Earnings call transcript: Sono-Tek Corp Q2 2026 shows steady growth, stock reacts

Sono-Tek Corp reported its second-quarter earnings for fiscal year 2026 on October 14, 2025, meeting earnings per share (EPS) expectations but falling short of revenue forecasts. The company’s EPS came in at $0.03, matching analysts’ projections, while revenue reached $5.16 million, slightly below the expected $5.45 million. Despite the revenue miss, Sono-Tek’s stock rose 5.71% in pre-market trading, indicating a positive investor sentiment towards the company’s strategic initiatives and future outlook. According to InvestingPro data, the company maintains a healthy financial position with a Financial Health Score of 2.15 (FAIR), supported by strong liquidity metrics and zero debt. For deeper insights into Sono-Tek’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Key Takeaways

• Sono-Tek met EPS expectations at $0.03 but missed revenue forecasts by 5.32%.
• The stock price increased by 5.71% in pre-market trading, reflecting investor confidence.
• Strategic focus on medical devices and semiconductor markets is driving growth.
• Strong performance in the medical device market with a 150% year-over-year increase.

Company Performance

Sono-Tek Corp demonstrated resilience in the second quarter of fiscal year 2026, with a slight year-over-year increase in revenue to $5.16 million and a 27% rise in net income to $424,000. The company attributes its growth to its strategic shift towards larger, more complex ultrasonic coating systems and expansion into semiconductor and medical device markets. Notably, the medical device segment experienced a significant 150% year-over-year increase, underscoring the company’s successful market penetration. InvestingPro analysis reveals an impressive gross profit margin of 48.28% and a strong current ratio of 3.77, indicating efficient operations and robust working capital management.

Financial Highlights

• Revenue: $5.16 million, slight increase year-over-year
• Net Income: $424,000, up 27% year-over-year
• Earnings per share: $0.03, meeting expectations
• Gross Profit: $2.6 million, 3% increase year-over-year
• Cash Position: $10.6 million with no debt

Earnings vs. Forecast

Sono-Tek’s EPS of $0.03 met the forecast, while revenue of $5.16 million fell short of the $5.45 million expectation, resulting in a revenue surprise of -5.32%. This revenue miss contrasts with the company’s historical trend of meeting or exceeding forecasts, reflecting challenges in certain market segments.

Market Reaction

Despite the revenue miss, Sono-Tek’s stock rose by 5.71% in pre-market trading to $4.44. This positive movement suggests that investors are optimistic about the company’s strategic direction and potential for growth in the medical device and semiconductor markets. The stock’s current price remains below its 52-week high of $6.05, indicating room for further appreciation. InvestingPro data shows the stock trades at a P/E ratio of 46.67x and has a beta of -0.21, suggesting it often moves counter to market trends. While current analysis indicates slight overvaluation, subscribers can access additional valuation metrics and 10+ exclusive ProTips on the InvestingPro platform.

Outlook & Guidance

Looking forward, Sono-Tek projects modest revenue growth for the fiscal year, driven by its focus on the medical device and semiconductor markets. The company plans to continue investing in research and development and expanding its product lines. Potential margin expansion is anticipated over the next 1-2 years, supported by ongoing strategic initiatives.

Executive Commentary

CEO Steve Harshbarger emphasized the company’s strategic shift, stating, "Our momentum stems from our deliberate strategy and shift to large customized systems." He also highlighted Sono-Tek’s competitive edge, noting, "We’re becoming the industry standard in this niche." Harshbarger expressed confidence in the company’s ability to meet customer needs, adding, "Customers increasingly are going to be choosing Sono-Tek because we bring process engineering expertise directly right into their production floor."

Risks and Challenges

• Potential slowdown in the clean energy market could impact future revenue streams.
• Supply chain disruptions may pose risks to production and delivery timelines.
• Intense competition in the semiconductor market could pressure margins.
• Economic uncertainties in key markets like China and Japan may affect growth.

Q&A

During the earnings call, analysts inquired about Sono-Tek’s entry into the medical device market and the company’s forward deployed engineering strategy. Executives provided insights into opportunities within the semiconductor and optics markets and clarified the recognition of backlog revenue, reinforcing the company’s strategic focus and growth potential.

Full transcript - Sono-Tek Corp (SOTK) Q2 2026:

Conference Operator: Good day, and welcome to the Sonotech Second Quarter and First Half Fiscal Year twenty twenty six Results Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr.

Kieran Smith with PCG Advisory. Please go ahead, sir.

Kieran Smith, PCG Advisory Representative, PCG Advisory: Thank you, operator, and thank you, everyone, for joining us today. Sonatec released their second quarter and first half fiscal twenty twenty six results this morning. If you don’t have a copy of the release, please go to the company’s website at sonatec.com and click the Press ReleaseNews 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. With me on the call today are Doctor.

Chris Occhio, SomaTech’s Executive Chairman Steve Harshbarger, CEO and President and Steve Bagley, Chief Financial Officer. 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 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.

As a reminder, Summitec currently holds two earnings calls per fiscal year. This is our midyear fiscal twenty twenty six call for the second quarter and first half ended 08/31/2025. Our next earnings call will be our full year call for the twelve months ended 02/28/2026, and will be held next May. I would now like to turn the call over to Chris Cochio, Executive Chairman of Sonatec. Chris, please go ahead.

Chris Occhio, Executive Chairman, Sonotech: Good morning, and thank you, Kieran, and thank you, everyone, for joining us today. We’re going to discuss our second quarter and first half fiscal twenty twenty six results. They were released this morning before the market opened. I’ll begin with some opening remarks, and then Steve Harshberger, CEO and President, will go through a deeper business and operational review. 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. This past August, we held our Annual Shareholder Meeting at our company headquarters and 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. 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.

As a refresher for the newer and prospective investors on the call today, Sunnotech developed a revolutionary method of applying precision thin film coatings several decades ago. 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. Our unique value proposition and key differentiator is that our thin film coating machines provide dramatic savings of the expensive liquids being applied and are environmentally friendly by minimizing material usage and reducing overspray. 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, which are vitally important in today’s world with thousands of products and micro components 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 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 $1,000,000 or more. This can significantly impact our quarterly revenue. Additionally, our move into the clean energy sector has shown excellent results in the next generation solar cells, fuel cells, green hydrogen generation and carbon capture applications as we help shape a sustainable future.

This is what we saw last fiscal year where we saw the largest customer order in our history followed by an additional order of the same size two weeks later. More recently and in line with our diversification strategy, we announced a very large order of over $5,000,000 to a company in the medical device industry. And just yesterday, we announced another large order of over $2,800,000 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, life sciences and clean energy to name a few. The New Year has presented some changes and uncertainties for most businesses, such as changes taking place in relationships with trading partners and the redirection of climate policy and related government spending. On the trade issues, Sonotech builds our key ultrasonic hardware at our factory in Milton, New York, and a large portion of our other materials use our U. S. Space.

So we see minimal concern there. On the export side, more than half of our current sales are to The U. S. Market, and we have been exposed to tariffs in certain other countries for many, many years. 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. Fortunately, a large share of these sales come from commercial customers, such as U. S.-based solar panel manufacturers and carbon capture companies. The solar customers are supported by commercial users and the carbon capture customers by airlines and other corporations focused on reducing their carbon footprint. 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. 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. 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. 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. 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 of revenue over $5,000,000 On top of that, our first half revenue made a new record high at $10,300,000 and net income came in at $917,000 which is up about 36% from the previous year.

We remain encouraged by the path ahead supported by a solid backlog of $11,200,000 and strong balance sheet with $10,600,000 in cash and no debt. 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. 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.

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. 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 Harshberger, our CEO and President. Steve, please go ahead.

Steve Harshbarger, CEO and President, Sonotech: 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. 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.

That’s even with an unplanned customer requested shipment delay that moved one system into the third quarter. This comes on the back of a strong fiscal twenty twenty five, which benefited from growth in the clean energy sector. The strength and resilience of our business continues to grow, and it’s exciting to see our diversification strategy paying off with momentum now building in the medical device industry. Our second quarter medical market sales increased by 150% year over year or $602,000 to $1,000,000 and that was led by balloon coating systems shipped to The U. S, Europe and China.

Regarding the second quarter, revenue was up slightly to $5,160,000 and increased sequentially compared to $5,130,000 in the 2026, and that’s marking the sixth consecutive quarter of revenue over $5,000,000 Gross profit profit for the quarter increased 3% year over year to $2,600,000 compared with $2,500,000 last year, 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. Net income for the quarter increased 27% to $431,000 and that’s compared to $340,000 last year, and that’s reflecting a combination of higher gross profit and lower operating expenses. Now I’ll provide a few other key highlights of the quarter. By geography, U. S.-Canada sales decreased 22% year over year or $775,000 and that’s driven by slowing momentum in The U.

S. Clean energy industry. 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. Additionally, we saw EMEA sales increased 25% or 288,000 while Latin America sales were down by $74,000 By product category, Integrated Coatings Systems sales, which we’re now referring to as In Line Coating Systems, decreased by $493,000 or 24% to $1,530,000 And that was primarily driven by that same customer requested delivery delay that I just mentioned, which came from the clean energy sector and has since now shipped in our Q3 FY twenty twenty six. Here as well, we saw a positive offset with Multiaxis Coating Systems increasing by $99,000 or 5% to 2,030,000.00 Fluxing sales increased by $46,000 or 39% to $165,000 and that’s reflecting our increased demand for our fluxers from Asia.

Additionally, OEM sales increased by $188,000 or 92% to $394,000 and that’s driven by strong shipments to our Fluxer OEMs and new optics related OEM wins. And the spare parts services and other sales category increased by 161,000 or 18% to $1,040,000 By end market, as I highlighted earlier, the medical market increased by 150% year over year or $602,000 to $1,000,000 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 $2,430,000 supported by strong clean energy backlog going into FY 2026. The electronics markets declined by 1% year over year, down $22,000 to $1,460,000 The industrial market declined 68% or $517,000 down to $288,000 and that’s influenced by a large FY twenty twenty five European glass coating order that didn’t repeat.

Regarding our 2026 results, we reported record revenues of $10,300,000 compared to $10,190,000 in the year ago period. Gross profit increased 6% year over year to $5,300,000 compared with $5,000,000 and net income increased 36% year over year to $917,000 or $06 per share compared with $672,000 or $04 per share. The increase in revenue for the 2026 was driven by a 65% or $1,820,000 increase in sales from inline coating system sales, reflecting shipments of six high ASP systems to a major solar customer totaling $4,420,000 While we’re not projecting further near term orders from this customer in FY 2026, we do remain optimistic about potential future demand dependent on the customer’s execution of expansion plans. The increase in inline coating systems we experienced was somewhat offset by our product division, which can fluctuate from time to time. U.

S. Canada sales decreased 5% year over year or $324,000 driven by slowing momentum in the clean energy industry, 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. EMEA sales were relatively flat, declining 60,000 and Latin America sales down 160,000 due to slowing fluxing sales in Mexico. By product category, as I mentioned before, Inline Coating Systems sales increased by $1,820,000 or 65% to $4,580,000 driven by shipment of six high ASP systems to a major solar customer totaling $4,420,000 Fluxing sales increased by $64,000 or 25% driven by strength in Asia. Multiaxis Coating Systems declined by $1,890,000 or 41% to $2,710,000 following a strong FY twenty twenty five for semiconductor systems that didn’t repeat 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%. 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 and increased stent coating activity in Europe and China. Alternative energy rose 90% year over year to $901,000 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 and FY twenty twenty six timing for similar machines.

The industrial market declined 67% or $711,000 influenced by a large FY twenty twenty five European glass coating order that didn’t repeat. We closed the 2026 with a solid equipment and service related backlog of $11,200,000 which was near record levels. The backlog clearly represents the strength of our overall business and reflects encouraging order activity. We attribute the increase in sales and the strong backlog as a direct result of our investment in R and D with a strong focus on product expansion. For the first half, we have invested $1,300,000 in R and D compared to $1,400,000 in the year ago period and our balance sheet remains strong, whereas of August 31, our cash, cash equivalents and marketable securities totaled $10,600,000 still again with no outstanding debt.

In closing, we’re updating our prior guidance to reflect modest growth for revenue and this outlook balance continues caution as the market digests recent shifts in The U. S. Government clean energy and tariff policy, 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. Our momentum stems from our deliberate strategy and shift to large customized systems with accelerating ASP and our proprietary ultrasonic nozzle technology remains at the core of our systems for all these diversified industries.

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. Steve Bagley, our CFO, to review our financials in more detail. Steve, please proceed.

Steve Bagley, Chief Financial Officer, Sonotech: Very good. Thank you, Steve, and good morning, everyone. I will first walk you through the fiscal twenty twenty six second quarter results followed by our first half results. Net sales for the quarter increased slightly to $5,160,000 compared to the 2025 and also increased sequentially compared to the first quarter sales of fiscal twenty twenty six of $5,130,000 Gross profit increased 3% year over year or $74,000 to $2,600,000 and the gross profit percentage increased to 50% due to a favorable mix of product mix of mature high ASP systems with reduced costs and favorable warranty expenses in the current period. Operating expenses decreased to $2,170,000 when compared to $2,230,000 in the prior year’s second quarter.

The decrease is primarily due to reduced marketing and selling expenses. Research and product development costs decreased to 6 and $27,000 versus $696,000 in the prior year. And the decrease is primarily due to decreases in research and development materials and supplies and salary expense. Marketing and selling expenses decreased to $871,000 for the quarter versus $988,000 in the prior year. The decrease is due to a decrease in salary expense related to the departure of a salesperson 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. 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. 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.

In the 2026, an increase in gross profit combined with a decrease in operating expenses were key factors in the increase of operating income. Interest and dividend income remained steady at $82,000 in the second quarter. That compares with $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. At 08/31/2025, 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. Net income for the quarter was $424,000 or $03 per share and that compares with $341,000 or $02 per share in the prior year period. The increase in net income is primarily due to the current period’s increase in gross profit and decrease in operating expenses.

And now for the financial results for the first six months of fiscal twenty twenty six. Total sales for the 2026 increased year over year by 103,000 to a record 10,300,000 Gross profit increased $283,000 or 6% to $5,300,000 and that’s primarily due to product mix and favorable warranty expenses in the current period. The gross profit percentage increased to 51% from 49% in the prior year period. Operating expenses decreased slightly to $4,350,000 when compared to $4,450,000 in the prior year’s first half. Research and product development costs decreased to $1,300,000 versus $1,400,000 in the prior year first half, and that’s primarily due to decreases in research and development materials and supplies and salary expense.

Marketing and selling expenses decreased to $1,700,000 for the first half and that compares to $1,900,000 in the prior year. The decrease was due to a decrease in salary expense related to the departure of the salesperson 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. General and administrative expenses increased slightly to $1,300,000 compared with $1,100,000 in the prior year. The increase is primarily due to increases in salaries, corporate expenses and stock based compensation expense.

And these increases were partially offset by decreases in legal and accounting fees. Operating income increased considerably by 72% to $381,000 to $905,000 and that compares with $524,000 in the prior year period. And this underscores the operating leverage from our stronger gross profit and a decrease in operating expenses. Operating margin for the 2026 was 9% compared to 5% in the prior year. In the 2026, interest and dividend income decreased by $4,000 to $224,000 and that compares with $228,000 in the 2025.

Additionally, unrealized gain decreased $52,000 to $2,000 as compared with $54,000 in the 2025. Net income increased $35,000 to $909,000 or $06 per share for the 2026 compared with 672,000 or $04 per share for the 2025. Diluted weighted average shares outstanding decreased slightly to approximately 15,700,000.0 shares. We continue to maintain a strong cash position with cash, cash equivalents and marketable securities totaling $10,600,000 at 08/31/2025, and we continue to carry no debt on our balance sheet. CapEx for the six months was $113,000 and all of that is directed to ongoing upgrades of our manufacturing and development lab facilities.

And we expect to invest approximately $300,000 in new equipment for the full fiscal year. And now we’ll open the call for any questions from the audience. Operator, please go ahead.

Conference Operator: Thank you. We will now begin the question and answer session. And your first question today will come from Ted Jackson with Northland Securities. Please go ahead.

Ted Jackson, Analyst, Northland Securities: Thanks. Good morning. Congratulations on the quarter.

Steve Harshbarger, CEO and President, Sonotech: Hey, good morning, Ted.

Ted Jackson, Analyst, Northland Securities: 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. In the past, I know that China has been a bit of a difficult market for you because there’s been sort of copycat ultrasonic coating vendors there that have been trying to undercut you in pricing. So I’m a little curious in terms of how the business came about and kind of the competitive dynamics for the win. And does this mean that we’re going to see you have a better profile in China going forward and maybe some discussion with regards to tariffs around China and any kind of concerns you might have there? That’s kind of a mouthful, but that’s my first question.

Steve Harshbarger, CEO and President, Sonotech: Sure, sure. Yes. Well, China is certainly still low is 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 We actually keep those pretty close to home. So they’re actually usually getting like one generation behind us just from a proprietary standpoint.

But we were fortunate that in the medical device industry in particular that 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 just did not meet the bare minimum requirements to compete with Sonotech. So they actually made decisions to pay, 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 Sonotech here in The U. S. And that’s even with the significant tariff implications that are happening. So it’s a real compliment, I guess, to us from the standpoint of the quality of our systems.

And it’s the one industry that defects are much more critical than say like on a printed circuit board. A defect is a life in those industries. So there is some level of paying a premium in those sort of particular niches for us right now. And in the balloon area in particular, that’s an area that we believe that we are going to dominate similar to the stent manufacturing area that we’ve had in the past. So I think China is jumping on that knowing that they need Sinotech if they want to be heading into that market for medical devices.

Ted Jackson, Analyst, Northland Securities: And then, so then are these customers or these actually Chinese entities, they’re not Western companies manufacturing in China?

Steve Harshbarger, CEO and President, Sonotech: Yes. These particular ones happen to be Chinese manufacturers, which is unusual also just as you’re pointing out, it would be much more common for us to say have a Western entity manufacturing in China that is buying Sinotech. 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 Sonotech anyway. And that’s certainly without encouragement by the Chinese government.

The Chinese government has a big push right now to buy made in China. 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.

Ted Jackson, Analyst, Northland Securities: And then is there a similar industry like in terms of balloon catheters within the Western world and do you have exposure to there or is this driving interest for you outside of China?

Steve Harshbarger, CEO and President, Sonotech: Yes, it is. It’s kind of similar to the standard industry, which we’re very familiar with and that’s one of those areas that we dominate 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. And although it’s all proprietary and confidential and nothing is ever supposed to get out, personnel travel from companies to companies. And so it does tend to snowball upon itself. And 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. Geographically, it’s snowballing, whether it’s to Japan or to China or to Europe or in our home base in The U. S. They are we’re becoming the industry standard in this niche. This and thankfully this is a niche that’s just starting to.

So what’s great is that this is in the beginning phases. So there’s a lot of growth ahead of us here for this area.

Ted Jackson, Analyst, Northland Securities: And then, so, I’ve two more questions on Medical and then maybe one to drive others behind it, but I’ll get out of line so I can always come back in. So using stent as kind of a like let’s call it a guidepost to how the bone catheter market might turn out. Can you walk us through like when you got your first order in that market and how it evolved and then like how many systems have you sold that over what period of time and you see what I’m saying just kind of so we can get a sense to that. And then the question behind that is you’ve had tremendous success within since it looks like you’re positioned well for Balloon. What other stuff is out there for you in the medical market?

And then actually, I will step aside and I’ll come back in if you for some I’m sure there’s a couple of questions.

Steve Harshbarger, CEO and President, Sonotech: Sure. 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 catheter 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. But we didn’t at the time.

But 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. 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. It’s the capabilities of manipulating the product. It’s the capabilities of curing or cleaning.

Having this fully integrated systems, which drives our ASP up and we’re now finding it’s starting to help improve gross margins margins as well is really significant for us. And it opens us up where that customer now recognizes, oh, Sonotech, they’re not just a stent coating company anymore. They have manufacturing capabilities for coating just about any one of your medical devices. And although balloons is the one that’s kind of taking off for us right now, there’s 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.

Ted Jackson, Analyst, Northland Securities: Sounds exciting. I’ll come back in queue. Know I have more questions, but I’ll start again. Thanks.

Steve Harshbarger, CEO and President, Sonotech: Thanks, Ted. Good talking to you.

Conference Operator: Your next question today will come from Bill Nicklin with Bill Will Insights. Please go ahead.

Bill Nicklin, Analyst, Bill Will Insights: Hey, Steve. I’m on a cell phone and not a great area. So can you hear me?

Steve Harshbarger, CEO and President, Sonotech: I got you, Bill. Good morning.

Bill Nicklin, Analyst, Bill Will Insights: Hey, good morning. Looking at the recent orders you have and kind of what’s been taking place over the last few years, there’s strong indications that Sonotech has intentionally and strategically taking a path of building out your applied engineering model. 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. And it appears to me this is the strategy is the functional equivalent of what’s unpopular, but known as FDA or forward deployed engineers. 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 are you building toward?

Steve Harshbarger, CEO and President, Sonotech: Sure, sure. That’s a great question. And it really, I would say, gets at the heart of why we continue down a path of what we’re now actually starting to refer just as you referenced as forward deployed engineering. That actually came out of the software term, it’s changed and it’s grown over time. The definition of it’s really key part of our growth strategy and it touches on everything from customer adoption to sales efficiency and competitive pricing.

And I’ll do my best to walk through those areas that you just mentioned. Our forward deployed engineering model builds around what we originally called our custom engineered solutions team and is really is core to scaling our growth. This team created it just was created a couple of years ago now and it was actually an expansion of our application engineering group and has already grown from one senior engineer now to three individuals showing the strong demand for what we see in this capability area. And it enables our most experienced engineers to work directly within the customer production environments to deploy and optimize customized and production scale quoting systems. And this hands approach really accelerates system adoption.

It maximizes the real world quoting performance and it’s really very much strengthens our long term partnerships. And all of these ultimately are key drivers in expanding our high ASP production platforms. And by embedding our FD engineers directly with customers, we’re hoping to expect to see shortened sales cycles and improve our win rates because the solutions are already proven in production where they’re not just proven in our labs. So over time, this should allow a lower customer acquisition cost. Since those same embedded engineers, they should often uncover new opportunities within our existing accounts.

So I think that may kind of explain where they’re coming from. So the really big thing for this model just sets us gets us closer to our customers. We move faster and turn that collaboration into bigger business for both sides.

Bill Nicklin, Analyst, Bill Will Insights: All right. Thanks. Maybe following on a little, what are the key performance indicators you’re tracking internally to measure whether the FTE group is delivering a return on investment? And what’s the expected timeline for margin expansion or growth acceleration because of that?

Steve Harshbarger, CEO and President, Sonotech: Yes. We’ve long tracked the percentage of revenue tied to like laboratory testing and application development, which I think is right around currently around 60% to 70% of our shipments are tracked to that right now. And we also certainly measure the revenue tied to the highest ASP systems, which now represents roughly two thirds of our total sales. And almost all of these big complex systems pass through that FDE group, that forward deployed engineering team. And while ROI and things are a little bit difficult to quantify directly, we certainly see positive results as more R and D and pilot line systems transition into these large multi system production lines.

And I would strongly expect margin benefits to build gradually over the next one to two years as more and more of these large accounts move into full scale production. And that’s similar to the multisystem orders for these high ASP systems that we delivered earlier this year for the solar industry, which can end up coming through with really strong margins. So I would expect that to continue with this model.

Bill Nicklin, Analyst, Bill Will Insights: All right. And one more quick one. How does the application engineering investment affect your competitive position? If you can give me some specifics and are customers selecting you over competitors specifically because of this capacity or capability and how does that translate into pricing power and margin expansion?

Steve Harshbarger, CEO and President, Sonotech: So FD, it’s absolutely a clear differentiator. Customers increasingly are going to be choosing Sinotech because we bring process engineering expertise directly right into their production floor. So it elevates our role from equipment supplier to really become a technology partner. And that supports strong pricing and really strong pricing power. When you think about it, it’s going to give us much deeper account penetration and more possibilities for recurring revenue from product expansions as well as those same returning customers considering us for new projects, which they may not have otherwise.

So I think we’re going to see that rollover into margin expansion fairly quickly for us because as they become higher and higher developed and gone 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 have gone through our manufacturing process.

Bill Nicklin, Analyst, Bill Will Insights: Thanks, Steve. It’s good to see all this hard work and money spent come to fruition and good luck the rest of the year.

Steve Harshbarger, CEO and President, Sonotech: I appreciate that Bill. It’s been a big significant investment for us and we’re happy to see it taken off for us. So it should be an exciting time.

Conference Operator: And your next question today will come from Dick Ryan with Oak Ridge Financial. Please go ahead.

Steve Harshbarger, CEO and President, Sonotech: Hey, morning, Dick.

Dick Ryan, Analyst, Oak Ridge Financial: Hey, morning, Steve. Thanks for taking the questions and also congrats on the success of the diversification kicking in.

Steve Harshbarger, CEO and President, Sonotech: Appreciate that. Thank you.

Dick Ryan, Analyst, Oak Ridge Financial: Just most things have been asked, but just a couple of questions specific. You mentioned two new optics related OEMs. Can you give a little detail? Is that are these significant wins? I mean, any win is worthy.

But can you provide a little more detail on those two new OEMs?

Steve Harshbarger, CEO and President, Sonotech: Yes. They are in the optics area, the lens area. What I would describe as significant for them is that right now they are not in a wheelhouse where Sonotech I would say has a great depth of knowledge. But these guys do have significant depth of knowledge and that if we can get embedded with them, we will start to learn a lot more about that industry and that field. And that’s very valuable for us.

Often we need a partner to accelerate our entrance into these newer type of applications because otherwise it could take us with a partner we might be able to get in one to two years, but without a partner it might take us four or five years to really understand the area effectively. So I think it’s going to be significant. 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.

Dick Ryan, Analyst, Oak Ridge Financial: Okay. That sounds good. What’s going on in the semi side? That market seems to be holding up well. The front end has got some higher expectations of spending in 2026.

What are you seeing on the semi side of the business?

Steve Harshbarger, CEO and President, Sonotech: Yes. Well, until this past month, I was thinking more almost flattish, but then we just came out of a trade show, semicon, it’s called, in Arizona it was. And it was by far the best trade show we’ve ever had and the best interest of leads and customers talking to us very seriously about equipment. And when I asked about what was the differentiator, although it was a very good year in general for semiconductor at the show, but they said really it was our product line expansion this year 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 now are starting to recognize, oh, these guys have a lot more capabilities than they had over the last several years.

And we did make some more significant investments into the show to make sure we showed that and displayed that at the show. You had a larger sized booth with actual machinery there running, but it really paid off for us. And I think that we’re going to start to see that become a fairly significant growth area for the organization over the next year or two as a result of this. And that’s still got a long way from stopping the upper peak on this. 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 we’ll continue to grow that product offering.

Dick Ryan, Analyst, Oak Ridge Financial: Okay. Have you been able to quantify what the addressable market opportunity might be for you guys?

Steve Harshbarger, CEO and President, Sonotech: Haven’t put a dollar figure to it, but I will say this is that our next strategic shift is moving from what is mostly a 200 millimeter high-tech lab environment over to 300 millimeter environments, which are mostly fab directed. And that’s the expansion of our product line offering right now is heading in that direction. And that seems to be where most of the investment is heading and where we could bring the biggest benefit and impact. So I think it’s going to be, again, higher ASP machines that are more complex. But I think right now, we have got the right strategic partners aligned with us.

We’ve kind of worked out all the details to enter into there this year pretty quickly.

Dick Ryan, Analyst, Oak Ridge Financial: Good. Congrats 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.

Steve Harshbarger, CEO and President, Sonotech: Always good talking, Dick. Thanks.

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

Steve Harshbarger, CEO and President, Sonotech: Welcome back, Ted.

Ted Jackson, Analyst, Northland Securities: Yes. I just have a couple more left. So Sure. One is just a backlog near record, like over what timeframe will that revenue be recognized?

Steve Harshbarger, CEO and President, Sonotech: Yes. The largest orders, that we have just recently announced, which was the $5,000,000 last month and almost $3,000,000 order that came in last week or this week, I should say, just yesterday. The bulk of those will be shipping in our FY 2027 year, so after March. But there’ll probably be some level, maybe 1510% to 15% of that may ship out in the current fiscal year, just the beginning orders for those. So that’s the bulk of it, those going be heading into next year.

And that’s why right now, we’re only projecting modest growth for the current fiscal year, and that’s just because the build time on these machines is significant. So although we’ll be able to ship some of them, we won’t be able to ship anywhere near a significant portion of them in the current fiscal year. But we’re in good shape for this year. Like I said, so we’ll come in at modest growth. Had the clean energy sector kept on full steam like we anticipated was we probably would have shown huge growth this year.

But we deal with what we got and fortunately our team here were able to shift really quickly over to capitalizing on the investment we made into building these highly complex machines and just shifting it over to the medical sector very, very effectively.

Ted Jackson, Analyst, Northland Securities: And then on the 2026, you are projecting modest growth for the year. Given that you had a piece of business slip from the second quarter to the third quarter, would we expect to see your second half sales be a little more weighted in the third quarter vis a vis the fourth quarter because of that?

Steve Harshbarger, CEO and President, Sonotech: Yes. I think they’re not 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 get pushed into Q3. So I would suspect Q3 will probably be slightly higher than Q4, but they both should be pretty solid for us.

Ted Jackson, Analyst, Northland Securities: You think that you can take your streak of $5,000,000 plus revenue quarters from 6,000,000 to 8,000,000

Steve Harshbarger, CEO and President, Sonotech: We haven’t given any projections there yet. But I think I would be disappointed if we don’t do it. But we haven’t given any formal projections there, but I would be disappointed if we don’t do that.

Ted Jackson, Analyst, Northland Securities: Okay. All right. Well, that’s it for me. Everything else got asked by other people. Thanks.

Steve Harshbarger, CEO and President, Sonotech: You’re welcome. See you, Ted.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Steve Harshbarger for any closing remarks.

Steve Harshbarger, CEO and President, Sonotech: Okay. Sorry about that. Dropped all my papers here. Well, I just want to thank everybody for joining us today. And to tell you all that we look forward to having you come back for our next conference call.

Sonotech’s long term outlook remains strong, supported by the continued success of our newly developed high ASP platforms across advanced technology markets. So we look forward to sharing our full fiscal year 2026 results during our next call in May. In the meantime, we will be presenting at some key upcoming investor conferences. Next week, we’re actually at LD Micro in California. And please don’t hesitate to reach out to us with any questions.

And thank you again and enjoy the rest of your day everybody.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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