Sono-Tek Corporation Q4 FY2023 earnings call

Key Points

• Sono-Tek developed proprietary ultrasonic thin film coating technology. Strategic shift to complete solutions has broadened market and increased average unit selling prices.
• Fiscal 2023 sales declined 12% due to supply chain issues. Gross profit was $7.7 million (51% margin), operating expenses increased 4%, net income was $636,000.
• Backlog at February 28, 2023 was $8.5 million, 60% higher than prior year end. Customer deposits more than doubled to $2.8 million. Industrial market grew due to shipment of a large multisystem order, with remaining portion scheduled for current fiscal quarter.

For fiscal 2023, total sales decreased by 12% to $15.1 million. By market: Alternative energy, electronics, and medical market sales each decreased by 17%, 23%, and 15% respectively. Industrial market grew by 131%. By geography: Approximately 45% of sales originated in the U.S. and Canada in fiscal 2023 compared to 32% in fiscal 2022. APAC revenue decreased by 39%.

Forward-Looking Statements

• Q1 net sales expected to be slightly below Q4 FY2023 due to lingering supply chain delays.
• Expect higher revenue in subsequent quarters of FY2024 as backlog orders ship.
• Backlog of $8.5 million is anticipated to ship in FY2024, with confidence in continued revenue growth driven by high ASP production systems.

Risks Identified

• Supply chain issues impacted 2023 revenue, causing delayed shipments of multi-axis coating machines.
• Inventory levels were increased to address supply chain risks, and it is expected inventory may remain high until supply chain issues fully resolve.
• Long build times for large platform machines (6-12 months) could impact backlog replenishment.

Q: Can you get more granular on order visibility and revenue growth out over the next few quarters and years?

A: Larger production machines have longer manufacturing cycles. Customers buying large platform systems in clean energy often need 5-10 machines over 1-2 years, providing better visibility. FY2024 revenue expected to show growth with high ASP production systems flowing into backlog.

Q: What about the sustainability of fluxing systems strength?

A: Fluxing area expected to remain stable. Increased ASP of SonoFlux X2 due to higher functionality and reduced flux usage. Customers moving manufacturing back to U.S. and Mexico buy new machines as used ones aren't worth shipping back.

Q: What products are delayed due to supply chain issues?

A: Primary delayed product line is multi-axis coating machines, heavily used in electronics, green energy, and medical sectors. These are highly custom-engineered robots/motion platforms.