Sono-Tek Q2 Earnings Call Highlights

Key Points

• First-half financial performance improved: Revenue rose 6% to approximately $10.9 million, while gross profit increased 14% and operating income climbed 41%, supported by wider margins and stronger sales of higher-value systems.
• Medical demand led growth: Medical-market sales surged 289% to about $7.1 million, driven by drug-eluting balloon, stent and other device-coating applications. Industrial and OEM sales also increased, while alternative-energy revenue declined year over year.
• Large orders strengthened the outlook: Three alternative-energy orders totaling about $7.2 million, plus a medical order exceeding $3.6 million, provide more than $10.79 million in expected backlog largely for fiscal 2028. Sono-Tek reiterated its fiscal 2027 outlook of flat to modest revenue growth and plans manufacturing-capacity investments.

Sono-Tek NASDAQ: SOTK reported fiscal 2027 first-half revenue growth, wider gross margins and higher profitability, led by a sharp increase in medical-market sales and demand for higher-value production systems. Management also highlighted recent order activity that it said provides increased visibility into fiscal 2028.

For the six months ended Aug. 31, 2026, revenue rose 6% to approximately $10.9 million from $10.3 million a year earlier. Gross profit increased 14% to about $6 million, while gross margin expanded to 55% from 51%. Operating income rose 41% to approximately $1.28 million, and net income increased 22% to approximately $1.1 million.

Second-quarter revenue was approximately $5.23 million, up $69,000 from $5.16 million in the prior-year period. Gross profit increased about 7% to $2.8 million, and gross margin was approximately 53%. Second-quarter operating income declined 9%, or $39,000, to $382,000 as operating expenses increased.

Medical Sales Drive First-Half Growth

Medical-market sales increased 289% in the first half to approximately $7.1 million. CEO and President Steve Harshbarger said demand was driven by drug-eluting balloon coating systems, specialty stent applications and other medical device coating uses.

Management said customers are increasingly progressing from process development and qualification into commercial manufacturing. That transition can involve larger, more sophisticated systems and potentially lead to follow-on equipment orders, service work and additional production lines as customers scale their output.

Multi-Axis Coating Systems sales increased approximately 50% during the first half, primarily due to specialty medical coating systems. OEM Systems sales increased about 67%, supported by demand from a European fluxing OEM partner and a China-based semiconductor OEM customer.

In-Line Coating Systems sales declined 14%, reflecting a difficult comparison with the prior year, when Sono-Tek shipped six high-average-selling-price systems totaling about $4.4 million. Harshbarger said results by product line can fluctuate based on the timing of larger production-system shipments.

Industrial business sales increased approximately 156%, influenced by an optics-related shipment to the defense sector. Management said it plans to place greater emphasis on defense opportunities in coming years. Alternative-energy sales declined during the first half, which the company attributed to reduced demand tied to changes in government policy and spending related to green hydrogen, electrolysis and fuel-cell applications.

Record Alternative-Energy Orders Add to Backlog

Sono-Tek recently announced three orders from an existing alternative-energy customer totaling approximately $7.2 million. The orders cover 10 production-scale systems and represent the company’s largest aggregate customer order, according to Executive Chairman Chris Coccio.

The customer has deployed Sono-Tek’s technology in an advanced clean-energy manufacturing process and is expanding use of the company’s systems across three geographic locations. The systems are expected to ship primarily during fiscal 2028.

Those orders, combined with a previously announced medical diagnostic production-line order of more than $3.6 million, represent more than $10.79 million in backlog, with most of that amount currently expected to be delivered in fiscal 2028. Management emphasized that the programs involve separate customers and two distinct markets: medical devices and alternative energy.

Backlog stood at approximately $9.5 million at Aug. 31, up 23% from the end of the first quarter. CFO Steve Bagley said the additional $7.19 million in clean-energy orders received after quarter-end substantially increased the company’s backlog during the third quarter.

Margins, Expenses and Balance Sheet

Bagley said first-half gross-margin improvement reflected favorable product and geographic mix, including a higher contribution from medical systems and other higher-value production equipment. He cautioned that gross margins can vary based on the systems shipped, customer and geographic mix, distributor involvement, installation requirements and other factors.

Research and product-development costs were approximately $1.3 million for the first half, unchanged from the prior year. Marketing and selling expenses increased due to salary costs for the sales application lab and forward-deployed engineering group, employee health insurance and trade-show expenses. General and administrative expenses also rose, driven by salaries, insurance, corporate costs, stock-based compensation, and legal and accounting fees.

As of Aug. 31, cash and marketable securities totaled approximately $17.7 million, compared with $14.8 million at the end of fiscal 2026. Sono-Tek reported no debt.

Investment in Systems Integration and Capacity

Harshbarger said Sono-Tek is investing in its systems-integration capabilities through a forward-deployed engineering team that works with customers to integrate the company’s ultrasonic technology into broader production platforms. The group currently includes three forward-deployed engineers and a support-oriented project manager, he said.

Management said the approach supports higher average selling prices and can create recurring opportunities as customers expand production capacity. Harshbarger cited the $7.2 million alternative-energy order as an example of a customer relationship that advanced from research and development to pilot-line work and then high-volume manufacturing.

The company plans an expansion of its current manufacturing footprint beginning around the end of the calendar year. Harshbarger said the first phase, involving a mezzanine and manufacturing-flow optimization, could increase capacity from approximately $27 million to between $33 million and $36 million. The company estimated the initial capital expenditure at about $700,000 and said it is seeking potential participation from New York State of approximately $150,000 to $200,000.

A later retrofit of an unoccupied building on Sono-Tek’s campus could raise manufacturing capacity to roughly $44 million to $45 million, management said.

Outlook Remains Flat to Modest Growth for Fiscal 2027

Sono-Tek reiterated its expectation for flat to modest revenue growth in fiscal 2027. Management said the timing of large production-system orders can cause quarterly variability, while recent order activity has improved visibility entering fiscal 2028.

Harshbarger said the company will continue pursuing opportunities in medical devices, microelectronics, industrial applications and alternative energy while selectively investing in engineering, application development and commercial capabilities.

About Sono-Tek (NASDAQ:SOTK)

Sono-Tek Corporation develops and manufactures ultrasonic coating and precision liquid-deposition systems. Its technology uses high-frequency sound waves to atomize liquids into a controlled spray, enabling uniform application of coatings, adhesives, lubricants, and other materials while minimizing overspray and material waste.

The company's products include ultrasonic spray nozzles, integrated coating systems, and customized solutions designed for automated manufacturing processes. Sono-Tek also provides application development, process optimization, installation, training, and technical support to help customers integrate its equipment into production lines.

Sono-Tek's systems are used across a range of industries, including medical devices, electronics, semiconductor and advanced technology manufacturing, alternative energy, glass, textiles, and other industrial applications.

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