Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sono-Tek Corp (SOTK, Financial) reported record-breaking revenue for fiscal year 2024, with a 31% increase year-over-year, reaching $19.7 million.
- The company experienced a significant increase in backlog, which grew to $9.1 million, a 7% increase compared to the previous year.
- Sales in the clean energy sector grew by 96%, driven by customers transitioning from R&D machines to production scale systems.
- Sono-Tek Corp (SOTK) has successfully delivered and installed two high-volume, high ASP production systems, the highest number in a single year in the company's history.
- The company has increased its headcount by approximately 15% to support growth and expansion, particularly in R&D and IT departments.
Negative Points
- Gross profit margin decreased slightly to 50% for fiscal 2024 compared to 50.8% in fiscal 2023, due to increased indirect production salaries, transportation expenses, installation costs, and warranty costs.
- Operating expenses increased by 24% to $8.7 million, driven by higher costs in research and product development, marketing and selling expenses, and general and administrative expenses.
- Sales of PCB Fluxing systems dipped by $455,000 for fiscal 2024, following uncharacteristically high revenue in the previous fiscal year.
- OEM sales decreased by $611,000, attributed to a slowdown in the PCB spray fluxers market.
- The company recorded an accrual of $138,000 for estimated sales tax penalties and interest related to shipments to California since April 2019.
Q & A Highlights
Q: Can you provide an overview of Sono-Tek's competitive position and how it has evolved over the past few years?
A: Our competitive landscape has shifted significantly. Four years ago, our main competitors were US and European companies, but now, many of them have shrunk or exited the market. Chinese competitors have grown, focusing on simpler, lower-cost machines. Sono-Tek has invested in complex, high-value systems that are difficult to replicate, giving us a competitive edge. (R. Stephen Harshbarger, CEO & President)
Q: How does Sono-Tek manage the risk of sharing process knowledge with customers, especially in regions like China?
A: Large multinational companies are cautious about sharing their IP with Chinese firms due to risks of IP theft and lack of scalability. Sono-Tek's advanced technology and application knowledge make us a preferred partner for these companies, reducing the risk of IP loss. (R. Stephen Harshbarger, CEO & President)
Q: How far ahead does Sono-Tek need to invest before seeing revenue from new initiatives?
A: The investment cycle can range from 18 months to six years, with an average of three to four years. Initial phases involve market feasibility studies, followed by hardware and software development, and finally, market release. (R. Stephen Harshbarger, CEO & President)
Q: What percentage of recent hires are focused on R&D, applications engineering, and sales and marketing?
A: Over the past two years, we've heavily invested in personnel for growth. About 11 new hires this past year, with eight directly connected to new product or market development. (R. Stephen Harshbarger, CEO & President)
Q: Can you describe the durability of your revenue streams, including repeat business and service contracts?
A: Our strategy now focuses on guiding customers from R&D to high-volume production systems, leading to repeat business. Service contracts and spare parts packages are growing, potentially adding 10% annually to machine revenue. (R. Stephen Harshbarger, CEO & President)
Q: How should we view the $9.1 million backlog, and what portion is from high ASP machines?
A: The entire backlog is scheduled for delivery in the current fiscal year. It includes four high ASP machines, with one valued at $1.1 million and three at $700,000 each. These are for high-volume production applications. (R. Stephen Harshbarger, CEO & President)
Q: What is the success rate of converting lab demonstrations into orders?
A: Our New York lab has a 75% success rate in converting demonstrations into orders. We're working to improve the success rate of our international labs to match this level. (R. Stephen Harshbarger, CEO & President)
Q: Can you provide more details on the medical systems shipped to Ireland?
A: These were for new implantable devices, not stents. The customers had previously used our stent coating systems and trusted us to develop new processes for these devices. (R. Stephen Harshbarger, CEO & President)
Q: Did these medical customers evaluate other coating capabilities before choosing Sono-Tek?
A: These customers had long-term partnerships with us and came directly to Sono-Tek due to their confidence in our capabilities. (R. Stephen Harshbarger, CEO & President)
Q: How is Sono-Tek enhancing its service-related revenue streams?
A: We're focusing on growing our services and application engineering contracts, which nearly doubled last year. This will help mitigate the lumpiness of capital equipment sales. (R. Stephen Harshbarger, CEO & President)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
