Q4 2024 Sono-Tek Corp Earnings Call
Good day and welcome to the Soho Tech year in fiscal year 2024 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
Operator: Good day, and welcome to the Sono Tek year-end fiscal year 2024 earnings conference call. All participants will be in a listen-only mode.
Operator: Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Kirin Smith with PCG Advisory. Please go ahead, sir.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Karen Smith with P. P. D Advisory. Please go ahead Sir.
Karen Smith: Thank you operator, and thank you everyone for joining us today.
Kirin M. Smith: Thank you, operator, and thank you, everyone, for joining us today. Sono Tek released their fourth quarter and full year of fiscal 2024 results at 7 a.m. Eastern Time this morning. If you do not have a copy of the release, please go to the company's website at sonotech.com and click the press release news tab in the investor section. The product, market, and geography sales tables on the last page of the release will be part of today's discussion. With me on the call today are Dr. Chris Coccio, Sono Tek's Executive Chairman; Steve Horschberger, CEO and President; and Steve Bagley, Chief Financial Officer.
Speaker Change: An attack released their fourth quarter and full year of fiscal 2024 results seven a M. Eastern time this morning.
You do not have a copy of the release. Please go to the company's website at some attack Dot com and click the press release news tab in the investors section.
Speaker Change: <unk> market and geography salespeople on the last page of the release will be part of today's discussion.
Speaker Change: With me on the call today are Dr. Chris Kochi, All Southern Texas, Executive Chairman deep Harshberger, CEO, and President and Steve <unk> Chief Financial Officer.
Kirin M. Smith: Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. Please note that various remarks that may be made on this conference call about future expectations, plans, and prospects for the company constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's filings with the SEC. The company assumes no obligation to update the information contained in this conference call. I would now like to turn the call over to Dr. Chris Coccio, Executive Chairman of Sono Tek. Chris, please go ahead.
Speaker Change: Before turning the call over to management I would like to make the following remarks concerning forward looking statements. Please note that various remarks that may be made on this conference call about future expectations plans and prospects for the company constitute forward looking statements for the purposes of Safe Harbor provisions under the private Securities Litigation Reform Act.
Speaker Change: Of 1995.
Speaker Change: Actual results may vary materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the company's filings with the SEC.
Speaker Change: The company assumes no obligation to update the information contained in this conference call.
Speaker Change: I'd now like to turn the call over to Dr. Chris Kogyo Executive Chairman.
Speaker Change: Please go ahead.
Speaker Change: Good morning, and thank you Karen and thank you everyone for joining us.
Christopher L. Coccio: Good morning, and thank you, Kirin, and thank you everyone for joining us. Today, we're going to discuss our fourth quarter and full year fiscal year 2024 results that were released this morning before the market opened. I will begin with some opening remarks, and then Steve Bagley, our Chief Financial Officer, will provide a financial review. Steve Harshberger, our new CEO and president, will then go through the business and operational results. Following his comments, we'll open the call to your questions.
Christopher L. Coccio: As a reminder, Sono Tek currently holds two earnings calls per fiscal year. This is our full year call for the 12 months ended February 29th, 2024. Our next earnings call will be for the six months of fiscal 2025, and that will be in October of 2024.
Today, we're going that's our fourth quarter and full year fiscal year 2024 results.
Speaker Change: That were released this morning before the market opened.
Speaker Change: I will begin with some opening remarks, and then Steve Bagley, our Chief Financial Officer will provide a financial review.
Speaker Change: Steve Harshberger, our new CEO and President will then go through the business and operational results.
Stephen J. Bagley: Following these comments, we'll open the call for your questions.
Speaker Change: As a reminder, sinopec currently holds two earning calls per fiscal year. This is our full year coal for the 12 months ended February right.
Speaker Change: 124, our.
Speaker Change: Our next earnings call will be for the six months of fiscal 2025 and that will be in October of 2024.
Speaker Change: As many of you already know and for those that are new to Sonatrach. The company developed a revolutionary methods of applying precision thin film coating several decades ago.
Christopher L. Coccio: As many of you already know, and for those that are new to SonoTek, the company developed a revolutionary method of applying precision thin film coating several decades ago. This proprietary technology involves the use of our advanced high-frequency ultrasonic nozzles, which are incorporated into specialty motion control systems. They are able to achieve uniform micron and nanofin coatings onto our customers' products. Our solutions offer dramatic savings in raw material, water, and energy usage, and they are environmentally friendly. The principal advantage, though, of our ultrasonic coating system is the ability to apply precision thin films.
Speaker Change: Proprietary technology involves the use of our advanced high frequency ultrasonic muscles, and they're incorporated into specialty motion control systems.
Speaker Change: They are able to achieve uniform micron and I don't think coatings on through our customers' products.
Speaker Change: Our solutions offer dramatic savings in the raw material water and energy usage.
Speaker Change: And they are environmentally friendly.
Speaker Change: The principal advantage, though of our ultrasonic coating system is the ability to apply precision thin films and these are vitally important in today's world with thousands of products from micro components, now requiring functional or protective coating.
Christopher L. Coccio: And these are vitally important in today's world, with thousands of products and micro components now requiring a functional or protective coating. The strategic shift that we made several years ago to offer more complete solutions has meaningfully broadened our addressable market, and that's resulted in significant growth in our average unit selling price. Our larger machines now commonly sell for over $300,000, and system prices can reach over a million dollars, and that can significantly impact quarterly revenue. This happened in the second quarter of this test.
Speaker Change: The strategic shift that we made several years ago.
Speaker Change: Offer more complete solutions has meaningfully broadens our addressable market.
Speaker Change: And that has resulted in significant growth in our average selling prices.
Speaker Change: Our larger machines now commonly sold over $300000 consistent prices can reach over a million dollars that can significantly impact quarterly revenue.
Speaker Change: This happened in the second quarter of this past year and supply chain constraints finally subsided and the trend has continued through the end of our fiscal year.
Christopher L. Coccio: Supply Chain Constraints finally subsided, and the trend has continued to the end of our fiscal year. I'm pleased to announce that this morning we reported record-breaking revenue for the full year, over 30% higher than a year ago, and record-breaking backlog for the year ahead. This past year, we also shipped two of our newly developed large platforms, sophisticated production lines that together valued nearly 1.9 million, and sales reached 19.7 million, up from 15.1 million, or a 31% increase year over year. This is also our highest yield level ever. In addition to the record sales and backlog, backlog also increased to $9.1 million, a 7% increase compared to the backlog of the previous year.
Christopher L. Coccio: This is in addition to last year's substantial backlog increase over its previous year. This growth was due to our strategic shift towards these large, complex coding systems and platforms and also due to our focus on opening new markets for our unique technology. This includes three main areas that have very strong global growth, as we've talked about before, microelectronics and semiconductors, medical devices, and alternative or clean energy. We've served these sectors for many years and are continuing to advance our products and system solutions in these areas for the latest generation technology.
Speaker Change: I'm pleased to announce that this morning, we reported record breaking revenue for the full year over 30% higher than a year ago and record breaking backlog of your head.
Speaker Change: This past year, we also shipped two of our newly developed large platform.
Speaker Change: Sophisticated production mindset together valued nearly one 9 million.
Speaker Change: Sales reached $19 7 million.
Speaker Change: Up from $15 1 million or 31% increase year over year.
Speaker Change: It's our highest field level ever.
Speaker Change: In addition to the record sales and backlog.
Speaker Change: Backlog also increased to $9 1, million% to 7% increase compares to backlog on the previous year.
Speaker Change: This is in addition to last year's substantial backlog increase or it's great for sure.
Speaker Change: This growth was due to our strategic shift towards these large complex coating systems and platforms and also due to our focus on opening new markets for our unique technology.
Speaker Change: This includes three main areas that in a very strong global growth we've talked about before.
Mehdi: Microelectronics semiconductors Mehdi.
Mehdi: Medical devices and alternative or clean energy, we serve these sectors for many years and are continuing to advance our products and system solutions in these areas for the latest generation technology.
Mehdi: Now clean energy, including fuel cells green hydrogen generation carbon capture and advanced solar cells, our markets, we've been providing R&D I'm quite a lunch for close to a decade.
Christopher L. Coccio: Now clean energy, including fuel cells, green hydrogen generation, carbon capture, and advanced solar cells, are markets we've been providing R&D on pilot lines for close to a decade. We're now experiencing significant success with these customers as they transition to production-scale systems. Thank you.
Mehdi: We're now experiencing a significant success with these customers as they transition to production scale.
Mehdi: Systems.
Mehdi: Yeah.
Mehdi: Is it.
Mehdi: They have done.
Christopher L. Coccio: They have done prior R&D and process development with us, and so that has allowed them to move up the scale now. Over the past year, we've announced over $2.1 million in large orders from repeat customers transitioning to high-volume production systems. This is primarily from the electronics, microelectronics, alternative energy, medical, and industrial sectors. Also, in the first half of the year, we experienced our largest order, valued at $2.19 million. And that is also the largest order from the clean energy sector to date. These orders are the first of our deliberate shift in strategy to large customized systems. Our proprietary ultrasonic atomization technology, where Sono Tek began more than 40 years ago, remains the heart of all of our systems.
Mehdi: Prior R&D process.
Mehdi: With us and so.
Mehdi: That has allowed them to move up the scale.
Mehdi: Over the cashier, we've announced over $2 1 million from large orders from repeat customers transitioning to high Boston protection systems.
Mehdi: This was primarily from the electronics Microelectronics alternative energy medical and industrial sectors also in the first half of the year, we experienced our largest order valued at 2.19 million.
Mehdi: And that is also the largest order from the clean energy sector to date.
Mehdi: These orders are the first.
Mehdi: Our deliberate shift in strategy its a large customized systems.
Mehdi: Our proprietary ultrasonic animation optimization technology responding check began more than 40 years ago remains the heart of all of our systems.
Mehdi: We've been able to achieve this shift through our own R&D work, which we consider to be our lifeblood.
Christopher L. Coccio: We've been able to achieve this shift through our own R&D work, which we consider to be our lifeblood. We attribute the increase in sales both in the past year and to come as a direct result of our investments in R&D with a strong focus on product expansion. And to further support our growth and expansion for these large platform custom engineered systems, we've increased our headcount by approximately 15% this year, with a strong focus on personnel to enhance our IT department. We've made continued investments in the front end of the organization to open new markets and applications. We want to ensure that we stay fully staffed and ahead of our needs.
Mehdi: We attribute the increase in sales booking in the past year and it's become a direct result of our investments in R&D.
Mehdi: <unk> focus on product expansion.
Mehdi: And to further support our growth and expansion for these large platform custom engineered systems, we've increased our head count by approximately 15% this year with a strong focus on personnel. So the Hughes our I T Department.
We made continued investments in the front end of the organization to open new markets and applications, we want to ensure that we stay fully staffed in front of our needs.
Christopher L. Coccio: We're excited that these investments have begun to pay off. Our outlook for growth has been greatly enhanced by the early success of our strategy to shift to larger systems, with multiple and repeat orders. Looking ahead to the remainder of this year, we're confident that shipments of new orders will continue to positively impact sales. We're guiding towards a strong first quarter in fiscal year 2025 of revenue growth above 30%. And that's against a weaker first quarter last year.
Mehdi: We're excited that these investments have begun to pay off our outlook for growth has been greatly enhanced by the early success of our strategy to shift to larger systems.
Mehdi: With multiple repeat orders.
Mehdi: Looking ahead to the remainder of this year, we're confident that shipments of new orders will continue to positively impact sales were guiding towards a strong first quarter fiscal year 2025 of revenue growth above 30%.
Mehdi: That's against a weaker first quarter last year.
Christopher L. Coccio: We're also guiding towards an 8-10% year-over-year revenue growth for Fiscal Year 2025 and ending February 28th, 2025, despite strong quarterly comparisons and record shipments in 2024. Thank you, and I'll now turn the call over to Steve Bagley, our CEO, who will provide additional details on our financial results.
Mehdi: We're also guiding towards MAGE, a 10% year over year revenue growth for fiscal year 2025.
Mehdi: [noise] ending February 28 2025.
Mehdi: Despite strong quarterly comparisons and record shipments in 2024.
Speaker Change: Thank you and I'll now turn the call over to see barriers.
Speaker Change: I'll provide additional details on our financial results.
Chris: Thank you, Chris and good morning, everyone for.
Stephen J. Bagley: Thank you, Chris. And good morning, everyone.
Chris: For the full year of fiscal 'twenty 'twenty four net sales increased 31% $19 7 million.
Stephen J. Bagley: For the full year of fiscal 2024, net sales increased 31% to $19.7 million from 15.1 million reported for the full year of fiscal 2023. Steve Harshberger will provide more detail with respect to sales. Geographically, in fiscal 2024, approximately 55% of our sales were to U.S. and Canadian customers, as compared to 45% in fiscal 2023. We continue to record strong sales in the U.S. and Canada, growing by 60% for fiscal 2024. This achievement can be attributed to various factors, including proactive government initiatives such as the CHIPS Act and the Inflation Reduction Act.
see barriers: From $15 1 million reported for the full year of fiscal 2023.
Speaker Change: Steve Horsburgh of will provide more detail with respect to sales.
Speaker Change: Geographically in fiscal 'twenty 'twenty four approximately 55% of our sales were to U S and Canadian customers.
Speaker Change: This is compared to 45% in fiscal 2023.
Speaker Change: We continued to record strong sales from the U S and Canada growing 60% for fiscal 2024.
Speaker Change: This achievement can be attributed to various factors, including proactive government initiatives such as the chips chips axe any inflation reduction Act.
Stephen J. Bagley: Additionally, the ongoing trend of onshoring for high technology products has significantly bolstered our sales performance in these regions. Gross profit increased $2.2 million, or 29%, to $9.8 million for fiscal 2024, compared with $7.7 million in fiscal 2023. Gross profit margin decreased to 50% for fiscal 2024 compared to 50.8% for fiscal 2023. However, overall, the gross profit margin on our products remained relatively consistent when compared to fiscal 2023. In fiscal 2024, the decrease in gross profit margin was due to increased indirect production salaries, an increase in transportation expenses, increased installation costs, and increased warranty costs.
Speaker Change: Additionally, the ongoing trend of onshoring for high technology products has significantly bolstered our sales performance in these regions.
Speaker Change: Gross profit increased $2 2 million or 29% to $9 8 million for fiscal 'twenty 'twenty, four compared with $7 7 million in fiscal 2020 three.
Speaker Change: Gross profit margin decreased to 50% for fiscal 'twenty 'twenty four.
Speaker Change: They're just 50 850, 858% for fiscal 2023.
Speaker Change: Overall, the gross profit margin on our products remained relatively consistent when compared to fiscal 2023.
Speaker Change: In fiscal 'twenty 'twenty four the decrease in gross profit margin is due to increased indirect production salaries and increase in transportation expenses increased installation costs and increased warranty costs.
Stephen J. Bagley: In fiscal 2023, our warranty costs were lower than expected. Warranty costs will fluctuate year-to-year and are a function of product mix. In addition, our gross profit margin decreased due to the reallocation and recharacterization of specific labor expenses from the engineering department to the cost of goods sold.
Speaker Change: Fiscal 2023 our warranty costs were lower than expected.
Speaker Change: Warranty costs will fluctuate year to year and are a function of product mix.
Speaker Change: Additionally, our gross profit margin decreased due to the reallocation of re characterization of specific labor expenses from the engineering department to cost of goods sold.
Speaker Change: Operating expenses increased 24% to $8 7 million.
Stephen J. Bagley: Operating expenses increased 24% to $8.7 million compared to $7 million in the prior year. Additionally, as Chris mentioned earlier, technical headcount increased approximately 15% across several areas. Research and product development costs increased 34% to $2.9 million, primarily due to increased headcount, salaries, and the higher costs of research and development, materials, and supplies, all of which are used in the development of new products for new and existing markets. Marketing and selling expenses increased 17% to $3.7 million for the year.
Speaker Change: Two 7 million in the prior year.
Speaker Change: As Chris mentioned earlier technical head count increased approximately 15% across several areas.
Research and product development cost increased 34% to $2 9 million, primarily due to increased head count salaries and the higher costs of research and development.
Cereals and supplies all of which are used in the development of new products for new and existing markets.
Marketing and selling expenses increased 17% to $3 7 million for the year.
Stephen J. Bagley: The increase was due to increased headcount, salaries, commissions, travel, and treasure expenses, which were partially offset by a decrease in insurance. General and administrative expenses increased 26% to $2.1 million, primarily due to increased salaries and professional fees, which were all harshly offset by a decrease in stock-based compensation expenses. In addition, in the fourth quarter of fiscal 2024, we were notified by the state of California that we were required to collect sales tax on our shipments to California. We are in the process of reviewing our sales to California and, on a preliminary basis, our sales.
Speaker Change: Increase was due to increased headcount salaries commissions travel and trade show expenses and these were partially offset by a decrease in insurance expenses.
Speaker Change: General and administrative expenses increased 26% to $2 1 million, primarily due to increased salaries and professional fees.
Speaker Change: Partially offset by a decrease in stock based compensation expense.
Speaker Change: In addition in the fourth quarter of fiscal 'twenty 'twenty four we were notified by the state of California that we were required to collect sales tax on our shipments to California.
Speaker Change: We are in the process of reviewing our sales to California, and they are true and on a preliminary basis of ourselves too.
Stephen J. Bagley: In California, since April 2019, we have recorded an accrual of $138,000 for estimated sales tax penalties and interest that we may be required to remit to the state of California. Our operating income increased $499,000, or 73%, to $1.2 million in fiscal 2024, compared with $683,000 for the prior fiscal year. In fiscal 2024, the increase in operating income was a result of an increase in revenue and gross profit offset by an increase in operating expenses. Operating margin for fiscal 2024 increased to 6% compared with 5% in the prior fiscal year. As a percentage of net sales, operating expenses decreased 200 basis points.
Speaker Change: To California since April 2019, we have recorded an accrual of 138000 for estimated sales tax penalties and interest that we may be required to remit to the state of California.
Speaker Change: Our operating income increased 499000, or 73% to $1 2 million in fiscal 'twenty 'twenty four compared with 683000 for the prior fiscal year.
Speaker Change: In fiscal 'twenty 'twenty four the increase in operating income as a result of an increase in revenue and gross profit offset by an increase in operating expenses.
Speaker Change: Operating margin for fiscal 'twenty, 'twenty, four increased 6% compared with 5% in the prior fiscal year.
Speaker Change: As a percentage of net sales operating expenses decreased 200 basis points to 44% in fiscal 'twenty 'twenty, four compared with 46% of fiscal 2023.
Stephen J. Bagley: 44% in Cisco 2024 compared with 46% in Cisco 2025. Interest and dividend income increased $390,000 to $530,000 for fiscal 2024 as compared with $140,000 for the prior fiscal year. The increase in interest and dividend income is due to the reallocation of our investments into U.S. Treasury securities and certificates of deposit combined with the increase in current interest. Our present investment policy is to invest excess cash into highly liquid, low-risk U.S. Treasury securities and certificates of deposit.
Speaker Change: Interest and dividend income increased 390000 to 530000 for fiscal 2020 four as compared with 140000 for the prior fiscal year.
Speaker Change: The increase in interest and dividend income is due to the reallocation of our investments into U S Treasury Securities.
Speaker Change: If he could just deposits combined with the increase in current interest rates.
Speaker Change: Present investment policy is to invest excess cash.
Speaker Change: It's a highly liquid low risk U S Treasury securities and certificates of deposit.
Stephen J. Bagley: As of February 29th, 2024, the majority of our holdings are rated at or above investment grade. We recorded an income tax expense of $303,000 for fiscal 2024 compared with $154,000 for the prior fiscal year. The increase in income tax expense in fiscal 2024 is due to the increase in income before income tax, all set by the application of the available research and development tax credit. Net income increased $805,000, or 127%, to $1.4 million for fiscal 2024, compared with $636,000 for the prior fiscal year.
Speaker Change: At February 29, 2020 for the majority of our holdings are rated at or above investment grade.
Speaker Change: We recorded an income tax expense of 303000 for fiscal 'twenty 'twenty four comps.
Speaker Change: Compared with 154000 for the prior fiscal year.
Speaker Change: The increase in income tax expense in fiscal 'twenty 'twenty four is due to the increase in income before income taxes offset by the application of available research and development tax credits.
Speaker Change: Net income increased 805000, or 127% to $1 4 million for fiscal 2024.
Speaker Change: Paired with 636000 for the prior fiscal year.
Speaker Change: The increase in net income in fiscal 'twenty 'twenty. Four is the result of an increase in operating income interest and dividend income.
Speaker Change: Largely offset by an increase in operating expenses and increase.
Stephen J. Bagley: The increase in net income in fiscal 2024 is a result of an increase in operating income and interest in dividend income, partially offset by an increase in operating expenses and an increase in general and administrative expenses, and an increase in income tax. We've continued to add to our cash holdings, cash, cash equivalents, and marketable securities at February 29, 2024, or $12 million, over $400,000 higher than at the end of our last fiscal year, and we continue to carry no debt on our balance.
Speaker Change: And an increase in income taxes.
Speaker Change: We've continued to add to our cash holdings.
Speaker Change: Cash cash equivalents in marketable securities at February 29, 2024.
Speaker Change: For.
Speaker Change: A $12 million over 400000 higher than at the end of our last fiscal year and we continue to carry no debt on our balance sheet.
Stephen J. Bagley: CAPEX for the full year was $800,000. Approximately $350,000 of this total was allocated to substantial enhancements in our IT infrastructure, focusing on network upgrades, cyber security fortification, and expanding server capacity. Additionally, investments were made in the expansion of the Sono Tek facility to support current and projected growth initiatives. We expect to invest approximately $450,000 in new equipment and facility upgrades during our current fiscal year. And now, I'll turn the call over to Steve Harshberger, CEO and President, for an operational review of the full year.
Speaker Change: Capex for the full year was 800000 approximately 350000 of this total was allocated towards substantial enhancements.
Speaker Change: Infrastructure, focusing on network upgrades cyber security fortification and expanding service capacity.
Speaker Change: Additionally investments we've made in the expansion of the Sonat, Czech facility to support current and projected growth initiatives.
Speaker Change: We expect to increase invest approximately 450000 in new equipment and facility upgrades in our current fiscal year.
Speaker Change: And now I'll turn the call over to Steve, Steve Harshberger, CEO and President for an operational review of the full year Steve.
Thanks, Steve and good morning, everybody. Thanks for joining us today.
Stephen J. Bagley: Thanks, Steve. And good morning, everybody.
Stephen J. Bagley: Thanks for joining us today. As many of you know, Sono Tek breaks down sales in three ways, by markets, by products, and by geography, and my comments will flow in that order. Please see the short tables on the last page of our earnings press release for all those details. As Chris mentioned, for the full year, we reported net sales of $19.7 million, up 31% annually. This was ahead of our mid-year expectations of a minimum of 25% annual revenue growth.
Stephen J. Bagley: As many of you know a subtle take breaks down sales in three ways by market by product and by geography, and my comments will flow in that order. Please see the short tables on the last page of our earnings press release for all those details.
Chris: As Chris mentioned for the full year, we reported net sales of $19 7 million up 31% annually.
Chris: This was ahead of our midyear expectations of a minimum 25% annual revenue growth.
Stephen J. Bagley: Our growth strategies are gaining significant momentum as we guide our customers from our R&D and pilot line machines toward our complex, large-scale production systems with elevated average selling prices, or ASPs, ranging from $600,000 to well over $1 million. This represents an approximate four-fold ASP increase compared to our historical production and pilot volume systems. In FY 2024, we achieved a milestone by successfully delivering and installing two high volume, high ASP production systems, the highest number in a single year in our company's history, significantly bolstering our FY 2024 revenue.
Chris: Our growth strategies are gaining significant momentum as we guide our customers from a R&D and pilot lines machines towards our complex large scale production systems with elevated average selling prices or asps.
Chris: <unk> from 600000 to well over $1 million. This represents an approximate four fold asps increased compared to our historical production and pilot volume systems.
Chris: In FY 2020 for we achieved a milestone by successfully delivering and installing two high volume high E. S. P production systems.
Chris: Highest number in a single year in our company's history significantly bolstering our FY 2020 for revenue.
Stephen J. Bagley: The record growth was also propelled by heightened demand for our multi-axis coating systems, which are commonly used in the clean energy sector, showing an increase of 3.3 million, which is a 48% increase, totaling over $10 million for the year. Integrated coating system sales also accelerated by 159% or $1.8 million to $2.9 million due to the continued success of our newly developed float glass coating platform. In addition, Integrated Coding Systems was positively impacted by the debut and delivery of our first PLC-based system, which was developed under an initiative that we call Project Altair.
Chris: The record growth was also propelled by heightened demand of our multi axis quoting systems, which are commonly used in the clean energy sector, showing an increase of $3 3 million.
Chris: Which is a 48% increase totaling over 10 million for the year.
Chris: Integrated coating system sales also accelerated by 159% or $1 8 million to $2 9 million due.
Chris: Due to continued success of our newly developed float glass coating platform.
Chris: In addition, integrated coating systems, possibly positively impacted by the debut and delivery of our first P. L. C based system, which was developed under an initiative that we call project Altair.
Stephen J. Bagley: This first machine delivered under Project Altair was directed to a key strategic partner within the solar market, and we could not have captured this order without the significant investments we made in expanding our programming and controls engineering capabilities. In FY 2024, we were finally able to break out of last year's supply chain issues and meaningfully increase shipments as a result of our intense efforts to broaden and deepen our supply chain, including by increasing our own vertical integration with the introduction of Novacode, a multi-access product line.
Chris: This first machine delivered under project Altair was directed to a key strategic partner within the solar market and we could not have captured disorder without.
Chris: Significant investments, we made into expanding our programming and controls engineering capabilities.
Chris: And FY 'twenty 'twenty four we were finally able to break out of last year's supply chain issues.
Chris: Meaningfully increased shipments as a result of the intense efforts to broaden and deepen our supply chain, including by increasing our own vertical integration, where the introduction of Nova cold.
Chris: Multi access product line.
Stephen J. Bagley: This is a process that's ongoing, and we continue to build and broaden our in-house manufacturing capability. However, following uncharacteristically high revenue for printed circuit board or PCB fluxing systems for fiscal year ended February 28, 2023, PCB fluxing sales dipped by $455,000 for fiscal 2024. Over the years, we've installed thousands of our spray fluxing machines, and our customers continue to upgrade their equipment to their latest model spray fluxers as we advance the technology.
Chris: This is a process that's ongoing.
Chris: We continue to build and broaden our in house manufacturing capabilities.
Chris: Our following uncharacteristically high revenue for printed circuit board or PCB flexing systems for fiscal year ended February 28, 2023 P. C be flexing sales dipped by 455000 for fiscal 2024.
Speaker Change: Over the years, we've installed thousands of our spray function machines and our customers continue to upgrade their equipment to their latest model spray <unk> as we advanced the technology. So though there was a dip this year, we have a large customer base with new systems and our quoting activities remained strong.
Stephen J. Bagley: So although there was a dip this year, we have a large customer base for these systems, and our courting activities remain strong. Also, sales to our OEM PCB customers that integrate our ultrasonic nozzles into their own spray fluxers declined, causing OEM sales to decrease by 611,000. We believe the PCB spray fluxer market has slowed and returned to what was closer to our historical norm.
Speaker Change: Also sales to our OEM PCB customers, they integrate our ultrasonic novels into their own spray flexors declined, causing OEM sales decreased by 611000.
Speaker Change: We believe the PCB spray flexor market has slowed and returned to what was closer to our historical norms.
Stephen J. Bagley: The dip in OEM sales was largely mitigated by a 17 percent annual increase of over $640,000 in spare parts and service-related revenue, which is a growing revenue stream and is categorized in the other product categories. Sales of spare parts packages and other service-related contracts that support our large-platform, high-ASP production lines are growing in importance as we place more and more machines in the field. In fact, we believe that these follow-on service-related packages could reach as much as 10 to 15 percent of the total order value on our high-ASP production machines.
Speaker Change: The dip in OEM sales was largely mitigated by our 17 annual per cent increase of over $640000 in spare parts and service related revenue, which is a growing revenue stream and it's categorized in the other product category.
Speaker Change: Our sales of spirit spare parts packages and other service related contracts that support our large platform highest E. S. P production lines are growing in importance.
Speaker Change: More and more machines in the field.
Speaker Change: In fact, we believe that these follow on service related packages could reach as much as 10% to 15% of the total order value on our high AOSP production machines.
Stephen J. Bagley: Now we'll turn to the sales by market. Fiscal 2024 was highlighted by increasing sales to the alternative clean energy market, which grew by 96%, and were positively impacted by the growing number of Sono Tek customers transitioning from our R&D machines to production scale systems that carry much higher average selling prices, or ASPs. Many of our recent large contract announcements are from this area, and these systems are commonly used in the manufacturing of critical membranes for carbon capture, green hydrogen generation, fuel cells, and advanced solar cell applications.
Speaker Change: Now I will turn to the sales by market.
Speaker Change: Our fiscal 2024, it was highlighted by increasing sales to the alternative clean energy market, which grew by 96%.
Speaker Change: And were positively impacted by the growing number of solid tech customers transitioning from our R&D machines to production scale systems. They carry much higher average selling prices or asps again.
Speaker Change: Many of our recent large contract announcements or from this area.
Speaker Change: And these systems are commonly used in the manufacturing of critical membranes for carbon capture green hydrogen generation fuel cells and advanced solar cell applications.
Sales. This year include the shipment of a 1.1 million dollar system delivered to a customer in the carbon capture arena and.
Stephen J. Bagley: Sales this year included shipment of a $1.1 million system delivered to a customer in the carbon capture arena and a $766,000 shipment of a production-scale system to a customer in the advanced solar market, with three additional systems valued at $730,000 each to the same customer that are in the backlog and scheduled to ship in fiscal 2025. Electronics market revenue experienced a modest uptick in FY 2024. This growth was primarily fueled by a notable $377,000 increase in the semiconductor market segment. However, this positive momentum was partially tempered by a $455,000 decrease in sales of our PCB spray fluxers, as I mentioned earlier.
Speaker Change: $766000 shipment or production scale system to a customer in advanced solar market with three additional systems valued at 730000 each to the same customer that are in the backlog and scheduled to ship in fiscal 2025.
Speaker Change: Electronics market revenue experienced a modest uptick in FY 2024.
Speaker Change: This growth was primarily fueled by a notable $377000 increase in the semiconductor market segment.
Speaker Change: However, this positive momentum was partially tempered by a 450050 $5000 decrease in sales of our PCB spray flexors as I mentioned earlier.
Speaker Change: Medical sales rebounded strongly in the second half that's why 'twenty 'twenty four and ended with 13% growth for fiscal 2024. This was driven.
Stephen J. Bagley: Medical sales rebounded strongly in the second half of FY 2024 and ended with 13 percent growth for fiscal 2024. This was driven by several large multinational companies taking delivery of specialty implantable medical device coding systems during the year. Industrial sales remain very strong, showing growth of 48% for fiscal 2024, influenced by the shipment of two next-gen flow glass coating systems totaling approximately $700,000 and the last two machines of a multi-system order to a U.S.-based customer for $432,000.
Speaker Change: Given by several large multinational companies taking delivery of specialty implantable medical device coating systems during the year.
Speaker Change: Industrial sales remained very strong showing growth of 48% for fiscal 2024.
Speaker Change: Influenced by shipments to Nextgen float glass coating systems totaling approximately $700000 in the last two machines are a multi system order to a U S based customer for 432000.
Speaker Change: By geography in fiscal 2020 for approximately 55% of our sales were in the U S and Canadian customers. This is compared to 45% in fiscal 2023.
Stephen J. Bagley: By geography, in fiscal 2024, approximately 55% of our sales were to U.S. and Canadian customers. This is compared to 45% in fiscal 2023. We continue to record strong sales from the U.S. and Canada, growing by 60% for fiscal 2024. This achievement can be attributed to various factors, including proactive government initiatives such as the CHIPS Act and the Inflation Reduction Act.
Speaker Change: We continue to record strong sales from the U S and Canada growing 60% for fiscal 2020 for.
Speaker Change: This achievement can be attributed to various factors, including proactive government initiatives such as the chips at an inflationary reduction act. Additionally, the ongoing trend of onshoring for high technology products has significantly bolstered our sales performance in these regions.
Stephen J. Bagley: Additionally, the ongoing trend of on-shoring for high-technology products has significantly bolstered our sales performance in these regions. In fiscal 2024, MEA sales experienced a notable surge, marking a 20% increase equivalent to $885,000. This upward trajectory was positively influenced by robust sales to Ireland, where we secured and shipped two unique machines catering to separate customers within the medical sector. These systems are designed for specialized coatings of unique implantable devices, really reflecting our commitment to innovation in thin-foam coatings on next-gen healthcare devices.
Speaker Change: In fiscal 2020 for EMEA sales experienced a notable searched marking a 20% increase equivalent to 885000.
Speaker Change: This upward trajectory was positively influenced influenced by robust sales to Ireland.
Speaker Change: We secured and shipped two unique machines catering to separate customers within the medical sectors. These.
Speaker Change: These systems are designed for specialized coatings I mean unique implantable devices are really reflecting our commitment to innovation in thin film coatings on Nextgen health care devices.
Stephen J. Bagley: Furthermore, Germany had continued sales growth of our electrolysis membrane coating systems impacted by government initiatives aimed at fostering expansion of that clean energy sector. ASIC sales remained flat for fiscal 2024, while robust sales from the clean energy sector were shown from India, South Korea, and Singapore. However, this was offset by Chinese sales continuing a downward trajectory amidst this uncertain economic landscape prevailing in the region. In Latin America, we encountered a discernible decline of 21%, representing a reduction of $325,000. This dip can be largely attributed to the sluggish performance in the spray flexor segment.
Speaker Change: Furthermore, I G.
Speaker Change: Germany had continued sales growth of our electrolysis membrane coating systems are impacted by government initiatives aimed at fostering expansion of that clean energy sector.
Speaker Change: Asia sales remained flat for fiscal 'twenty 'twenty four.
Speaker Change: <unk> robust sales from the clean energy sector, we're showing from India, South Korea, and Singapore. This was offset by China sales continuing a downward trajectory.
Speaker Change: This this uncertain economic landscape prevailing in the region.
Speaker Change: In Latin America, we encountered a discernible decline of 21% representing a reduction of $325000 a district can be largely attributed to the sluggish performance in the spray flux or segment now in this market is commonly associated with customers in that base of that reach in that region.
Stephen J. Bagley: Now, in this market, it's commonly associated with customers in that region. Our backlog continued its year-over-growth trend, and on February 29th, it stood at 9.1 million. This is in addition to last year's substantial backlog increase over the previous year and reflects the increasing order activity from the clean energy sector in particular. Customer deposits reached $3.4 million on February 29th, reflecting the continued receipt of large new orders in our backlog. We generally require deposits of 50% or greater on orders valued at several hundred thousand dollars.
Speaker Change: Base.
Speaker Change: Okay.
Speaker Change: Our best work continued at Europe, our growth trend and on February 29th it stood at $9 1 million.
Speaker Change: This is in addition to last year's substantial backlog increase over the previous year and reflects the increasing order activity from the clean energy sector in particular.
Speaker Change: Our customer deposits reached $3 4 million at February 29th, reflecting the continued receipt of the large new orders in our backlog, we generally require deposits up 50% or greater on orders valued at several several hundred thousand dollars.
Speaker Change: As we look forward, we're excited to reach another key milestone and record with four high production High E. S. P systems scheduled for delivery in fiscal year 2000, 2025 with expectations of continued acceleration for additional high ESP orders entering our FY 2025 back or walk.
Stephen J. Bagley: As we look forward, we're excited to reach another key milestone and record with four high-volume production, high ASP systems scheduled for delivery in fiscal years 2020-25, with expectations of continued acceleration for additional high ASP orders entering our FY 2025 backlog for delivery in both the current fiscal year and fiscal year 2026. In closing... Our outlook is strong, and we are guiding to strong first quarter FY 2025 growth above 30%, against, of course, a weaker first quarter last year.
Speaker Change: For delivery in both the current fiscal year and fiscal year 2026.
Speaker Change: In closing.
Speaker Change: Our outlook is strong and we are guiding to strong first quarter FY 2025 growth above 30% against of course, a weaker first quarter last year.
Speaker Change: Additionally, we're anticipating a good fiscal 2025 was eight 7% year over year growth projected for the full fiscal year ending February 28, 2025, even with quarterly comparisons of record shipments for the year FY 'twenty 'twenty four and.
Speaker Change: And we believe the investments, we're making at our strategic growth initiatives will position us for higher revenue and increasing profits in the coming years.
Stephen J. Bagley: Additionally, we're anticipating a good fiscal 2025 with 8-7% year-over-year growth projected for the full fiscal year ending February 28, 2025, even with quarterly comparisons of record shipments for the year FY 2024. And we believe the investments we're making in our strategic growth initiatives will position us for higher revenue and increasing profits in the coming years. I'll now turn the call back over to the operator to open it up for questions. Thank you. We will now begin the question and answer session.
Speaker Change: I'll now turn the call back over to the operator to open it up for questions.
We will now begin the question and answer session.
Operator: To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster. Again, to ask a question, please press star, then 1. And our first question will come from Mr. Bill Nicklin with the Circle In Advisors. Please go ahead.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and he would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Again to ask a question. Please press Star then one.
Speaker Change: Yeah.
Speaker Change: And our first question will come from Mr. Bill Nicklin Circle N advisors. Please go ahead.
William Fred Nicklin: Good morning Steve and Chris. You did a nice job unpacking these details. I appreciate it. Thanks, Bill.
Speaker Change: Good morning, Steve and Chris.
Speaker Change: <unk> done a nice job on time.
Speaker Change: I appreciate it thanks Bill.
William Fred Nicklin: I have some broader questions about the characteristics of your business that will likely shape the future outcomes for... The first one deals with your competitive position, and I'm trying to get an understanding of what
Speaker Change: Thank you.
Speaker Change: Some.
Speaker Change: Water questions about the characteristics of your business will likely shape.
Speaker Change: Future outcome.
Speaker Change: Outcome for the company and for its.
Speaker Change: Shareholder.
Speaker Change: The first one.
Speaker Change: Kind of your competitive position.
What I'm trying to get an understanding of what's been the trajectory of your competitive positioning over the web.
Speaker Change: A few years.
Speaker Change: Who you're competing against their five et cetera.
Stephen J. Bagley: This is Steve here, Bill. Yeah, it's an interesting question because just actually just last week we just finished a competitive analysis on the ultrasonic coating market. You know, it takes us a while to do these, you know, because most of the companies that are our competitors, many of them are not public.
Steve: This is Steve here Bill Yeah, it's an interesting question.
William Fred Nicklin: Because it was just actually just last week, we actually just finished our competitive analysis on the ultrasonic coating market.
You know it takes us a while to do these you know because most of the companies that are our competitors. Many of them are not public. So it's been about four years I think since we've done our last thorough analysis.
Stephen J. Bagley: So it's been about four years, I think, since we did our last thorough analysis. And just by the way, a side note, this analysis will be part of a new company presentation that we're going to be posting on our website sometime next month. But I can give you kind of a quick snapshot of our findings.
William Fred Nicklin: And by just by the way side of this analysis will be part of the new company presentation that we're gonna be posting on our website sometime next month.
William Fred Nicklin: But I can give you a kind of a quick snapshot of our findings.
William Fred Nicklin: Looking specifically at the ultrasonic coding marketplace today the.
Stephen J. Bagley: Looking specifically at the ultrasonic coating marketplace today, the total pie is small, of course, right? It's a little over $40 million in revenue, up about 30% from where it was $30 million from where it was four years ago. And I should stress that that $40 million is the existing total sales of ultrasonic coating machines. You know, not the total addressable market for thin film coating equipment, where Sono Tek is focused on capturing a larger chunk of the market, of course.
William Fred Nicklin: The total pie of small of course, right, it's a little over $40 million in revenue up about 30% from where it was 30 million years of $30 million to $30 million from where it was four years ago.
And I should stress that that $40 million is the existing total sales of ultrasonic coating machines that you know not the total addressable market for thin film coating equipment, where sinopec is focused on capturing a larger chunk of the market of course, that's like an $8 billion market.
Stephen J. Bagley: You know, that's like an $8 billion market. What's very interesting is that four years ago, back in COVID, our most significant direct ultrasonic competitors were two decent-sized US competitors and one European competitor. They were, I think, out of Spain, followed by this large group of Sono Tek copy companies from China and South Korea. Now, that's all changed.
William Fred Nicklin: What's very interesting is that 40 years ago back in food Covid, our most significant direct ultrasonic competitors for true decent sized U S competitors, one European and one European competitor they were I think out of Spain.
William Fred Nicklin: Followed by this large group of Sinopec copy companies from China, and South Korea.
William Fred Nicklin: Now that's all changed we believe our three significant U S and European direct competitors have now all substantially shrunk in size or actually even going out of business in one case.
Stephen J. Bagley: We believe our three significant U.S. and European direct competitors have now all substantially shrunk in size or actually even gone out of business in one case, while the Chinese competitors have grown in size and number. So, you know, one might ask, "Why did our U.S. competitors and European competitors shrink or close instead of growing like Sono Tek?" Well, when you dive into it, it's actually very easy to see what has happened.
William Fred Nicklin: While the China competitors have grown in size and numbers. So one might ask why did our U S competitors and European competitors shrink or close instead of growing like subtle ticked it well.
William Fred Nicklin: Well when you dive into it it's actually a very easy to see what has happened.
Stephen J. Bagley: You know, China got better at making very basic ultrasonic coatings, which while they are sophisticated in nature, are still relatively simple to cut and copy. The cut and copy type of machines I would describe them as. And while they're nowhere near the quality of the U.S. and European-based competition, they're becoming close enough to maybe being acceptable. And this shouldn't be surprising.
William Fred Nicklin: China got better at making very basic ultrasonic coding kits.
William Fred Nicklin: While they are sophisticated in nature.
William Fred Nicklin: Relatively simply simple to cut and copy machine cut cut cut and cotton type of machines I would describe it as.
And while they're nowhere near the quality of the U S and European based competition, they're becoming close enough to maybe to be acceptable and this shouldn't be surprising you know, making simple repeat vanilla products is what China has historically been good at.
Stephen J. Bagley: You know, making simple, repeat, vanilla products is what China has historically been good at. You know, our U.S. and European competitors continue to focus on making these relatively simple cut and copy machines. You know, it's what worked for them historically, and they didn't recognize the urgency to change as China did, as the China gap closed in quality. And they really crushed them on price, you know, so they failed to adapt to what China was good at, which in China, what they're not good at is highly complex, highly customized. And this is where Sono Tek heavily invested in significant development of these advanced coding platforms that are, I mean, they're really nearly impossible to copy.
William Fred Nicklin: Our U S and European competitors continue to focus on making these relatively simple cutting copying machines.
William Fred Nicklin: No. It's what worked for them historically and they didn't recognize the urgency to change as China like China got closed in quality and they really crushed them on price. So they fail to adapt to what China was a good at which in China.
William Fred Nicklin: What they're not good at is highly complex highly customized large systems with very sophisticated application engineering knowledge and this is where sinopec heavily invested with significant development on these advanced coating platforms that are I mean, they're really nearly impossible to copy.
Stephen J. Bagley: You know, China can't keep up with us on these advanced machines, and even if they could, they'd have not near enough application knowledge to implement them. So that kind of gives you a little bit of how it's migrated.
William Fred Nicklin: China can't keep up with us and with US on these advanced machines and even if they could they would have no not near enough application knowledge to implement them.
William Fred Nicklin: So that's kind of gives you a little bit of the how much they've migrated over time.
William Fred Nicklin: Thanks. You know, it's occurred to me watching you folks over the years that your customers share a lot of their process knowledge, as you make machines that will address those needs. It would seem to me that if I was out looking for a machine, the last thing I'd want to do is give my process knowledge to the Chinese. Do you have any thoughts on that, or would you rather not comment? Yeah, it's a funny question.
Speaker Change: Thanks, you know it occurred to me watching you folks over the years that.
Speaker Change: Your customers share a lot of their process knowledge.
Speaker Change: As you make our machines to a little address those needs.
Speaker Change: It would seem to me.
Speaker Change: I was looking more for a machine.
Speaker Change: The last thing I'd want to do is give my process knowledge to the Chinese.
Speaker Change: Do you have any thoughts on that or would you rather not comment.
Stephen J. Bagley: I mean, you're, of course, correct. If you're like an Apple or a Google or a Meta or a Tesla or some advanced technology company, you know, do you really want your thin film coding IP to be developed and shared and collaborated with a China-based company? You know, you might if you're a China-based company, or maybe you won't care if you're a small university that plans to share everything they learn anyway, you know, but do you really want to risk your development, you know, that you won't transfer those products?
Speaker Change: [laughter] like correct question yet.
Speaker Change: Of course, correct, if you like an apple or Google or a matter or a tesla or some advanced technology company and you know do you really want to trust your thin film coating IP to be developed and shared and collaborated with a China based company.
Speaker Change: You might have if you are a China based company or if maybe you won't care, if you're a small university that plans to share everything they learn anyway.
Speaker Change: But do you really want a risk that your development you know that you won't transfer those products.
Stephen J. Bagley: who have worked on a product machine for China, and also, even if you do develop it on a production machine for China, they have no way to scale you to high volume production at the same time, in addition to that. So there's a lot of risk. These companies in China come and go also. So the best case, or the worst case scenario, is that you could fail to develop a thin film coating process on a cheaply made Chinese machine.
Speaker Change: Product machine for China, and also even if you do develop it in a production machine for China. They have no way to scale you to high volume production at the same time that in addition to that.
You know Theres a lot of risk you know these companies in China, They come and go all cell so.
Speaker Change: The best case worst case scenarios that you could you could you could fail to develop I think I'm quoting process on a cheaply made China machine that they don't make it successful and you go no no work further.
Stephen J. Bagley: They don't make it successful, and you go to work further. But the best case scenario is that you develop a process, but you still can't scale it up. So for most of your larger multinational companies and institutes, the risk, to be honest, is really just too significant when you have to choose: are you going to go with Sono Tek, or are you going to go with this pot of ever-evolving Chinese-based companies that you are risking? All right, thanks so much.
Speaker Change: But the best case scenario.
Speaker Change: You develop a process, but you still can't scale. It up you know so for most of your larger multinational companies Institute their risk. There's really just two significant when you have to choose are you going to go with sinopec or are you going to go with this part of ever evolving our China based companies.
Speaker Change: That you are risking your IP with.
Alright.
Thanks, so much.
Speaker Change:
Stephen J. Bagley: The next question has to do more with the kind of how the business is run, the shape of pursuing new business and then fulfilling these orders. So I guess the question is how far ahead you have to invest before expected revenues arrive from the initiative that you're investing in.
Speaker Change: Question has to do more with kind of.
How the business is run the shape of.
Speaker Change: Pursuing new business and then fulfilling these orders or I guess the question is how far ahead, the sounded like half two.
Speaker Change: Best.
Speaker Change: Before expected revenues derived from the initiatives that you're investing in.
William Fred Nicklin: I think that's a good question from an investor standpoint that, you know, it's sometimes frustratingly long. You know, it's not uncommon for us to spend one to two years identifying a market where we think we want to participate, and then another year to prove feasibility that our technology does bring significant advantages in that area. And then following that, there's the hardware and software development phase that can take anywhere from, well, maybe it's sort of six months, but it could also go as long as two years.
Yeah, I think that's a good question from an investor standpoint.
Speaker Change: Sometimes frustrated shows frustratingly long you know, it's not uncommon for us to spend one to two years to identify a market, where we think we want to participate.
Speaker Change: And then another year to prove feasibility that our technology does bring significant advantages in that area and then following that then there's the hardware and software development phase there can be any place from well, maybe it's sort of six months, but it can also go as long as two years.
William Fred Nicklin: You know, really, the fastest possible cycle time, you know, with a simple product, is maybe 18 months, with maybe six years being on the total outer edge. But I would say the average is more like about a three or four year cycle. Average cycle time for this to be complete.
Speaker Change: No really I mean, the fastest possible cycle time, you know with a simple product is maybe 18 months with maybe six years being on the total outer edge, but I would say the average you know youre looking more like about a three year four year cycle average cycle time for this to be completed.
Speaker Change: Alright, so you're investing in R&D and so forth mainly.
Stephen J. Bagley: Alright, so you're investing in R&D and so forth, mainly, you know, intangibles that will show up as an expense early on and then turn into revenues down the road, is that correct?
Speaker Change: Intangible little sharper than expense are.
Speaker Change: Early on and then turn into revenue down the road is that correct.
Stephen J. Bagley: Yeah, yeah, this is primarily an investment in R&D and sales personnel. The early phases are sales and application engineers to prove market feasibility, then followed after that by the engineering and programming, development of the machinery, and then, ultimately, it returns back to the sales force for market release and the new product and development of the new product and release to the customer base.
Speaker Change: Yeah, Yeah. Yeah. This is primarily an investment in R&D and sales personnel.
Speaker Change: They their early phases, our sales and application engineers to prove market feasibility.
Speaker Change: Followed after that by the engineering and programming development or the machinery and then ultimately then of course it returns back to the sales force for market release in new products and develop the new of the new product in relation to the customer base.
William Fred Nicklin: All right, so the numbers show you've been hiring aggressively over the recent years about what percent of those hires are placed in R&D, applications engineering, and then also sales and marketing as a whole.
Speaker Change: Alright, so the numbers show I believe you've been hiring aggressively over the in recent years about what percent of those hires are in place and R&D applications Engineering, and then also sales and marketing as a whole.
Stephen J. Bagley: Let me just think about that. Over the past two years, in particular, we've invested very heavily in personnel to bolster our growth ability. It's a significant investment because you tend to have almost a full year of training before the newest personnel really becomes highly effective. For example, this past year, we hired, I think it was about 11 new people, of which eight of those, I can think off the top of my head, were directly connected to new product or market development. You know, only a small fraction was directed to overhead and manufacturing.
Speaker Change: Let me just think about that.
Speaker Change: Over the past two years in particular.
William Fred Nicklin: Okay, thanks. So, one more if you don't mind.
We've invested very heavily in personnel to bolster our growth ability at it it's a significant investment.
Speaker Change: No because you tend to have almost a full year of training before the newest personnel really becomes highly effective.
Speaker Change: So for example, this past year, we hired I think it was about 11 new people.
Speaker Change: Of which eight of those I can think off the top of my head we're directly connected to new product or market development. You know only a small fraction was more directed to overhead and manufacturing.
Speaker Change: Okay. Thanks, and one more if you don't mind can you kind of describe what I would call the durability of revenue.
William Fred Nicklin: Can you kind of describe what I would call the durability of revenues, meaning in my mind, repeat business, multiple machines, recurring, returning customers, new needs for coding from existing customers. And then you started to mention, I think either you or Steve did, recurring revenues after or during and after the new bill.
Speaker Change: Meaning in my mind repeat business multiple machines recurring returning customers.
Speaker Change: New need for coding from existing customers.
Speaker Change: And then you started to mention I think either you or if you did recurring revenues.
Speaker Change: After all during and after the Newbuild.
Stephen J. Bagley: Well, I guess with the recent addition of our larger platform systems, repeat and returning customers have really been a big positive shift in our strategy. In the past, successfully coating a substrate on an R&D machine might have been the end of the sales cycle. Well, that's not the case for us anymore.
Speaker Change: Mm Hmm yeah, okay.
Speaker Change: Well I guess with the recent addition of our like larger platform systems.
Speaker Change: Repeat and returning customers have really been a big positive shift in our strategy you know in the past you know successfully coding of substrate on an R&D machine you think might be the end of the sales cycle.
Speaker Change: Well, that's not any longer for US you know, we now want to guide that customer to our pilot line machines, followed then by a high volume production systems, which have of course, those highest ESP has the highest average selling prices.
Stephen J. Bagley: And once they've transitioned to those high-volume production systems, they should often need repeat... You know, unlike the R&D machines where one system might just be enough, you know, so the other significant benefit, when I think about it, should also now be, we're really in the very beginning phases when I say this, of impacting our revenue stream through service contracts and spare parts packages. On our high ASP production type of platforms, we're seeing a greater acceptance of a reoccurring service contract that, so far, on the surface, look like they could add up to right around 10% annually on the machine.
Speaker Change: And once they transition to those high volume production systems, they should often need repeat machines.
Speaker Change: Unlike the R&D machines, where one system might just be enough.
Speaker Change: So the other significant benefit when I think about it she also now be us.
Speaker Change: It's just really in the very beginning phases when I say this.
Speaker Change: Impacting our revenue stream and service contracts and spare parts packages.
Speaker Change: And you know on our higher ASP production type of platforms.
Speaker Change: We're seeing a greater acceptance of a reoccurring service contracts.
Speaker Change: So far on the surface it looks like they could up to add up to right around 10 percentage annually on the machine.
Stephen J. Bagley: You know, this is in the beginning phases, but it should gain momentum quickly, you know, because once you add a machine this year, that machine should be 10% 10% 10% every year, and then, once you have two more machines that you add on to that, then you should have three machines 10% 10%, and then, of course, you had 10 machines on all of those are just sort of compounding quickly so. We're optimistically thinking that it's going to be a more significant reoccurring revenue stream in the future.
Speaker Change: This isn't the beginning phases, but it should gain momentum quickly you know because you know once you add a machine on this year that machine should be every year, 10%, 10%, 10% and then once you have two more machines that you add on to that then you should have three streams, 10%, 10% and then of course, you had 10 machines on all of those are just.
Speaker Change: Just sort of compounds quicker. So we're optimistically thinking that's going to be a more significant reoccurring revenue stream in the future.
Speaker Change: Alright, it sounds good. Thank you that's all for me.
William Fred Nicklin: All right. Sounds good. Thank you. That's all for me.
Stephen J. Bagley: Hey, good catching up, Bill. Thanks.
Speaker Change: It could catch up.
Speaker Change: Again, if you have a question. Please press Star then one our next question will come from <expletive> Ryan with Oak Ridge Financial. Please go ahead.
Operator: Again, if you have a question, please press star, then 1. Our next question will come from Dick Ryan with Oak Ridge Financial. Please go ahead.
Speaker Change: Thank you.
Richard Allen Ryan: Thank you. Steve, how should we look at the backlog? 9.1 million. Is that all anticipated to flow in this next quarter in fiscal 25, and then you indicated you had some larger ASP machines in there. Can you kind of give us a breakdown of that backlog, how much is concentrated in those larger machines versus, you know, maybe some more of the turns type of business? Sure.
Steve: Steve how should we look at the backlog of $9 1 million is that all anticipated to flow in in this next.
Speaker Change: In fiscal 'twenty, five and then you indicated.
Speaker Change: You had some larger E. S. P machines in there can you kind of give us a breakdown of that backlog how much is concentrated in those larger machines versus maybe some more of that turns type of business.
Stephen J. Bagley: Sure, in the existing backlog today, most of those orders came in mid-last fiscal year, so everything in that existing backlog is scheduled for this current fiscal year delivery. And I can say that with pretty high confidence. You know, there's nothing that's really in question on that one that I don't believe we'll have. No question marks, really.
Speaker Change: Sure.
Speaker Change: In the existing backlog today.
Speaker Change: Most of those orders came in Oh mid last fiscal year. So everything in our existing backlog is scheduled for this current fiscal year delivery.
Speaker Change: And I can say that with pretty high confidence there shouldn't there's nothing that's really in question are on that one that I don't believe we'll have.
Speaker Change: No question marks around it.
Stephen J. Bagley: There's enough time on those. And the reason I make that clear is that some of our machines can take up to a year, maybe even over a year, to build for some of these large platforms. But all of these have been in, and they're well underway. And in that backlog, I think right now we have four, exactly four high ASP machines. One is a machine that's about $1.1 million, and then there are three machines in there that are in the area of about 700,000, which are all for high-volume production applications.
Speaker Change: Not enough time on those and I. The reason I make that clear is that some of our machines can take up to a year, maybe even over a year to build for some of these large platforms, but all of these have been in there.
Stephen J. Bagley: And I guess what's significant for both of those two customers, that's going over two customers; these are customers that are in their early phases of development. They have already announced long-term contracts and have been putting out fairly publicly about where their production goals need to hit and where they're expanding to. So if they come anywhere close to what they're saying, and some of these seem like they're pretty good – one of them, in particular, always seems like they always hit the mark of what they commit to publicly, it should result in significant upside for Sono Tek for future repeat machines of the same or very similar configuration. So, we're optimistic about that, adding both into the second half of this year, maybe the fourth quarter, revenue stream as well as, and much more importantly, the revenue stream for next fiscal year.
Speaker Change: Well underway.
Speaker Change: And in that backlog I think right now we have <unk>.
Speaker Change: We have four exactly four high Asp's machines, one is a machine that's about a 1.1 million dollar machine and then there's three machines in there that are in the area of about 700000.
Speaker Change: Which are all for high volume production applications.
Speaker Change: And I guess whats significant for both of those two customers that's going over to customers. These are customers that they are in their early phases.
Speaker Change: <unk> development.
Speaker Change: They have.
Speaker Change: Have already announced long term.
Speaker Change: Tracks.
Speaker Change: That they've been putting up fairly publicly about where their production goals need to hit and where theyre expanding too.
Speaker Change: So if they come anywhere close to what they're saying is if somebody has seemed like they're pretty.
Speaker Change: One of them in particular always seems like they always hit the mark of what they commit to publicly.
Speaker Change: It should result in significant upside for sinopec for future repeat machines of the same or very similar configurations.
Speaker Change: So.
Speaker Change: We're optimistic about that adding both into the second half of this year, maybe the fourth quarter.
Speaker Change: Revenue stream as well as but much more importantly, the revenue stream for next fiscal year.
Okay.
Richard Allen Ryan: So, when you look at the order or your quotation level, you know, you obviously have the repeat business, and then you've got the lab activity. Can you give us a sense of what's going on in the labs and what your batting average is at turning that, you know, demonstration or engineering work into orders?
Speaker Change: So when you look at the order or your quotation level.
Speaker Change: You know you obviously have the repeat business and then you've got the lab activity.
Speaker Change: Can you give us a sense of what's going on in the labs and what's your batting average of turning that demonstration or engineer.
Speaker Change: Engineering work.
Into orders.
Stephen J. Bagley: Yeah, that's an area we're working really hard on. We have, our New York-based lab is really, we have some talented engineers here, and they're remarkably successful.
Speaker Change: Yeah, well, that's an area. We're working really hard on you know we have a new York based lab is really we have some talented engineers here and they're remarkably successful you know when someone comes in here.
Stephen J. Bagley: You know, when someone comes in here, there's about a 75% success rate where someone will buy a machine if they come in here to work on developing their process. So it's really successful for us. This year, especially now that COVID is way behind us, we're putting a very concerted effort to really accelerate the success rate of our overseas international labs. You know, that we have a person actually who is actually just focused just on that task here for us.
Speaker Change: There's about a 75% success rate, where someone will buy them machine if they've come in here to work on developing their process. So it's really successful for us this year.
Speaker Change: Especially now that the Covid is way behind us, we're putting a very concerted effort to really accelerate the excess success rate of our overseas International labs.
Speaker Change: We have a person actually we have just focused just to that task here for us.
Speaker Change: Okay, we need right now their success rate just to be clear is not anywhere near 75%, but we need to get them up towards that area and be able to show that same success rate because that that's just a super direct correlation to growing our revenue stream.
Stephen J. Bagley: That we need, right now, their success rate, just to be clear, is not anywhere near 75%, but we need to get them up towards that area and to be able to show that same success rate, because that's just a super direct correlation to growing our revenue stream. And that's our goal for that area. There is another significant area, as I kind of mentioned earlier in the revenue stream, that for a lot of this, we actually will have paid application development. Many of our customers, if not most, pay Sonotech to help them develop their applications and the coding needed.
Speaker Change: And that's our goal for that area.
Speaker Change: There is another significant area that as I kind of mentioned earlier and the revenue stream for a lot of this we actually will have paid.
Speaker Change: Application development many of our customers if not most.
Speaker Change: PE Sano tech to help them develop their applications and coatings are needed and that's been a very important because right now where capital equipment right and we know capital equipment can be somewhat lumpy you know both the backlog and the revenue streams going out. So we really really want to bolster our services related aspects of it.
Stephen J. Bagley: And that's very important, you know, because right now we're capital equipment, right? And we know capital equipment can be somewhat lumpy, you know, both the backlog and the revenue streams going out. So we really, really want to bolster our services-related aspects of the organization. And it's almost doubled this past year. It's still not really significant. I think, you know, combined services and the services combined with application engineering, contract coding, and things along those lines right now, I think we're just a little under a million dollars, which isn't much, not right now.
Speaker Change: The organization.
Speaker Change: And it's almost doubled this past year. It is still not really significant I think combined services and other services combined with application engineering contract coding and things along those lines right now and I think we're just a little under $1 million, which is not much not right now, but there's a very clear focus for us to enhance that and make that a more significant.
Stephen J. Bagley: But there's a very clear focus for us to enhance that and make that a more significant part of our revenue stream, which will kind of help the lumpiness of, you know, just selling capital equipment all the time.
Speaker Change: Again part of our revenue stream, which will kind of help the lumpiness.
Speaker Change: Selling capital equipment, all the time.
Speaker Change: Okay.
Richard Allen Ryan: Okay, one left for me, you specifically called out on the medical side, a couple systems being sent to two customers in Ireland. Can you give us a sense? Are these new medical applications that are being coded? Are they existing customers that were using your coding systems on previous devices that have expanded? Or can you provide a little more color on those ships.
Speaker Change: Just one left for me you you specifically called out in the medical side, a couple systems being sent to two customers over in Ireland.
Can you give us a sense of are these new medical applications that are being coded are they existing customers that were using your quoting systems on previous devices that have expanded or can you.
Speaker Change: Provide a little more color on on those shipments.
Stephen J. Bagley: Sure, yes. These are, I believe in both cases, existing customers using our stent coating systems. You know, that's an area of stent coating where, you know, a huge chunk of the world uses Sono Tek stent coating systems. We're kind of the industry standard there. But these are both customers; I'm fairly sure in both of them that they had our stent coating systems, but now, in both of these cases, they are not coating stents. This is in both cases.
Speaker Change: Yet these are I believe in both cases, they were existing customers using our <unk> coating systems, you know that that's an area of the stent coding.
Speaker Change: A huge chunk of the world use our uses simulcast encoding systems, where kind of the industry standard there.
Speaker Change: But these are both customers I'm fairly sure on both of them that they had our stent coating systems, but now in both of these cases, they are not quoting stent, which is a new implantable device in both cases I can't say, what it is because that would kind of give away the customer in both cases, but there are.
Stephen J. Bagley: I can't say what it is because that would kind of give away the customer in both cases, but they are a newly developed device, and the application engineering development process was not simple here for Sono Tek, just to be clear. These people came to our labs, and our engineers worked with them to develop this new, unique process for these new, unique devices that are getting implanted into the body. This is again one of those talents that really only Sono Tek can provide for our customers.
Speaker Change: Our newly developed device.
Speaker Change: And the application engineering development process was not simply episodic I'll take just to be clear you know that these people came to our labs are engineers worked with them to develop this new unique process for these new unique devices youre getting implanted into the body.
Speaker Change: This is again one of those talents they really only sinopec can provide to our customers.
Stephen J. Bagley: It's nice to see these customers that, you know, they've built up the competence in Sono Tek to use our stent coating machines, but now they're saying, hey, why don't we use it for anything else that we're implanting in the bodies? That's a very significant shift in our customer base to be able to say, hey, let's broaden it out. You know, Sono Tek; don't look at them just as a stent coating customer for medical devices. Look at them as a general coating for any device in the medical industry.
Speaker Change: And it's nice to see these customers that they built a competence in sinopec to use our <unk> coating machines, but now they're saying Hey, why don't we use it for anything else that we're implanting into bodies and that's a very significant shift in our customer base to be able to say hey, let's broaden it out so I don't take don't look at them just as a stent coating customer for medical devices.
Speaker Change: As a general color coding of any device in the medical industry.
Speaker Change: Did they run off your coding.
Richard Allen Ryan: Did they run your coding capabilities against somebody else in these new systems? Or, you know, did this just come to you, kind of your sole source and your expertise with their previous efforts?
Speaker Change: Capabilities against somebody else when these new systems or.
Speaker Change: Did this just come to you kind of your sole source and your expertise with their previous efforts.
Stephen J. Bagley: I think in both of these cases, the partnerships that we had built with these customers, and this again happens over time, they were just so confident that Sono Tek could handle this. I think they really, right off the bat, came to us first. And that's something that wouldn't have happened in the past, to be honest. But once you have these long-term partnerships, and that's how, in particular, in the medical device area, many of these guys think we're not just really a vendor; we're a partner with them.
Speaker Change: I think in both of these cases the partnerships that we had built with these customers and this again this happens over time. They were just so confident that that solid tech that handle this I think they write really just right off the bat came to us first and that's something that wouldn't have happened in the past to be honest, but you know once you have these long term partnerships and.
Speaker Change: So in particular in the medical device area. Many of these guys are that we're not just really a vendor you know we're a partner with them they kind of come to us by default to start and Thats not to say, we can do every single coding, but they know sinopec well enough that if we can do what we will tell them to Canada. If we can't we'll probably refer them to somebody of another technology that Ken.
Stephen J. Bagley: They kind of come to us by default to start. And that's not to say we can do every single programming job, but they know Sono Tek well enough that if we can do it, we'll tell them we can. And if we can't, we'll probably refer them to somebody on another technology that can. But that's the kind of partnership that we have with most of these guys.
Speaker Change: But that's the kind of partnerships that we have with most of these guys.
Richard Allen Ryan: Great. Okay, thank you. Congratulations on the strong performance.
Speaker Change #100: Great. Okay. Thank you congratulations on the strong performance.
Stephen J. Bagley: Hey, nice catching up, Dick. Thanks. This concludes our conversation.
Speaker Change #101: And I can catch it up there thanks.
Christopher L. Coccio: This concludes our question and answer session. I would like to turn the conference back over to Mr. Chris Coccio for any closing remarks. Please go ahead.
Speaker Change #102: This concludes our question and answer session I would like to turn the conference back over to Mr. Chris <unk> for any closing remarks. Please go ahead.
Herman: Thank you Herman.
Christopher L. Coccio: And thank you, everyone, for joining us today. Sono Tek's outlook is strong based on our ongoing success with our platform initiatives in the high tech and clean energy markets. We look forward to our next goal, which is to review our midyear fiscal 2025 results, and that'll be in October.
Thank you everyone for joining us today sounds like the outlook is strong based on our ongoing success with our platform initiatives and the high Tech and clean energy markets.
Speaker Change #104: We look forward to our next call that will review our midyear fiscal 2025 results and that'll be in October in the meantime, please contact US directly if you have any questions wishing you a great rest of the day.
Operator: In the meantime, please contact us directly if you have any questions. Wishing you a great rest of the day. Thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: [inaudible]
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Speaker Change #104: Thank you very much.
Speaker Change #105: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #105: [music].
Speaker Change #105: Yeah.
Speaker Change #105: [music].
Speaker Change #105:
Speaker Change #105: Yeah.
[music].
Speaker Change #105: Yeah.