Company News

Sono-Tek Reports 6% Sales Growth in Second Quarter Fiscal 2019

Backlog grows to $2.0 million driven by Alternative Energy and Medical Markets
MILTON, N.Y., October 15, 2018 – Sono-Tek Corporation (OTCQX: SOTK), the leading developer and manufacturer of ultrasonic coating systems, today reported financial results for its fiscal 2019 second quarter and year-to-date period ended August 31, 2018.

Financial Highlights

  • Net sales increased 6% to $2.8 million in the quarter and were up 7% to $5.5 million for the year-to-date period
  • Backlog was $2.0 million at quarter end, up 63% since the end of fiscal 2018 and up 39% from the trailing first quarter
  • Company continues to expect solid growth in sales for fiscal year 2019

“Industry conditions combined with our sales and marketing initiatives are driving record levels of proposals and quotes, which we expect to continue to drive strong order flow,” commented Dr. Christopher L. Coccio, Chairman and CEO. “As expected, operating income reflects the continued investments we are making to expand our addressable markets and develop industry leading technology. In the long run, we expect the growth in volume we are working to capture will ultimately translate into strong operating leverage.”

Dr. Coccio concluded, “Given our current backlog, we anticipate solid performance in fiscal 2019. Because of the shift in product mix toward higher value, complex ultrasonic coating machines, we can have wide variations in both order flow and shipments from quarter to quarter given the timing and nature of machine sales. Specifically, as customers in the fuel cell industry begin to scale up from R&D prototype production to low rate production, orders can be uneven. Importantly, we believe we are building a business and opportunities pipeline that can achieve substantial profitable growth over the long term.”

Year-to-Date Fiscal 2019 Results (Narrative compares with prior-year period unless otherwise noted)

Six Months Ended August 31, Change
2018 2017 $ %
Net Sales $     5,519,000 $     5,154,000 365,000 7%
Gross Profit 2,616,000 2,509,000 107,000 4%
          Gross Margin 47.4% 48.7%
Operating Income $           46,000 $        111,000 (65,000) (59%)
          Operating Margin 0.8% 2.1%
Net Income $           81,000 $           71,000 10,000 14%
          Net Margin 1.5% 1.4%
Diluted Earnings Per Share $                0.01 $                0.00
Weighted Average Shares – Diluted 15,169,000 15,060,000

Over the last few years, Sono-Tek has shifted its business from primarily selling ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems to original equipment manufacturers (“OEMs”). The average unit selling price range has broadened as a result to $50 thousand to over $240 thousand per unit. As a result, order flow and backlog can vary from quarter to quarter. These machines also require larger content and hardware, such as complex motion control systems, from outside suppliers, which impacts the gross margin profile somewhat.

The Company’s net sales growth in the first half of fiscal 2019 was driven primarily by the Medical market, which was up 47% to $2.1 million. This was the result of the Company’s success with providing paid coating services for customer product development that drives demand for its ultrasonic coating equipment. Sales in the Alternative Energy market were up marginally through the first six months of the fiscal year; however, based upon the Company’s current backlog, sales to this market are expected to be stronger in the second half of fiscal 2019.

In the first half of fiscal 2019, approximately 62% of sales originated outside of the United States and Canada compared with 56% in the prior-year period.

From a product sales perspective, OEM Systems were up 60%, or $367,000, to $978,000 in the first half of fiscal 2019 as the Company continued to successfully provide subsystems and components, including the custom-designed Align system, to OEMs. Multi-Axis Coating Systems increased $367,000 to $2.1 million as a result of higher sales of more complex, highly engineered and higher value machines primarily for the Medical and Alternative Energy markets. These increases more than offset the decline in sales of Integrated Coating Systems, which primarily are for more mature applications in the Medical market and can be highly variable in order volume. See the accompanying tables at the end of this release for a breakout of sales by Market and Product for the six months ended August 31, 2018.

Gross margin was negatively impacted by the change in product mix and higher direct labor and service department costs, which were partially offset by the benefit of higher volume. Operating expenses were up in the period as the Company continued to invest in research and product development as well as marketing and selling activities in order to expand its future market opportunities. This includes additional software and resources as the Company begins to integrate smart technology into its products.

Higher interest and dividend income combined with net rental income aided net income growth to $81,000.

Backlog of $2.0 million was up 63% over $1.2 million at the end of fiscal 2018 and increased 39% since the end of the first quarter of fiscal 2019.

Second Quarter Fiscal 2019 Results (Narrative compares with prior-year period unless otherwise noted)

Three Months Ended August 31, Change
2018 2017 $ %
Net Sales $     2,818,000 $     2,654,000 164,000 6%
Gross Profit 1,345,000 1,329,000 16,000 1%
          Gross Margin 47.7% 50.1%
Operating Income $          14,000 $           90,000 (76,000) (84%)
          Operating Margin 0.5% 3.4%
Net Income $          59,000 $           55,000 4,000 7%
          Net Margin 2.1% 2.1%
Diluted Earnings Per Share $0.00 $0.00
Weighted Average Shares – Diluted 15,224,000 15,065,000

The net sales growth and change in gross and operating margins reflects similar commentary as the year-to-date discussion above. Approximately 62% of sales originated outside of the United States and Canada in the second quarter compared with 45% in the prior-year period. See the accompanying tables at the end of this release for a breakout of sales by Market and Product for the three months ended August 31, 2018.

Balance Sheet and Cash Flow Overview
Cash and cash equivalents and short-term investments at quarter-end were $5.7 million, down from $6.4 million at the end of fiscal 2018. The decline was the result of the timing of working capital requirements primarily due to an increase in receivables and inventory. Higher inventory is to address both customer demand for shorter delivery cycles and increased order levels.
Year-to-date capital expenditures were $160,000 compared with $43,000 in the prior-year period. The increase was primarily due to investments to upgrade the Company’s CNC machinery. Sono-Tek anticipates total capital expenditures to be approximately $0.4 million to $0.6 million in fiscal 2019.

At August 31, 2018, the Company had total debt of $949,000, down $77,000 since fiscal 2018 year-end. Long-term debt is comprised of the mortgage on the Company’s industrial park complex and has an interest rate of 4.15%. Sono-Tek has a revolving credit line of $750,000 and a $250,000 equipment purchase facility, both of which had no outstanding borrowings at quarter-end.

About Sono-Tek
Sono-Tek Corporation is the leading developer and manufacturer of ultrasonic coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on parts and components for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive. The Company’s solutions are environmentally-friendly, efficient and highly reliable, and enable dramatic reductions in overspray, savings in raw material, water and energy usage and provide improved process repeatability, transfer efficiency, high uniformity and reduced emissions. Sono-Tek’s growth strategy is focused on leveraging its innovative technologies, proprietary know-how, unique talent and experience, and global reach to further develop thin film coating technologies that enable better outcomes for its customers’ products and processes. For further information, visit www.sono-tek.com.

Safe Harbor Statement

This news release contains forward looking statements regarding future events and the future performance of Sono-Tek Corporation that involve risks and uncertainties that could cause actual results to differ materially. These factors include, among other considerations, general economic and business conditions; political, regulatory, tax, competitive and technological developments affecting our operations or the demand for our products; timely development and market acceptance of new products and paid coating services; adequacy of financing; capacity additions; the ability to enforce patents; maintenance of operating leverage; continued reduction in inventory requirements; maintenance of order backlog; consummation of order proposals; continued sales growth in the medical and alternative energy markets; successful transition from primarily selling ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems; effectiveness of CNC machining upgrade; and the ability to achieve increased sales volume at projected levels and continued profitability. We refer you to documents that the company files with the Securities and Exchange Commission, which includes Form 10-K and Form 10-Qs containing additional important information.

For more information, contact:
Stephen J. Bagley
Chief Financial Officer
Sono-Tek Corporation
info@sono-tek.com

Deborah K. Pawlowski
Investor Relations
(716) 843-3908
dpawlowski@keiadvisors.com

Financial Tables Follow

news sotk. 10.15.2018 10-Q
Printable PDF