Sono-Tek Corporation Q2 FY2025 earnings call

• Sono-Tek developed a revolutionary ultrasonic thin film coating technology for precision micron and nano thin coatings.
• Strategic shift to complex solutions has broadened market and increased average unit selling prices, with larger machines selling over $300,000 and systems up to $1 million.
• Success in clean energy sector with large orders, including two record $2.95 million orders.
• ARIES project focused on broadening product offering and increasing vertical integration in multi-axis coating systems.
• Impact of Chinese economy on fluxing systems and OEM sales, with spare parts and services as a growth focus.
• Record backlog of $11.7 million at end of Q2 FY 2025, up 7% year-over-year and 50% sequentially.

Clean Energy: Shipment of three integrated coating systems to a large clean energy customer totaling $2.19 million in the first half. Sales in clean energy grew 37% in Q2 over the prior year and 80% in the first half of fiscal 2025 compared to the prior year period. Multi-axis coating systems: Saw sales of $4.6 million in the first half of the year, part of the ARIES project aimed at broadening product offering and increasing vertical integration. Fluxing systems: Influenced by softening activity in printed circuit board manufacturing and a struggling Chinese economy. OEM sales: Lower in the second quarter and first half due to OEM partners building excess inventory and China-based customers' declining sales. Spare parts and services: Slightly dipped but remains a focus for growth. Electronic sales: Increased 51% in Q2 versus the same quarter of last year and 30% in the first half versus the first half of last year, driven by a newly developed coating system for the semiconductor market. Medical sub sales: Declined 7% in the first half of FY 2025, but balloon coating systems expected to recover in the second half. Industrial sales: Down 30% in Q2 versus last year due to a non-repeating float glass coating system. Geography: US/Canada sales at 65% in the first half of fiscal 2025 (up from 40% in the comparable period of fiscal 2024); Latin America down due to non-repeating float glass system; APAC down 32% in Q2 and 21% in first half due to China and competition.

• Expect solid second half of fiscal 2025 with continued sales growth and profitability.
• Backlog increased 26% from end of last year to a record $11.7 million.
• Anticipate more large orders in the clean energy sector, with backlog likely to grow further in the remaining months of fiscal 2025.

• Weakening Chinese economy affecting APAC sales and fluxing systems due to struggling economy and competition.
• Softening in printed circuit board manufacturing and industrial markets.
• Dependence on large orders for backlog growth, as short-term recovery in APAC is not predicted.

Q: Ted Jackson asked about the Alta Energy orders, end markets, and backlog growth.

A: Steve Harshbarger discussed that the orders are for advanced solar applications, with $5.9 million in backlog to ship in the next fiscal year, evenly split across quarters.

Q: Dick Ryan inquired about supply chain internalization efforts and customer concerns regarding economic weakness.

A: Steve Harshbarger mentioned successful internalization of NovoCoat product line, reducing dependence on outside vendors, and noted softening in older markets but strength in high-tech sectors like medical and clean energy.

Q: Unidentified Participant asked about investment in R&D and growth trajectory.

A: Steve Harshbarger explained the strategic shift to high ASP complex machines, where R&D and pilot line machines lead to production orders with higher margins, aiming for $0.5 million to $1 million orders as normal flow.