Q2 2026 Sono-Tek Corp Earnings Call

Speaker #1: Good day, and welcome to the Sono-Tek second quarter and first half fiscal year 2026 results conference call. All participants will be in a listen-only mode.

Speaker #1: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

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Speaker #1: I would now like to turn the conference over to Mr. Kirin Smith with PCG Advisory. Please go ahead, sir.

Speaker #2: Thank you, operator, and thank you, everyone, for joining us today. Sono-Tek released their second quarter and first half fiscal 2026 results this morning. If you don't have a copy of the release, please go to the company's website at sonotech.com.

Speaker #2: And click the press release/news tab in the investors section. The product market and geography sales tables on the last page of the release will be part of today's discussion.

Speaker #2: With me on the call today are Dr. Christopher Coccio, Sono-Tek's executive chairman; Steve Harshbarger, CEO and president; and Stephen Bagley, chief financial officer. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements.

Speaker #2: 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 protections under the Private Securities Litigation Reform Act of 1995.

Speaker #2: 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 #2: The company assumes no obligation to update the information contained in this conference call. As a reminder, Sono-Tek currently holds two earnings calls per fiscal year.

Speaker #2: This is our mid-year fiscal 2026 call for the second quarter and first half ended August 31, 2025. Our next earnings call will be our full-year call for the 12 months ended February 28, 2026, and will be held next May.

Speaker #2: I would now like to turn the call over to Christopher Coccio, Executive Chairman of Sono-Tek. Chris, please go ahead.

Speaker #3: Good morning, and thank you, Kirin. And thank you, everyone, for joining us today. We're going to discuss our second quarter and first half fiscal 2026 results.

Speaker #3: They were released this morning before the market opened. I'll begin with some opening remarks, and then Steve Harshbarger, CEO and President, will go through a deeper business and operational review.

Speaker #3: This will be followed by Steve Bagley, our chief financial officer, who will provide the financial review. Following their comments, we'll open the call to your questions.

Speaker #3: To fast forward, we held our annual shareholder meeting at our company headquarters in the Manufacturing Facility in Milton, New York. I'd like to thank all the shareholders who attended and were able to see firsthand the core technology, the key advantages, and how it's being utilized by our customers in various industries.

Speaker #3: They were also able to see how bustling our facility is as we continue to grow. For those newer investors in our company, we welcome the opportunity to showcase our products and technology with an open invitation.

Speaker #3: As a refresher for the newer and prospective investors on the call today, Sono-Tek developed a revolutionary method of applying precision thin-film coating several decades ago.

Speaker #3: The proprietary technology involves the use of our advanced high-frequency ultrasonic nozzles, incorporated into specialty motion control systems. They are able to achieve uniform micron- and nano-thin coatings onto our customers' products.

Speaker #3: Our unique value proposition and key differentiator is that our thin-film coating machines provide dramatic savings on the expensive liquids being applied. Additionally, our machines are environmentally friendly by minimizing material usage and reducing overspray.

Speaker #3: Importantly, this often helps companies comply with increasingly stringent government regulations aimed at reducing hazardous waste entering the environment. But the real key advantage of our ultrasonic coating systems is the ability to apply precision thin films.

Speaker #3: With our technology being vitally important in today's world, and with thousands of products and microcomponents now requiring a functional or protective coating to be added to them, a major strategic shift that we made several years ago to offer more complex and complete solutions has meaningfully broadened our addressable market.

Speaker #3: And 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 $1 million or more.

Speaker #3: This can significantly impact our quarterly revenue. Additionally, our move into the clean energy sector has shown excellent results in next-generation solar cells, fuel cells, green hydrogen generation, and carbon capture applications.

Speaker #3: As we help shape a sustainable future, this is what we saw last fiscal year: we experienced the largest customer order in our history, followed by an additional order of the same size two weeks later.

Speaker #3: More recently, in line with our diversification strategy, we announced a very large order of over $5 million to a company in the medical device industry.

Speaker #3: And just yesterday, we announced another large order of over $2.8 million from another major U.S. medical device manufacturer. The beauty of our technology is the immense value it brings across many industries, including the electronics market.

Speaker #3: Life sciences and clean energy, to name a few. The new year has presented some changes and uncertainties for most businesses, such as shifts in relationships with trading partners and the redirection of climate policy and related government spending.

Speaker #3: On the trade issues, Sono-Tek builds our key ultrasonic hardware at our factory in Milton, New York. A large portion of our other materials used are U.S.-based.

Speaker #3: So we see minimal concern there. On the export side, more than half of our current sales are to the U.S. market. We have been exposed to tariffs in certain other countries for many, many years.

Speaker #3: So we could be affected for better or worse depending on the outcome of negotiations taking place. Clean energy continues to represent a significant portion of our sales.

Speaker #3: Fortunately, a large share of these sales comes from commercial customers, such as U.S.-based solar panel manufacturers and carbon capture and conversion companies. The solar customers are supported by commercial users, and the carbon capture customers are supported by airlines and other corporations focused on reducing their carbon footprint.

Speaker #3: This includes efforts to develop sustainable aviation fuel and other carbon-based products. While we do anticipate a decline in clean energy orders this year, our diversification strategy helps us to mitigate and offset potential declines.

Speaker #3: This is being driven by ongoing enhancements to our equipment across all sectors, including new, expanded features and functionalities that are supporting sales in the medical and semiconductor markets.

Speaker #3: I'm pleased to report that we're seeing strong momentum in the medical device industry, particularly in growing interest for our high-volume production systems and increased demand for our balloon catheter coating machines.

Speaker #3: It's important to note that we have used a form of forward-deployed engineering with a number of customers now to help them in their subsequent system purchases from us.

Speaker #3: For the first half of our fiscal year, we experienced modest annual revenue growth, and the second quarter marked the sixth consecutive quarter in a row.

Speaker #3: Of revenue over $5 million. On top of that, our first-half revenue made a new record high at $10.3 million, and net income came in at $917,000.

Speaker #3: Which is up about 36% from the previous year. We remain encouraged by the path ahead, supported by a solid backlog of $11.2 million and a strong balance sheet with $10.6 million in cash and no debt.

Speaker #3: For the full fiscal year, we are increasing our prior guidance to reflect modest revenue growth. This outlook balances continued caution as the market adjusts to the recent shifts in government clean energy and tariff policies, which we expect will be positively offset by growing demand from the medical device industry.

Speaker #3: We will continue to refine our guidance as we gain more clarity through the remainder of the year. In closing, my part, we are excited that our investments have begun to pay off, and our strategies have positioned us well for continued success and long-term value creation.

Speaker #3: Our outlook for growth has been greatly enhanced by the early success of our strategy to shift to larger, more complex systems and platforms for production applications.

Speaker #3: There are multiple and repeat orders, as well as our focus on opening new markets for our unique thin-film coating technology. Thank you. I'll now turn the call over to Steve Harshbarger, our CEO and President.

Speaker #3: Steve, please go ahead.

Speaker #4: Thanks, Chris, and good morning, everybody. I appreciate you all joining us here today. Let me start by saying that we are very pleased with our overall performance and the strategies we have put in place to help shield us from these macro factors, with a unique value proposition and clear product offering that solves critical problems for many diverse industries.

Speaker #4: You know, it's extremely gratifying to see our investments hitting their stride. Our sales for the second quarter and first half met our guidance with flat to slight revenue growth, and that's even with an unplanned customer-requested shipment delay that moved one system into the third quarter.

Speaker #4: This comes on the back of a strong fiscal 2025, which benefited from growth in the clean energy sector. The strength and resilience of our business continue to grow, and it's exciting to see our diversification strategy paying off with momentum now building in the medical device industry.

Speaker #4: Our second quarter medical market sales increased by 150% year-over-year, or $62,000, to $1 million. This growth was led by balloon coating systems shipped to the U.S., Europe, and China.

Speaker #4: regarding the second quarter, revenue was up slightly to $5.16 million, an increase sequentially compared to $5.13 million in the first quarter of fiscal 2026.

Speaker #4: And that's marking the sixth consecutive quarter of revenue over $5 million. Gross profit for the quarter increased 3% year over year to $2.6 million, compared with $2.5 million last year.

Speaker #4: And that's mainly due to a favorable product mix of mature, high ASP systems, with reduced costs and some favorable warranty expenses in the current period.

Speaker #4: Net income for the quarter increased 27% to $431,000, compared to $340,000 last year. This reflects a combination of higher gross profit and lower operating expenses.

Speaker #4: Now I'll provide a few other key highlights in the quarter. By geography, U.S. and Canada sales decreased 22% year over year, or $765,000. This decline was driven by slowing momentum in the U.S. clean energy industry.

Speaker #4: However, this was positively offset by sales in Asia, which increased by 153% year over year, or $562,000, with major growth in China and other parts of Asia.

Speaker #4: Additionally, we saw media sales increase by 25%, or $288,000, while Latin America sales were down by $74,000. By product category, integrated coatings system sales, which we are now referring to as in-line coating systems, decreased by $493,000, or 24%, to $1.53 million.

Speaker #4: And that was primarily driven by a same customer-requested delivery delay that I just mentioned, which came from the clean energy sector. It has since now shipped in our Q3 FY 2026.

Speaker #4: Here as well, we saw a positive offset with multi-axis coating systems increasing by $99,000, or 5%, to $2.03 million. Fluxing sales increased by $46,000, or 39%, to $165,000.

Speaker #4: And that's reflecting our increased demand for our fluxers from Asia. Additionally, OEM sales increased by $188,000, or 92%, to $394,000. That's driven by strong shipments to our fluxer OEMs and new optics-related OEM wins.

Speaker #4: The spare parts services and other sales category increased by $161,000, or 18%, to $1.04 million. By end market, as I highlighted earlier, the medical market increased by 150% year over year, or $602,000, to $1 million.

Speaker #4: And that was again led by balloon coating system sales, shipped to both the U.S., Europe, and China. Alternative clean energy decreased slightly by 3% year over year, or $65,000, to $2.43 million.

Speaker #4: Supported by a strong clean energy backlog going into FY 2026, the electronics markets declined by 1% year over year, down $22,000 to $1.46 million. The industrial market declined 68%, or $577,000, down to $288,000.

Speaker #4: and that's influenced by a large FY 2025 European glass coating order, that didn't repeat. regarding our first half of fiscal 2026 result, we reported record revenues of $10.3 million compared to $10.1 million, in the year ago period.

Speaker #4: Gross profit increased 6% year over year to $5.3 million, compared with $5 million. Net income increased 30% year over year to $967,000, or $0.06 per share, compared with $672,000, or $0.04 per share.

Speaker #4: The increase in revenue for the first half of fiscal year 2026 was driven by a 65%, or $1.82 million, increase in sales from in-line coating system sales, reflecting shipments of six high ASP systems to a major solar customer, totaling $4.42 million.

Speaker #4: while we're not projecting further near-term orders from this customer in FY 2026, we do remain optimistic about potential future demand, depending on the customer's execution of expansion plans.

Speaker #4: The increase in in-line coating systems we experienced was somewhat offset by our product division, which can fluctuate from time to time. U.S. and Canada sales decreased 5% year over year, or $324,000, driven by slowing momentum in the clean energy industry.

Speaker #4: ...but was positively offset by increased sales in Asia, with 74% growth year over year, or $647,000, led by strong medical sales in China and strong alternative energy sales in Japan and South Korea.

Speaker #4: Media sales were relatively flat, declining $60,000, with Latin America sales down $160,000 due to slowing fluxing sales in Mexico. By product category, as I mentioned before, in-line coating system sales increased by $1.82 million, or 65%, to $4.58 million, driven by the shipment of six high ASP systems to a major solar customer, totaling $4.42 million.

Speaker #4: Fluxing sales increased by $64,000, or 25%, driven by strength in Asia. Multi-axis coating systems declined by $1.89 million, or 41%, to $2.71 million, following a strong FY 2025 for semiconductor systems that didn't repeat.

Speaker #4: And slower clean energy activity in FY 2026. OEM sales were slightly down by $13,000, or 2%, and spare parts and services and others were up by $126,000, or 6%.

Speaker #4: By end market, the medical market rose by 44%, or $553,000, driven by strong balloon coating systems shipped to the U.S., Europe, and China, as well as increased coating activity in Europe and China.

Speaker #4: Alternative energy rose 19% year over year to $901,000, driven by the shipment of the six high ASP solar coating systems I mentioned earlier. The electronics market declined by 21% year over year, or $646,000, following strong FY 2025 semiconductor sales.

Speaker #4: And FY 2026 timing for similar machines. The industrial market declined 67%, or $701,000, influenced by a large FY 2025 European glass coating order that didn't repeat.

Speaker #4: We closed the first half of fiscal 2026 with a solid equipment and service-related backlog of $11.2 million, which was near record levels. The backlog clearly represents the strength of our overall business.

Speaker #4: And reflects encouraging order activity. we attribute the increase in sales and the strong backlog as a direct result of our investment in R&D, with a strong focus on product expansion.

Speaker #4: For the first half, we have invested $1.3 million in R&D, compared to $1.4 million in the year-ago period. Our balance sheet remains strong; as of August 31, cash, cash equivalents, and marketable securities totaled $10.6 million, again with no outstanding debt.

Speaker #4: In closing, we're updating our prior guidance to reflect modest growth for revenue, and this outlook continues to be cautious as the market digests recent shifts in the U.S. government's clean energy and tariff policy.

Speaker #4: Which we expect will be positively offset by our growing demand from the medical device industry. And most importantly, we remain very confident in our long-term growth prospects.

Speaker #4: Our momentum stems from our deliberate strategy and shift to large customized systems, with accelerating ASP. Our proprietary ultrasonic nozzle technology remains at the core of our systems for all these diversified industries.

Speaker #4: And we've been able to achieve this significant shift organically through our own development efforts. With that, I will hand the call over to Mr. Stephen Bagley, our CFO, to review our financials in more detail.

Speaker #4: Steve, please proceed.

Speaker #2: Very good. Thank you, Steve, and good morning, everyone. I will first walk you through the fiscal 2026 second quarter results, followed by our first half results.

Speaker #2: Net sales for the quarter increased slightly to $5.16 million, compared to the second quarter of fiscal 2025. Additionally, it increased sequentially compared to the first quarter sales of fiscal 2026, which were $5.13 million.

Speaker #2: Gross profit increased 3% year over year, or $74,000, to $2.6 million. The gross profit percentage increased to 50% due to a favorable mix of product types, including mature high ASP systems with reduced costs, and favorable warranty expenses in the current period.

Speaker #2: Operating expenses decreased to $2.17 million, compared to $2.23 million in the prior year's second quarter. The decrease is primarily due to reduced marketing and selling expenses.

Speaker #2: Research and product development costs decreased to $627,000, compared to $696,000 in the prior year. The decrease is primarily due to reductions in research and development materials, supplies, and salary expense.

Speaker #2: Marketing and selling expenses decreased to $807,000 for the quarter, compared to $908,000 in the prior year. The decrease is due to a reduction in salary expenses related to the departure of a salesperson.

Speaker #2: And a decrease in trade show expenses and travel expenses. these decreases were partially offset by an increase in salaries related to our sales application lab.

Speaker #2: General and administrative expenses increased to $670,000 for the quarter, compared with $546,000 in the prior year. The increase is primarily due to an increase in salaries, corporate expenses, and stock-based compensation expense.

Speaker #2: These increases were partially offset by decreases in legal and accounting fees. Operating income increased $135,000, or 47%, to $421,000, compared with $286,000 in the prior year.

Speaker #2: In the second quarter of fiscal 2026, an increase in gross profit, combined with a decrease in operating expenses, were key factors in the increase of operating income.

Speaker #2: Interest and dividend income remained steady at $82,000 in the second quarter, compared to $85,000 in the prior year's quarter. Our present investment policy is to invest excess cash in highly liquid, low-risk U.S. Treasury securities.

Speaker #2: At August 31, 2025, the majority of our holdings were rated at or above investment grade. In the second quarter, we recorded a tax provision of $103,000, compared to $74,000 in the prior year.

Speaker #2: Net income for the quarter was $424,000, or $0.03 per share. This compares with $341,000, or $0.02 per share in the prior year period.

Speaker #2: The increase in net income is primarily due to the current period's increase in gross profit and a decrease in operating expenses. And now for the financial results for the first six months of fiscal 2026.

Speaker #2: Total sales for the first half of fiscal 2026 increased year over year by $103,000, to a record $10.3 million. Gross profit increased, excuse me, $283,000, or 6%, to $5.3 million.

Speaker #2: And that's primarily due to product mix and favorable warranty expenses in the current period. The gross profit percentage—oh, sorry, sorry—increased to 51%, from 49% in the prior year period.

Speaker #2: Operating expenses decreased slightly to $4.35 million, compared to $4.45 million in the prior year's first half. Research and product development costs decreased to $1.3 million versus $1.4 million in the prior year's first half.

Speaker #2: And that's primarily due to decreases in research and development materials and supplies, as well as salary expense. Marketing and selling expenses decreased to $1.7 million for the first half.

Speaker #2: and that compares to $1.9 million in the prior year. The decrease was due to a decrease in salary expense related to the departure of a salesperson.

Speaker #2: And decreases in commission expense, trade show expenses, and travel expenses. These decreases were partially offset by an increase in salaries related to our sales application lab.

Speaker #2: General and administrative expenses increased slightly to $1.3 million, compared with $1.1 million in the prior year. The increase is primarily due to increases in salaries, corporate expenses, and stock-based compensation expense.

Speaker #2: And these increases were partially offset by decreases in legal and accounting fees. Operating income increased considerably by 72% to $381,000, compared to $905,000, which is an increase from $502,000 in the prior year period.

Speaker #2: And this underscores the operating leverage from our stronger gross profit and a decrease in operating expenses. Operating margin for the first half of fiscal 2026 was 9%, compared to 5% in the prior year.

Speaker #2: In the first half of fiscal 2026, interest and dividend income decreased by $4,000 to $224,000, compared with $228,000 in the first half of fiscal 2025.

Speaker #2: Additionally, unrealized gains decreased $52,000, to $2,000, as compared with $54,000 in the first half of fiscal 2026. Net income increased $35,000, to $999,000, or $0.06 per share for the first half of fiscal 2026.

Speaker #2: Compared with $622,000, or $0.04 per share for the first half of fiscal 2025, diluted weighted average shares outstanding decreased slightly to approximately 15.7 million shares.

Speaker #2: We continue to maintain a strong cash position, with cash, cash equivalents, and marketable securities totaling $10.6 million at August 31, 2025. Additionally, we continue to carry no debt on our balance sheet.

Speaker #2: CapEx for the six months was $113,000, and all of that is directed to ongoing upgrades of our manufacturing and development lab facilities. We expect to invest approximately $300,000 in new equipment for the full fiscal year.

Speaker #2: And now, we’ll open the call for any questions from the audience. Operator, please go ahead.

Speaker #1: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone.

Speaker #1: If you are 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 2.

Speaker #1: At this time, we will pause momentarily to assemble our roster. Your first question today will come from Ted Jackson with Northland Securities. Please go ahead.

Speaker #5: Thanks. Good morning. Congratulations on the quarter.

Speaker #4: Hey, morning, Ted.

Speaker #5: So my first question, Steve, is I want to maybe augur in a little bit on the medical device strength and the Chinese exposure that's from it.

Speaker #5: You know, in the past, I know that China's been a bit of a difficult market for you because there have been, you know, sort of copycat ultrasonic coating vendors there that have been trying to undercut you in price.

Speaker #5: And, you know, so I'm a little curious in terms of how the business came about and, you know, kind of the competitive dynamics for the win. And, you know, this mean that we're going to see you have, you know, a better profile in China going forward and, you know, maybe some discussion with regards to, you know, tariffs around China and any kind of concerns you might have there.

Speaker #5: That's kind of a mouthful, but that's my first question.

Speaker #4: Sure, sure. Yeah. Well, China is certainly still always on our mind. And I should start by saying that even when we send our advanced coating systems over to China, they actually are not getting our most advanced coating systems.

Speaker #4: You know, we actually keep those pretty close to home, so they're usually getting like one generation behind us. Yeah, just from a proprietary standpoint.

Speaker #4: But we were fortunate that, in the medical device industry in particular, we've been able to capture some significant orders where these customers evaluated these Chinese copycat companies and they just found out that the quality did not meet the bare minimum requirements to compete with Sono-Tek.

Speaker #4: So they actually made decisions to, hey, it’s about maybe three or four times per machine for what they could buy that same machine from a Chinese manufacturer to get it through Sono-Tek here in the U.S.

Speaker #4: And that's even with the significant tariff implications that are happening. So, you know, it's a real compliment, I guess, to us from the standpoint of, you know, the quality of our systems. And it's the one industry that, you know, defects are much more critical than, say, like on a printed circuit board. You know, that a defect is a life in those industries.

Speaker #4: So, you know, there is some level of paying a premium in those particular niches for us right now. And in the balloon area in particular, you know, that's an area that we believe we are going to dominate, similar to the stent manufacturing area that we've had in the past.

Speaker #4: So I think China is jumping on that, knowing that they need Sono-Tek if they want to be heading into that market for medical devices.

Speaker #5: And And then, so then are these, customers, are these China, are these actually Chinese entities? They're not Western companies manufacturing in China?

Speaker #4: Yeah, these particular ones happen to be Chinese manufacturers, which is unusual, also just as you're pointing out. You know, it would be much more common for us to say have a Western entity manufacturing in China that is buying Sono-Tek.

Speaker #4: That would be a much more common scenario. But in these particular cases, it's actually surprisingly Chinese manufacturers that are saying, "Hey, the quality is so low of our domestically made stuff that we're going to buy Sono-Tek anyway."

Speaker #4: You know, and that's certainly without encouragement from the Chinese government. The Chinese government has a big push right now to buy made in China.

Speaker #4: But there are certain technologies that they just are not able to perfect enough that they have to be buying from the U.S., even at these very premium prices over domestic manufacturing equipment.

Speaker #5: And then, is there a similar industry in, you know, like in terms of balloon catheters within the Western world? And do you have exposure to there, or is this driving interest for you, you know, outside of China?

Speaker #4: Yeah, it is. You know, it's kind of similar to the stent industry, which we're very familiar with, and that's one of those areas that we dominate.

Speaker #4: The marketplace, that if you capture the two or three major manufacturers of that particular application, you'll tend to get the second-tier manufacturers following them.

Speaker #4: You know, although it's all proprietary and confidential and nothing's ever supposed to get out, personnel travel from company to company. And so it does tend to snowball upon itself.

Speaker #4: I believe right now we're in a position that we're capturing the major leaders in this particular niche, and I think it's snowballing across the globe.

Speaker #4: You know, the geographically it's snowballing, whether it's to Japan or to China or to Europe. or in our home base in the US. you know, they are we're becoming the industry standard in this niche.

Speaker #4: And this, and thankfully, this is a niche that's just starting to, you know, what's great is that this is in the beginning phases.

Speaker #4: So there's a lot of growth ahead of us here for this area.

Speaker #5: And then, so, I've got two more questions on medical and then maybe one more. I have others behind it, but I'll get out of line because I can always come back in.

Speaker #5: So using stents as a kind of, like, let's call it a guidepost to how the balloon catheter market might turn out, can you walk us through, like, when you got your first order in that market and how it evolved? You know, and then like how many systems have you sold and over what period of time? You see what I'm saying?

Speaker #5: And just kind of so we can get a sense to that. And then the question behind that is, you know, you've, you've had, you know, tremendous success within stents.

Speaker #5: It looks like you're positioned well for balloons. What other stuff is out there for you in the medical market? And actually, I want to step aside and I'll come back in because, you know, for some, I'm sure there's like a couple other questions.

Speaker #4: Sure, I appreciate that, Ted. For sure, we are definitely trying to emulate the success that we had in stents. I guess one of the big differences between the stent market and our newest markets, like balloon catheters and coating the drug-eluting balloons, is that our product offering at the time of stents was very limited and it was smaller ASP machines that were selling for maybe $50,000 to $80,000. Now those machines probably could have sold for $150,000 to $200,000 if we had the capabilities to add more offerings and more capabilities onto those machines.

Speaker #4: But we didn't at the time. Fortunately for us now, due to all these investments we've made over the last several years, we are now able to offer a much more sophisticated platform for balloon coating than we would have ever been able to offer for stent coating at the time.

Speaker #4: and that has driven the ASP up higher on the machines. But even more importantly, it's resulted in a much more satisfied customer that's really able to see our capabilities beyond just the coating part of it.

Speaker #4: You know, it's the capabilities of manipulating the product. It's the capabilities of curing or cleaning, and, you know, having these fully integrated systems, which drives our ASP up. We're now finding it's starting to help improve gross margins as well.

Speaker #4: is really significant for us. And it opens us up where that customer now recognizes, oh, Sono-Tek, they're not just a stent coating company anymore.

Speaker #4: They have manufacturing capabilities for coating just about any one of your medical devices. Although balloons are the one that's kind of taking off for us right now, there are a lot of other things in the hopper that we are also involved with, which we want to repeat and emulate that same process for as well.

Speaker #5: Sounds exciting. I'll, I'll, I'll come back into you. I know I have more questions, but I'll start again. Yeah, thanks.

Speaker #4: Thanks, Ted. Good talking to you.

Speaker #6: You come in.

Speaker #1: Your next question of the day will come from Bill Nicklin with Bill Will Insights. Please go ahead.

Speaker #7: Hey, Steve. I'm on a cell phone and not in a great area, so can you hear me?

Speaker #4: I got you, Bill. Good morning.

Speaker #7: Hey, good morning. Looking at the recent orders you have and kind of what’s been taking place over the last few years, there are strong indications that Sono-Tek has intentionally and strategically taken a path of building out your applied engineering model.

Speaker #7: And I think it's pretty evident through customer accessibility to your lab and involvement in your lab, testing infrastructure, new hires you've made, leadership promotions, and so forth.

Speaker #7: And it appears to me this strategy is the functional equivalent of what's been popular, known as FDA or Forward Deployed Engineers.

Speaker #7: So, in line with that, could you walk me through how the application engineering build-out fits into your broader growth strategy and what specific capabilities or customer outcomes you are building toward?

Speaker #4: Sure, sure. That's a great question. And it really, I would say it gets at the heart of why we continue down a path of what we're now actually starting to refer to, just as you referenced, as Forward Deployed Engineering.

Speaker #4: You know, that actually came out of the software term, but it's changed and it's grown over time. The definition of it, it's really a key part of our growth strategy.

Speaker #4: And it touches on everything from customer adoption to sales efficiency, competitive pricing, and I'll do my best to walk through those areas that you just mentioned.

Speaker #4: You know, our Forward Deployed Engineering model builds around what we originally called our Custom Engineered Solutions team and is really core to scaling our growth.

Speaker #4: This team was just created a couple of years ago, and it was actually an expansion of our application engineering group.

Speaker #4: And it has already grown from one senior engineer to three individuals, showing the strong demand for what we see in this capability area. It enables our most experienced engineers to work directly within the customer production environments to deploy and optimize customized and production-scale coating systems.

Speaker #4: And this hands-on approach really accelerates system adoption. You know, it maximizes the real-world coating performance, and it very much strengthens our long-term partnerships.

Speaker #4: And all of these ultimately are key drivers in expanding our high ASP production platforms. And by embedding our FD engineers, you know, directly with customers, we're hoping to expect to see shortened sales cycles.

Speaker #4: and improve our win rates because, you know, the solutions are already proven in production where they're not just proven in our labs. You know, so over time, this should allow a lower customer acquisition cost.

You know, it elevates our role from equipment supplier to really become a technology partner, um, and that supports strong pricing. You know, it really strengthens our pricing power. When you think about it, you know, it's going to give us much deeper account penetration, uh, and more possibilities for recurring revenue from product expansion, you know?

You know, as well as those same returning customers considering us for new projects, which they may or may not have otherwise. Um, so I think, you know, we're going to see that roll over into margin expansion fairly quickly for us, you know, because as they become higher developed and go through our process, we've seen here historically that the margins will start to expand on those high ASP machines once the first round of them has gone through our manufacturing process.

Thanks, Steve. Uh, it's good to see all this hard work and money spent, uh, uh, come to fruition and uh, good luck, the rest of the year.

I appreciate that, Bill. It's been a significant investment for us and we're happy to see it. Take it off for us. So, uh, it should be an exciting time.

Please go ahead.

Hey, morning, Dick. Hey morning, Steve. Thanks for taking the questions, and also congrats on the success of the diversification kicking in.

Appreciate that. Thank you. Just just most things have been asked, just a couple questions specific, you mentioned, 2, new Optics related, oems. Can you give a little detail is that, you know, are these significant wins? I mean, obviously any win is, is is worthy. But, um, can you provide a little more detail on those 2 new oems.

Yeah, that um, they are in the Optics area, the lens area. Um, what's what I would describe as significant for them, is that right now, they are not in a wheelhouse for sotek. I would say, has a great depth of knowledge. Um, but these guys do have a significant depth of knowledge and that if we can get in bed with them we will start to learn a lot more about that industry in that field. Um and that's very valuable for us. You know often we need a partner uh to accelerate our entrance into these new newer type of applications.

Because otherwise it could take us, you know, we we the partner we might be able to get in in 1 to 2 years, but without a partner we might take us, you know, 4 or 5 years to really understand uh the area effectively. Um, so I I think it's going to be significant. It it's probably not going to be significant from a revenue standpoint short-term, but it could be significant from a new market, entrance, long term.

Okay that sounds good. What's going on in the semi side? You know that market uh seems to be uh holding up. Well the front end got some uh you know higher expectations of spending in 2026. What are you seeing on the semi side of the business?

Yeah, um, well, until this past month, I was thinking more, uh, almost flattish but then we just came out of a trade show, um, semicon. It's called an Arizona, it was, and it was by far the best trade show we've ever had.

And the best interest of leads and customers is talking to us very seriously about equipment. When I asked about, you know, what was the differentiator, they said really it was our product line expansion this year. Although it was a very good year in general for semiconductor at the show.

Was significant enough that it was growing, our addressable Market at the show. So customers that would have walked by us last year, or the year before. And now we're starting to recognize oh, these guys have a lot more capabilities than they had over the last several years. Uh, and we did make some more significant investments into the show to make sure we showed that, you know, and displayed that at the show we had a, a larger size Booth, um, with actual Machinery there running, uh, but it really paid off for us. Um, and I think that we're going to start to see that, uh, become a fairly significant growth area for the organization over the next year or 2, um, as a result of this. And and that's still going to a long way from, uh, stopping the upper Peak on this. You know, that we're going to be showing some significant new product additions this year, and I think it will be ongoing like that for the next several years that will continue to grow that product offering

Okay, have you been able to quantify what the addressable market opportunity might be for you guys?

You know, we we haven't put a a dollar figure to it, but I will say this, is that our next strategic shift is moving from, what is mostly a 200? Mm.

Uh, high-tech lab environment over to 300 mm environments where which are mostly Fab directed. Um, and that's the expansion of our product line offering right now is is heading in that direction. And that seems to be where most of the investment is heading and where we can bring the biggest benefit and impact. Um, so I think it's going to be again higher ASP machines that are more complex. Um, but you know, I think right now, we've got the right strategic Partners aligned with us. Um, we've kind of worked out all the details to enter into there this year pretty quickly.

But I'll congratulate you on that. That's a significant opportunity moving into the 300 millimeter space. I think that's it for me. Good job, appreciate it. Thanks, Steve. Always good talking, Dick. Thanks.

And your next question today is a follow-up from Ted Jackson of Northland Securities. Please go ahead.

1 is just a backlog near a record, like, over what time frame will revenue be recognized.

Yeah. The the largest orders um, that we have just recently announced, which was that $5 million last month and the almost 3 million dollar order that came in last week. Or this week, I should say just yesterday. Um, the bulk of those will be shipping in our FY 2027 year. So, you know, after March, but they'll probably be some level, maybe, uh, 15 10 to 15% of that may ship out in the current fiscal year, you know, just the beginning orders for those. Um, so that that's that's the bulk of it. That was going to be heading into next year and and that's why right now, we're only, um, projecting modest growth for the current fiscal year. And that's just because the build time on these machines, um, is significant so although we'll be able to ship some of them, we we won't be able to ship uh anywhere near a significant portion of them in the current fiscal year. Uh, but we're in good shape for

This year, you know, like I said, so we'll come in at modest growth. Um, you know, had the clean energy sector kept on full steam like we anticipated, we probably would have shown huge growth this year. Um, but hey, that uh, we deal with what we got, and fortunately our team here was able to shift really quickly, um, over to capitalizing on the investment we made into, uh, building these highly complex.

Machines are being effectively shifted over to the medical sector.

And then, on the second half of 2026, you know, you are projecting modest growth for the year, um, given that you had a piece of business slip from the um, second quarter to the third quarter. Would we expect to see, you know, your second half sales be a little more weighted in the third quarter, vis-a-vis the fourth quarter because of that?

Um, yeah, I think they're going to be way off from each other, but it's probably going to be a little bit heavier in Q3 versus Q4, because of that one system that did get, at their customer request, pushed into Q3. So, I would suspect Q3 would probably be slightly higher than Q4.

But they both should be pretty solid for us.

Do you think that you can, um, take your streak of 5 million?

Plus revenue, uh, quarters from 6 to 8.

Well, you haven't given any projections there yet, but...

Um, you know, that I, I think.

I would be disappointed if we don't do it, but we haven't given any formal projections there. I would be disappointed if we don't do that.

Okay. All right. Well, that's it for me. Everything else got asked for other people. Um,

Thanks.

You're welcome. See you Ted

Thank you for that question and answer session. I would like to turn the conference back over to Mr. Steve Harshberger for any closing remarks.

Sorry about that.

Dropped all my papers here.

Well, I just want to thank everybody for joining us today. Uh,

And, uh, to tell you all that we look forward to having you come back for our next conference call. You know, sign, a text, long-term outlook remains strong, uh, supported by the continued success of our newly developed high-ASP platforms across advanced technology markets. Uh, so we look forward to sharing our full fiscal year 2026 results during our next call in May.

Uh, in the meantime, we will be presenting at some key upcoming investor conferences. Uh, next week we're actually at LD Micro in California.

Uh, and please don't hesitate to reach out to us with any questions. And, uh, thank you again, and enjoy the rest of your day, everybody.

The conference has now concluded, thank you for attending today's presentation. You may now disconnect