reported in individual quarters, reflecting overall Market and Product trends.

In the second quarter of fiscal 2021, approximately 38% of sales originated outside of the United States and Canada compared with 72% in the prior-year period.  The decrease in sales originating outside the US and Canada was influenced by the COVID-19 pandemic, as the Company experienced a decrease in orders from several geographic territories outside the US during COVID-19 peaks.

For the second quarter of fiscal 2021, gross profit increased $74,000, or 5%, compared with the prior-year period. Gross profit margin was 46.6% for the second quarter of fiscal 2021 versus 46.2% in the comparable period. Operating income increased by $109,000, more than doubling to $201,000 in the second quarter of fiscal 2021 compared with $92,000 for the prior year period. Growth in revenue and gross profit were key factors in the improvement. Operating margin for the quarter increased to 5.8% compared with 2.8% in the prior year period. Operating leverage enabled the Company to increase its net income by $63,000, or 55%, to $178,000 compared with $115,000 for the comparable period. 

Balance Sheet and Cash Flow Overview

Cash and cash equivalents and short-term investments at quarter-end were $7,825 million, a modest decrease from February 29, 2020, the end of fiscal year 2020.  The decrease was the result of the timing of working capital requirements primarily due to increases in accounts receivable and inventories and decreases in customer deposits and accounts payable. Higher inventory is necessary to address both customer demand for shorter delivery cycles and increased order levels.

Year-to-date capital expenditures were $290,000 compared with $319,000 in the prior-year period. The fiscal 2021 expenditures do not reflect $100,000 in grant proceeds received during the second quarter.  The current period’s capital expenditures are for upgrades to the Company’s manufacturing facilities.  Sono-Tek anticipates total capital expenditures to be approximately $0.5 million to $0.6 million in fiscal 2021.

At August 31, 2020, the Company had total debt of $1.6 million, comprised of $1.0 million in a PPP loan under the CARES Act and $624,000 in mortgage debt on the Company’s industrial park complex that accrues annual interest at a rate of 4.15%.   

About Sono-Tek

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 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; the duration and scope of the COVID-19 pandemic; the extent and duration of the pandemic’s adverse effect on economic and social activity, consumer confidence, discretionary spending and preferences, labor and healthcare costs, and unemployment rates, any of which may reduce demand for some of our products and impair the ability of those with whom we do business to satisfy their obligations to us; our ability to sell and provide our services and products, including as a result of continued pandemic related travel restrictions, mandatory business closures, and stay-at home or similar orders; any temporary reduction in our workforce, closures of our offices and facilities and our ability to adequately staff and maintain our operations resulting from the pandemic; the ability of our customers and suppliers to continue their operations as result of the pandemic, which could result in terminations of contracts, losses of revenue; the recovery of the Electronics/Microelectronics and Medical markets following COVID-19 related slowdowns; the forgiveness of our PPP loan; and further adverse effects to our supply chain; maintenance of increased order backlog, including effects of any COVID-19 related cancellations; 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; consummation of order proposals; completion of large orders on schedule and on budget; 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 as forecasted.  We refer you to documents that the company files with the Securities and Exchange Commission, which includes Form 10-K and Form 10-Qs containing additional important information.
For more information, contact:

Stephen J. Bagley  
Chief Financial Officer  
Sono-Tek Corporation  
info@sono-tek.com  

Financial Tables Follow

SONO-TEK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

    August 31,        
    2020     February 29,  
    (Unaudited)     2020  
ASSETS            
             
Current Assets:                
Cash and cash equivalents   $ 3,971,611     $ 3,659,551  
Marketable securities     3,852,601       4,219,240  
Accounts receivable (less allowance of $71,000)     1,348,648       929,701  
Inventories, net     2,462,048       2,381,891  
Prepaid expenses and other current assets     94,835       153,698  
   Total current assets     11,729,743       11,344,081  
                 
Land     250,000       250,000  
Buildings, net     1,614,391       1,654,061  
Equipment, furnishings and building improvements, net     1,236,607       1,212,578  
Intangible assets, net     97,999       106,291  
Deferred tax asset     176,314       176,314  
                 
TOTAL ASSETS   $ 15,105,054     $ 14,743,325  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current Liabilities:                
Accounts payable   $ 712,704     $ 668,721  
Accrued expenses     1,319,327       1,613,409  
Customer deposits     988,102       1,648,690  
Current maturities of long term debt     725,743       169,716  
Income taxes payable     63,743       70,621  
   Total current liabilities     3,809,619       4,171,157  
                 
Deferred tax liability     251,761       251,761  
Long term debt, less current maturities     899,573       538,000  
   Total liabilities     4,960,953       4,960,918  
                 
Commitments and Contingencies – (Note 10)            
                 
Stockholders’ Equity                
Common stock, $.01 par value; 25,000,000 shares authorized, 15,435,935 and 15,348,180 shares issued and outstanding, respectively     154,360       153,482  
Additional paid-in capital     9,033,531       9,018,406  
Accumulated earnings     956,210       610,519  
   Total stockholders’ equity     10,144,101       9,782,407  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 15,105,054     $ 14,743,325  

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

    Six Months Ended
August 31,
    Three Months Ended
August 31,
 
    2020     2019     2020     2019  
                         
Net Sales   $ 6,909,185     $ 6,168,250     $ 3,480,641     $ 3,345,822  
Cost of Goods Sold     3,727,486       3,316,323       1,859,675       1,798,830  
        Gross Profit     3,181,699       2,851,927       1,620,966       1,546,992  
                                 
Operating Expenses                                
Research and product development costs     834,940       658,870       423,516       321,697  
Marketing and selling expenses     1,388,987       1,476,696       682,270       799,284  
General and administrative costs     572,254       619,475       313,852       333,662  
            Total Operating Expenses     2,796,181       2,755,041       1,419,638       1,454,643  
                                 
Operating Income     385,518       96,886       201,328       92,349  
                                 
Interest Expense     (17,704 )     (17,465 )     (9,287 )     (8,518 )
Interest and Dividend Income     25,483       56,983       2,837       25,812  
Other income     19,519       16,877       8,084       12,122  
                                 
Income Before Income Taxes     412,816       153,281       202,962       121,765  
                                 
Income Tax Expense     67,125       13,303       25,199       7,000  
                                 
Net Income   $ 345,691     $ 139,978     $ 177,763     $ 114,765  
                                 
Basic Earnings Per Share   $ 0.02     $ 0.01     $ 0.01     $ 0.01  
                                 
Diluted Earnings Per Share   $ 0.02     $ 0.01     $ 0.01     $ 0.01  
                                 
Weighted Average Shares – Basic     15,410,952       15,285,024       15,424,126       15,301,613  
                                 
Weighted Average Shares – Diluted     15,530,910       15,376,906       15,533,010       15,399,163  

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

    Unaudited  
    Six Months Ended
August 31,
 
    2020     2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Income   $ 345,691     $ 139,978  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:                
Depreciation and amortization     214,280       191,977  
Stock based compensation expense     16,003       43,827  
Inventory reserve     36,000       32,000  
Decrease (Increase) in:                
   Accounts receivable     (418,947     125,491  
   Inventories     (116,157 )     (952,898 )
   Prepaid expenses and other current assets     58,863       212,642  
(Decrease) Increase in:                
   Accounts payable and accrued expenses     (250,099     352,124  
   Customer Deposits     (660,588     434,894  
   Income taxes payable     (6,878     8,472  
Net Cash (Used In) Provided by Operating Activities     (781,832     588,507  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of equipment and furnishings     (290,347 )     (319,055 )
Capital expenditure grant proceeds     100,000        
Sale (purchase) of marketable securities     366,639       (1,051,898
Net Cash Provided by (Used in) Investing Activities     176,292       (1,370,953
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from note payable – bank     1,001,640        
Repayment of long term debt     (84,040 )     (80,696 )
Net Cash Provided by (Used In) Financing Activities     917,600       (80,696 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     312,060       (863,142 )
                 
CASH AND CASH EQUIVALENTS                
Beginning of period     3,659,551       3,144,123  
End of period   $ 3,971,611     $ 2,280,981  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURE:                
Interest paid   $ 13,972     $ 17,465  
Income Taxes Paid   $ 74,004     $ 4,831  

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION
Product and Market Sales

Product Sales

    Three Months Ended
August 31,
    Change     Six Months Ended
August 31,
    Change  
    2020     2019     $     %     2020     2019     $     %  
Fluxing Systems   $ 94,000     $ 211,000       (117,000 )     (55% )   $ 438,000     $ 602,000       (164,000     (27%)  
Integrated Coating Systems     673,000       413,000       260,000       63%       1,849,000       810,000       1,039,000       128%  
Multi-Axis Coating Systems     1,985,000       1,815,000       170,000       9%       2,898,000       2,888,000       10,000        
OEM Systems     232,000       246,000       (14,000 )     (6% )     654,000       565,000       89,000       16%  
Other     497,000       661,000       (164,000     (25%     1,070,000       1,303,000       (233,000     (18%)  
TOTAL   $ 3,481,000     $ 3,346,000       135,000       4%     $ 6,909,000     $ 6,168,000       741,000       12%  

Market Sales

    Three Months Ended
August 31,
    Change     Six Months Ended
August 31,
    Change  
    2020     2019     $     %     2020     2019     $     %  
Electronics/Microelectronics   $ 811,000     $ 1,376,000       (565,000     (41%   $ 3,051,000     $ 2,913,000       138,000       5%  
Medical     961,000       1,250,000       (289,000     (23%     1,653,000       1,792,000       (139,000 )     (8% )
Alternative Energy     826,000       223,000       603,000       270%       1,221,000       610,000       611,000       100%  
Emerging R&D and Other     479,000       400,000       79,000       20%       516,000       685,000       (169,000     (25%
Industrial     404,000       97,000       307,000       316%       468,000       168,000       300,000       179%  
TOTAL   $ 3,481,000     $ 3,346,000       135,000       4%     $ 6,909,000     $ 6,168,000       741,000       12%  

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