Sono-Tek (SOTK) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Net sales for Q2 2022 were $4.1 million, up 17% YoY, driven by strong international sales, with 62% of sales originating outside the US and Canada [13] - Gross profit increased 28% YoY to $2.1 million, with gross profit margin improving to 51% from 46.6% in the prior year period, a 440 basis point increase [14] - Operating income surged 123% to $449,000, with operating margin rising to 11% from 5.8% in the prior year period [15] - Net income increased 93% to $344,000, with earnings per share of $0.02 compared to $0.01 in the prior year [16] - Cash and cash equivalents increased to $9.7 million, up $1.1 million from the fiscal year-end, with no debt on the balance sheet [16] Business Line Performance - Sales growth was primarily driven by multi-axis coating systems, including systems used for coating electronic diagnostic devices for rapid COVID test kits [19] - OEM sales increased by 264% ($613,000), driven by strong sales from semiconductor and PCB fluxing partners [20] - The electronics market saw a 79% increase in sales, driven by strong demand from China for OEM systems used in the semiconductor market and COVID test kits [20] - The alternative energy market also showed strength, with growing investments in clean energy driving demand for machines used in fuel cells and carbon capture applications [21] Geographic Performance - 62% of sales originated outside the US and Canada, up from 38% in the prior year, with strong sales in APAC, particularly China, as manufacturing operations resumed post-COVID lockdowns [22] - Sales to China included stent coating machines, a new specialty medical device coating system, and strong OEM semiconductor orders [23] - Sales to the US and Canada declined YoY due to the absence of a large float glass coating line shipment, which was present in the prior year [25] Strategic Direction and Industry Competition - The company has shifted towards offering more complex, complete solutions rather than component sales, broadening its addressable market and increasing average selling prices [10] - Demand for Sono-Tek's technology is expected to grow as electronic devices become more miniaturized and the use of implantable medical devices increases globally [10] - The company is focusing on high-tech markets such as semiconductors, medical devices, and clean energy, with significant growth opportunities in these sectors [11] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's strong balance sheet, with nearly $10 million in cash and zero debt, and expects double-digit sales growth for the fiscal year [11] - The company's backlog reached a record high of $6.3 million, a 45% increase from the previous quarter, driven by expanding product lines and application development labs [27] - Sales growth guidance for the second half of the fiscal year is for double-digit increases over the comparable periods of the prior year, with the fiscal year expected to achieve the highest annual sales in corporate history [29] Other Important Information - The company was approved to uplist its common stock to the NASDAQ Capital Markets in August, increasing visibility and trading volume among institutional investors [12] - CapEx for Q2 was $147,000, with full-year CapEx projected to be between $300,000 and $350,000 [16] Q&A Session Summary Question: Backlog and Order Details - The backlog includes a 6-axis robot system for the semiconductor market, expected to ship in Q4, with $1 million to $1.5 million of the backlog likely to ship in the next fiscal year [32] - Orders in Q2 were solid, with no cancellations, and the backlog reflects strong demand, particularly for larger, high-value machines [33] Question: Sales and Margin Guidance - Gross margins were higher than usual in Q2 due to strong OEM sales, particularly in Asia, but are expected to normalize to the high 40s range in the long term [34] - The company anticipates continued strong demand from OEM customers in Asia, particularly in the semiconductor sector, for at least another quarter [35] Question: Alternative Energy and Roll-to-Roll Technology - The company is leveraging its expertise in fuel cell membrane coating to expand into carbon capture applications, with customers transitioning to higher-volume manufacturing and roll-to-roll technology [37] - A partnership with an industry expert in roll-to-roll technology is helping develop a new coating machine for membranes, with potential applications in fuel cells, carbon capture, and other markets [38] Question: Capacity and Revenue Potential - The company's existing facilities can support sales of up to $23-24 million, with potential to expand to $40 million by utilizing additional buildings in its complex [46] - Employee recruitment and retention are critical, with the company focusing on internships and word-of-mouth referrals to attract and train engineers familiar with its unique technology [47]