Sono-Tek (US:SOTK)2022-10-18 18:06Financial Data and Key Metrics - Revenue for Q2 FY2023 decreased by 8% to $3.8 million due to delayed shipments caused by supply chain challenges [17] - Gross profit decreased by 9% to $1.9 million, with a gross profit margin of 50.4% compared to 51% in the prior year period [18][19] - Operating expenses increased by 6% to $1.7 million, driven by higher employee compensation and travel costs [14][20] - Net income for Q2 was $162,000 or $0.01 per share, down from $344,000 or $0.02 per share in Q2 FY2022 [22] - For the first half of FY2023, total sales increased by 1% to $7.8 million, with gross profit up 3% to $4 million [23][24] Business Line Data and Key Metrics - Fluxing sales grew by 241% in Q2 to $399,000, driven by the launch of the SelectFlux X2 product [30] - OEM sales decreased by 10% in Q2 but grew by 12% for the first half, led by shipments to European partners [31] - Multi-Axis Coating Systems sales decreased by 21% in Q2 and 13% for the first half due to supply chain delays [31] - Industrial market sales grew by 77% in Q2 and 118% for the first half, including the first shipment of a roll-to-roll system [32][33] - Medical sector revenue decreased by 27% in Q2 but increased by 36% for the first half, driven by large U.S.-based medical companies [34] Market Data and Key Metrics - Sales outside the U.S. and Canada accounted for 56% of total sales in Q2, down from 62% in the prior year period [18] - APAC sales decreased by 49% in Q2 and 46% for the first half, primarily due to COVID-19 lockdowns in China [35] - Backlog increased by 19% to $5 million at the end of Q2, driven by new orders from the electronics sector [36] Company Strategy and Industry Competition - The company is focusing on opening new markets in microelectronics, clean energy, and medical devices, leveraging its thin film coating technology [10] - A significant $1.1 million order from the clean energy sector validates the company's investment in this market [11] - The company is expanding its roll-to-roll product handling capabilities, which is expected to become an important product line [12][33] Management Commentary on Operating Environment and Future Outlook - Management expects supply chain challenges to continue impacting deliveries in Q3 but anticipates higher year-over-year sales for FY2023 [16][37] - The company is raising prices to reflect increased labor and material costs, though there is a lag in realizing these increases [15] - Management remains confident in growth opportunities, particularly in semiconductors, medical devices, and clean energy [15][16] Other Important Information - The company has no debt and holds $10.7 million in cash, cash equivalents, and short-term investments as of August 31, 2022 [25] - CapEx for the first half of the year was $244,000, focused on upgrading manufacturing facilities [25] Q&A Session Summary Question: Supply Chain Resolution - The company is addressing supply chain issues by purchasing inventory earlier, engineering solutions, and building subsystems in-house [44][45][46] - Once supply chain issues are resolved, a surge in shipments is expected as delayed orders are fulfilled [47] Question: Customer Lab Visits - Customer visits to the development lab are increasing, particularly from the clean energy sector, with a 75% conversion rate to machine purchases [48][50] Question: Hydrogen Market Opportunity - The company sees significant growth potential in the green hydrogen market, driven by government investments and the need for electrolyzers [56][57][59] - The company's technology is well-positioned to benefit from the growing demand for green hydrogen production [60][61] Question: Q3 Revenue Guidance - The company expects Q3 revenue to be similar to Q2, with potential for delayed shipments to shift into Q3 [68] Question: Operating Expenses - Operating expenses have increased due to higher employee compensation, but the company expects this trend to stabilize as pricing adjustments take effect [70][71] Question: Tax Rate - The drop in the tax rate is due to the application of R&D tax credits and a decrease in earnings before taxes [74][75] Question: Receivables and Inventory - The company expects inventory to grow in the second half of the year as it builds up stock to mitigate supply chain issues [89] - Receivables increased due to customer agreements requiring payment upon installation, but the company expects this to normalize [83][85] Question: Roll-to-Roll Technology - Roll-to-roll technology is used in industries like clean energy and medical devices to increase production efficiency [96][97][99] - The company is investing in this technology to meet growing customer demand for high-volume production [98]