Sono-Tek - Q4 2025

Executive Summary

• Q4 FY2025 delivered the fourth straight >$5M quarter: revenue $5.121M (+7.4% YoY; -1.3% QoQ), diluted EPS ~$0.02, with margins improving sequentially (gross 47.0%, operating 5.6%, net 6.4%). EPS of ~$0.02 beat consensus $0.015*, while revenue was essentially in line with ~$5.124M* (micro-miss of ~$2K) and EBITDA beat ($459K actual vs $376K*). Values with asterisks from S&P Global.
• Backlog stepped down through the year but remains a key H1 FY2026 driver: $11.7M (Q2) → $10.56M (Q3) → $8.67M at FY-end; management expects eight clean energy systems in backlog to ship in Q1–Q2 FY2026.
• Guidance: Management guides to continued revenue growth and profitability for H1 FY2026, but limits visibility beyond H1 given uncertainty around clean energy incentives, tariff policy, and order timing; to revisit guidance with Q1 results.
• Strategic mix shift continued: production-scale, high-ASP systems in clean energy and rising momentum in medical (balloon catheter) and semiconductor (wafer handling) support medium-term growth diversification.

What Went Well and What Went Wrong

What Went Well

• Four consecutive quarters over $5M; Q4 revenue $5.121M (+7.4% YoY) with sequential margin improvement (gross 47.0%, op 5.6%, net 6.4%).
• Strategic shift to high-ASP production systems gaining traction; CEO: “customers moving through R&D and pilot systems to complex large-scale production systems with significantly higher ASPs”.
• Medical momentum building: management highlights “promising momentum in the medical device industry, particularly… high-volume production systems,” with balloon coating systems poised to scale (machines ~$250K vs historical $80–100K), primarily in U.S./EU.

What Went Wrong

• Backlog declined from record levels: $11.7M (Q2) → $10.56M (Q3) → $8.67M at FY-end, reflecting shipping progress and order timing; visibility beyond H1 FY2026 is limited.
• End-market softness: FY2025 medical (-22%) and industrial (-47%) were headwinds; China demand remains weak (China ~2.5% of sales).
• Gross margin YoY pressure (FY: 47.5% vs 50.0%) attributed to mix and reclassification of certain labor to COGS; operating income fell YoY (FY: $1.01M vs $1.18M).

Transcript

Operator (participant)

Please note this event is being recorded. I would now like to turn the conference over to Mr. Kirin Smith with PCG Advisory. Please go ahead, sir.

Kirin Smith (President)

Thank you, Chuck, and thank you, everyone, for joining us today. Sono-Tek released their 4th quarter and full year fiscal 2025 results this morning. If you do not have a copy of the release, please go to the company's website at sono-tek.com and click on the Press Releases/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. With me on the call today are Dr. Chris Coccio, Sono-Tek'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, Sono-Tek currently holds two earnings calls per fiscal year. This is our fiscal year 2025 call for the full year ended February 28, 2025. Our next earnings call will be our mid-year call for the six months ended August 31, 2025, and will be held this October. I would now like to turn the call over to Chris Coccio, Executive Chairman of Sono-Tek.

Chris, please go ahead.

Chris Coccio (Executive Chairman)

Good morning, and thank you, Kirin. Thank you, everyone, for joining us. Today, we're going to discuss our 4th quarter and full year fiscal 2025 results that were released this morning before the market open. I will begin with opening remarks, and then Steve Harshbarger, CEO and President, will go through a deeper business and operational review, followed by Steve Bagley, our Chief Financial Officer. He will provide the financial review. Following their comments, we'll open up the call for your questions. Now, for those of you newer investors in our company, Sono-Tek developed a revolutionary method of applying precision thin-film coating several decades ago. This proprietary technology involves the use of our advanced high-frequency ultrasonic nozzles, and they are incorporated into specialty motion systems, and they are able to achieve uniform micron and nano-thin coatings onto our customers' products.

Our unique value proposition is that our thin-film coating machines provide dramatic savings of the expensive liquids being applied. They 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. The key advantage of our ultrasonic coating systems is the ability to apply precision thin films. They 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. The strategic shift that we made several years ago to offer more complex and complete solutions has meaningfully broadened our addressable market. That has resulted in significant growth in our average unit selling prices. Our larger machines now commonly sell for over $300,000, and system prices can reach a million dollars or more. That can significantly impact quarterly revenue.

Additionally, our move into the clean energy sector is showing transformative results in next-generation solar cells, fuel cells, and green hydrogen generation and carbon capture applications as we help shape a sustainable future with our customers. This is what we started to see in the past fiscal year, where we saw our largest customer order in our history, and then was followed by an additional order of the same magnitude two weeks later. The new year presents some changes and challenges and uncertainties for most businesses, such as changes taking place in relationships with our trading partners and the redirection of climate policy and related government spending. On the trade issues, Sono-Tek builds our key ultrasonic hardware at our factory in Milton, New York, and most other materials are U.S.-based, so we see little 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 years, so we could be affected for better or for 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 comes from our commercial customers, such as the U.S.-based solar panel manufacturer and carbon capture and conversion companies, many of which are financially supported 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 later in the year, we still expect revenue growth in the near term.

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 coating machines. They are being used for cardiac interventions. For the full year, we experienced a 4% annual revenue growth, and the fourth quarter marked the fourth consecutive quarter in a row of revenue over $5 million. Now, on top of that, our full year net income came in at $1.3 million, which was similar to the prior year. We remained encouraged by the path ahead, supported by a solid backlog of $8.6 million, and expecting to see continued revenue growth and profitability in the 1st half of fiscal 2026.

We're excited that our investments have begun to pay off. Our outlook for growth has been greatly enhanced by the early success of our strategy to shift to those larger, more complex systems and platforms that I mentioned for production applications and also with multiple and repeat orders. We continue to focus on opening new markets for our unique thin-film coating technology. Thank you. Now, I will go ahead and turn the call over to Steve Harshbarger, our CEO and President. Steve, please go ahead.

Steve Harshbarger (CEO)

Thanks, Dr. Coccio, and thanks, everyone, for joining us today. Firstly, I just want to echo Chris's enthusiasm. You know, it's extremely gratifying to see our investments hitting their stride. Our first year fiscal sales increased 4% year-over-year, which was in line with our guidance. What makes this particularly noteworthy is that it comes on the heels of a very strong fiscal 2024, which benefited from a sharp rebound in demand as supply chain constraints eased. Delivering growth on top of that high baseline reflects the strength and resilience of our business. This solid performance was driven by increased demand for integrated coating and multi-axis coating systems, which are commonly used in the clean energy sector. Integrated coating system sales increased by 28%, or $814,000 to $3.7 million, due to the continued success with a key strategic partner within the solar energy market.

Clean energy, including fuel cells, green hydrogen generation, carbon capture, and advanced solar cells, are markets that we've been providing our R&D and pilot lines to for close to a decade now, and we're now having success with these customers transitioning to our production-scale systems as a result of prior development work they did with our team of experienced application engineers. We would like to note that while we are seeing steady demand across key markets, visibility into our full year revenue remains limited at this time due to the rapidly evolving conditions in the clean energy sector and the unknown impacts of potential tariffs with our international customer base. The increase in revenue for the full year of fiscal year 2025 was strongly influenced by shipments to a substantial customer from the clean energy sector who received shipment of three integrated coating systems totaling almost $2.2 million.

All three of these systems are really a reflection of our successful first-stage results of Project Altair, which rolled the capabilities for sophisticated PLC-based systems into our product offering and significantly expands our addressable market. There are eight more high-ASP systems in our backlog from Project Altair. While we are not projecting further near-term orders from these customers in fiscal year 2026, we do remain optimistic about potential future demand dependent on the customer's execution of expansion plans. The increase in integrated coating systems we experienced was somewhat offset by our product division, which can also fluctuate from time to time. Multi-axis coating systems, which are commonly used in the clean energy and medical device markets, saw sales grow 6%, or $603,000, to a total of $10.7 million for the full fiscal year. These full system solutions contain some of our newest and highest average selling price, or ASP, platforms.

Meaningfully, expanding our capabilities to design and build internally made multi-axis platforms has been a focus for Sono-Tek over the past three years under a project we call ARES. ARES has broadened our product offering while deepening our supply chain and increasing vertical integration, starting with our Novoco multi-axis series machines. This is an ongoing process, and we continue to build and expand our in-house capabilities. Fluxing systems dipped for the full fiscal year of 2025, largely due to weaker demand in Latin America. This decrease was driven by a general slowdown in PCB equipment sales in Mexico and the closure of a key Sono-Tek distributor in the region. To address this, Sono-Tek has onboarded and trained a new Mexican-based distributor partner, which we believe will contribute to improved spray flux sales in fiscal 2026.

OEM sales, they were lower for the full year, as expected, due to the elevated inventory levels at several of our partners following early supply chain disruptions. We saw slower OEM sales through the first nine months of FY 2025, followed by a recovery in the 4th quarter as customers began drawing down their excess inventory. Although total spares and services revenue dipped slightly in this past fiscal year, we did see increases in several areas of our service-related revenue, including recurring service contracts, which contributed positively to our overall performance. This really remains a focused area for growth as our expanding base of high-ASP systems in the field is expected to drive future demand for recurring service contracts. You know, we continue to believe that follow-on service and support packages could represent as much as 10%-15% of the original order value.

Now, I'll review our sales by market. Sales to the alternative clean energy market grew 64% over the prior fiscal year. These sales were positively impacted by a growing number of Sono-Tek customers transitioning from our R&D and pilot line machines to our production-scale systems that, of course, carry much higher average selling prices, or the ASPs, as I mentioned earlier. Many of our recent large contract announcements in this area are for systems used in the manufacturing of advanced solar cells and critical membranes for carbon capture, green hydrogen generation, and fuel cell applications. Sales last year included shipment of four high-ASP systems to significant customers in the clean energy sector, totaling $3.4 million. Our electronic sales decreased slightly by 3% for the full year versus last year and still benefited, though, from shipment of a newly developed coating system with wafer shuttling capabilities directing at the semiconductor market.

Medical sales declined by 22% for FY 2025, primarily driven by lower demand for our stent and balloon coating systems. We are, however, projecting this sector to rebound strongly in FY 2026, led by the increased adoption of our balloon coating systems for some key medical device manufacturers. As Chris mentioned, we are also pleased to report that we're seeing promising momentum in the medical sector industry as a whole, particularly in interest for our high-volume production systems. Industrial sales were down 47% versus last fiscal year, partially influenced by a flow glass coating system that shipped in the prior fiscal year and did not repeat in the current fiscal year. By geography, in fiscal year 2025, approximately 61% of our sales were to U.S. and Canadian customers. This is compared to 55% in fiscal year 2024. Sales in the U.S.

Canada increased 15%, or $1.63 million, driven by the delivery of five high-ASP systems that totaled $3.94 million. This is really reinforcing our strategy to provide highly complex, high-volume systems with premium pricing. This represents the largest number of high-ASP systems we've ever sold in a single year. Growth in the U.S.-Canada region was partially offset by declines in other regions. Latin America sales decreased 34%, or $412,000, again due to a $465,000 flow glass coating system sale that went into Mexico that occurred in the prior year but didn't repeat in the current fiscal 2025. Asian sales declined 16%, or $510,000, influenced by continued weak demand from China, where sales fell to $522,000 in fiscal 2025 from $775,000 in fiscal 2024. China now represents approximately 2.5% of total sales, and this is really down significantly from its historic peak.

EMEA sales increased 2%, or $98,000, supported by multiple system shipments to customers in the green energy sector. As we look ahead to fiscal 2026, we closed Q4 of FY 2025 with a solid equipment and service-related backlog of $8.6 million. While certainly not at record levels, it represents a healthy starting point for the year and reflects encouraging order activity. This backlog includes two orders of $2.95 million each that we announced over the past year, marking the largest orders in Sono-Tek's history. We attribute the increase in sales and strong backlog as a direct result of our investments in R&D with a strong focus on product expansion. For the full year, we invested $2.7 million in R&D compared to $2.9 million in the prior fiscal year.

In closing, we expect the 1st half of FY 2025 with continued sales growth and profitability supported by our solid backlog and steady demand across key markets. While visibility into the full year revenue remains limited at this time, we do still remain confident in our long-term growth prospects. Our momentum stems from our deliberate strategic shift to large customized systems with accelerating ASPs, and our proprietary ultrasonic atomization technology remains at the core of all of our systems. We have been able to achieve this significant shift organically through our own internal development efforts. With that said, I will hand the call over to Steve Bagley, our CFO, to review the financials in more detail. Steve, all yours to proceed.

Steve Bagley (CFO)

Very good, Steve. Thank you. And good morning, everyone. I will now walk you through our full year fiscal 2025 results, and then we will open up the call for any questions that you may have. Net sales for the fiscal year increased by 4% to $20.5 million compared to $19.7 million for FY 2024. Gross profit increased 1% year-over-year, or $106,000-$9.74 million, and the gross profit percentage decreased to 47.5% from 50% in the prior year. The decrease is due to product mix and the reallocation of specific labor expenses from the engineering department to cost of goods sold. This reallocation started in the 4th quarter of fiscal 2024 as an outcome of the completion of several successful R&D endeavors. Operating expenses increased slightly to $8.73 million when compared to $8.66 million to the prior year.

Research and product development costs decreased to $2.72 million versus $2.89 million in the prior year. That is primarily due to a decrease in salaries and the reallocation of specific labor expenses from engineering to cost of goods sold. This reallocation started in the 4th quarter of fiscal 2024 as an outcome of the completion of several successful R&D endeavors. Marketing and selling expenses were basically flat at $3.68 million for the year compared to $3.67 million for the prior year. We did have an increase, and that was due to increased commissions and travel and trade show expenses. Those increases were partially offset by a decrease in salary expenses. General and administrative expenses increased to $2.33 million for the year compared with $2.1 million in the prior year. The increase is primarily due to increased salaries, legal and audit fees, and other corporate expenses.

Operating income decreased $172,000-$1.01 million compared with $1.18 million in the prior year. The decrease in operating income is primarily due to a decrease in gross profit combined with an increase in operating expenses. Interest and dividend income decreased to $489,000 for fiscal 2025 compared with $530,000 for fiscal 2024. For fiscal 2025, we recorded a tax provision of $261,000 compared to $303,000 in the prior year. Our net income for fiscal 2025 was $1.2 million, or $0.08 per share, and that compares with $1.4 million, or $0.09 per share for the prior year. The decrease in net income is primarily due to the current period's decrease in gross profit combined with an increase in operating expenses partially offset by a decrease in income tax expense.

Our diluted weighted average shares outstanding decreased slightly to approximately 15.77 million, and that compares to 15.774 million shares in fiscal 2024. The decrease is partially due to the share buyback program we put in place in fiscal 2025. We continue to maintain a strong cash position with cash equivalents and marketable securities totaling $11.9 million, and that was at February 28, 2025. We continue to have no debt on our balance sheet. CapEx for the full year was $496,000, all of which is directed at ongoing upgrades of our manufacturing and development lab facilities. We expect to invest approximately $435,000 in new equipment for fiscal year 2026. With that, we will now open the call for any questions from the audience. Operator, please go ahead.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Ted Jackson with Northland Securities. Please go ahead.

Ted Jackson (Managing Director and Senior Research Analyst)

Thanks. Good morning, guys.

Steve Harshbarger (CEO)

Hey, good morning, Ted.

Ted Jackson (Managing Director and Senior Research Analyst)

I wanted to start off on kind of the alt energy space. I know you're not giving guidance for the second half, but just understand timing and stuff. When I look at the backlog at, you know, $8 million+, a big chunk of that's coming out of alt energy. You said you had a couple of large orders within there. Earlier in the call, you'd said you had eight orders in backlog within that world as well. Do you have eight systems in alt energy that are sitting in backlog that will be shipping? Are they part of that $8.6 million, or do you have, you know, like a line of sight on eight and you have two systems within the current backlog? Just to clarify on that part.

Steve Harshbarger (CEO)

Sure. Yeah. Yeah. We actually have eight systems that are in that backlog today that are coming from the clean energy sector, all of which will be shipping in the current fiscal year. You know, it's giving us a strong entrance for alt energy, most definitely for this current FY 2026. It will probably ship in two different orders, but it will be eight systems in total.

Ted Jackson (Managing Director and Senior Research Analyst)

Do you expect those systems to come through your P&L in the 1st half of 2025?

Steve Harshbarger (CEO)

Yeah, I would suspect so. If not all, at least the majority of them will flow through in Q1 or Q2 or a combination of both.

Ted Jackson (Managing Director and Senior Research Analyst)

I mean, 2026, excuse me.

Steve Harshbarger (CEO)

Yeah, yeah, yeah. Sorry about that. Q1 and Q2 of FY 2026, correct.

Ted Jackson (Managing Director and Senior Research Analyst)

You know, with regards to the visibility that you have in the 2nd year, a couple of things to noodle around on that front. Have you seen like a softening with regards to demand, a pullback from your customers, you know, that's come into play in the last few months? I mean, to be honest, a lot of companies that I have listened to calls with, in particular, saw their businesses, you know, the activity within their markets really soften in April. Did you see something similar to that happen in your world? Is it concentrated in the alt energy, which it seems like it might be? You know, is it all being driven by the current administration's lack of support?

Steve Harshbarger (CEO)

Yeah. I will say that we have seen some apprehension to act quickly from the U.S.-based clean energy sector when it comes to placing orders right now. You know, fortunately for us, the majority of our clean energy customer base are making money on their own. You know, our biggest clean energy customers do not really need significant financial support from the U.S. government, but it will certainly affect us to some level depending on how far the U.S. government does pull back from the clean energy support. However, it is important to remember the rest of the world has not slowed down at all. You know, when you look at the EU and most of Asia, they are very aggressively investing into the clean energy sector, inclusive of the same areas that we are in, you know, when it comes to the carbon capture and hydrogen generation.

Green hydrogen is still a huge push right now. You know, while the U.S. may see some tempering down there slightly, I do not think we are going to see that in other areas of the world, fortunately for us.

Ted Jackson (Managing Director and Senior Research Analyst)

Within those other areas of the world, as you're going through this environment with tariffs and such, I mean, what kind of impact would that have? Is it, are you, you know, are you directly impacted by that? By how much would, are your, is your technology of such that they just have to bite the bullet and take it? How's that, how would that play out in terms of how you see it today? I know it's a moving target.

Steve Harshbarger (CEO)

Yeah. It's definitely a moving target, but I can tell you right now, we have not seen the tariffs become a major impact to us outside of China. You know, we've just had some guys that were over visiting other areas of Asia, Japan, South Korea, and they had indicated that the currency exchange rates have gotten a little bit more favorable for our customers to buy things of recent. The tariff is not enough where they're saying, "Hey, that's going to impact our decision-making today," as they are today. Now, of course, anything can change where it could make it better or worse. At this moment, we're not seeing a significant impact on the tariffs to date. It seems like the indications are right now that there's going to be some reasonable negotiations coming up.

I think most of our customer base is planning on that happening as well.

Ted Jackson (Managing Director and Senior Research Analyst)

My last question, and I'll get out of line because hopefully there'll be another question or two from other people. You have a lack of visibility in the 2nd half. At what point are we, I mean, at what point do you need to see things improve in order to come in for you to be able to, you know, show growth for the year? Let's say the first half is fine and the second half you need to get some business brought in. You know what I mean? Like it could turn around, but you still have to make these systems. Do you see what I'm saying? How long would it take you to make systems?

Like what's the cutoff point to where, you know, the second half becomes kind of, even if things turn around, you're just not going to be able to, you know, fill, you know, deliver product in time to get revenue into fiscal 2026. You understand what I'm asking?

Steve Harshbarger (CEO)

Yeah. I'd say for sure, Ted. Yeah, I think we'll see by the time we report our Q1 earnings, which isn't that long from now. You know, keep in mind that our Q1 ends this month. We are only a few days away from our Q1 closing. By the time we report those earnings, I think we should have some pretty clear visibility on the full fiscal year. You know, we are anticipating, based on our forecast, some what could be significant orders for us. Fortunately, they are also coming from sectors that are outside of the clean energy sector, which is nice to see. I mean, so much of the work we've done to develop these high ASP production lines, although our first customers were greatly in the clean energy sector, is directly transferable over to both the industrial sectors, the medical sectors, and the semiconductors.

Much of that know-how that we've now developed. What we're quoting today is high ASP machines that are more commonly from the semiconductor and medical sector right now in particular. If we're able to close those up, you know, before we report Q1, I think we could have, you know, we're hoping for some promising news.

Ted Jackson (Managing Director and Senior Research Analyst)

Diversification of revenues is a good thing, Steve. I would not disappoint you at all. That is it for me right now. Thanks.

Steve Harshbarger (CEO)

Hey, thanks, Ted. Good talking to you.

Operator (participant)

The next question will come from Bill Nicklin with Circle N Advisors. Please go ahead.

Bill Nicklin (Senior Portfolio Manager)

Morning, Steve. Thanks for taking my questions.

Steve Harshbarger (CEO)

Morning, Bill. Good to hear from you.

Bill Nicklin (Senior Portfolio Manager)

Good. Some of which I would like answered, you've already answered for Ted, but I'll kind of re-ask the question anyway. If you look at your opportunities, they're going to drive backlog in the upcoming months. How should that unfold?

Steve Harshbarger (CEO)

Yeah. It's kind of similar to what I was telling you that we are seeing strong momentum, in particular in both the medical and the semiconductor sectors. You know, our team has really done an outstanding job expanding our high ASP product offering in the clean energy space. As I mentioned to Ted, you know, we're still continuing to see meaningful contributors, customers going after that area, particularly from the EU and parts of Asia, where the demand remains strong, you know, even as the U.S. market faces some more uncertainty. What we're especially encouraging is that much of that development and expertise we built in the clean energy sector is directly transferable to other industries. This positions us really well as we introduce new high-value products in the microelectronics and medical markets over the coming year. That includes, you know, expansion of our semiconductor-focused systems.

You know, you might remember we had that newly developed wafer shuttling program. And now we're also focused on advancing the next phase of our semiconductor-specific capabilities, you know, evolving beyond our sophisticated lab-scale platforms. You know, and those are currently priced in the area, say, $300,000 approximately. But we're moving more towards production-scale systems aimed at semiconductor fabs in particular, where system values can then range from that $500,000 to million-dollar area. So that could be another significant jump for us as we head down that path.

Bill Nicklin (Senior Portfolio Manager)

Good. Could you be just a little more granular on the medical side, what you're looking at that is different from what you've been serving in the past? Are these new areas going to significantly increase your total addressable market, or are you just picking up a little here and a little there?

Steve Harshbarger (CEO)

Yeah. I think what's significant is now when someone comes to buy a system from us in the medical market, they're not just buying an $80,000-$100,000 machine. These more complex systems that we're now developing, which have a lot more capabilities, you know, are doubling or tripling the prices of these machines. Fortunately for us, there is a big increase in demand right now for balloon catheters as an area right now where we're kind of getting on the ground floor. We have a lot of good customers in that area that purchased a lot of our pilot line and R&D machines, but that's going to be an industry right now that's ready to scale. We believe we're positioned well for our higher volume machines to scale with our customers. These are big, significant customers.

We are under the impression right now that we have a good probability to capture a good chunk of that marketplace and kind of own that market like we did for stents. The only difference will be, you know, our stent coating systems were only $80,000-$100,000 machines. You know, I think in the balloon coating area, we're going to be able to capture it with possibly $250,000 machines that have a lot more capabilities.

Steve Bagley (CFO)

Bill, just a comment here. It is a newer market segment because if you can't put a stent in because the vessel is too small or what have you, they are now going with these balloon insertions where it leaves behind anti-restenosis drug. I mean, it's been around a little bit in the past, but it's come on very strongly recently.

Bill Nicklin (Senior Portfolio Manager)

Thanks. Back to kind of a general question that Sono-Tek has been spending a lot of money in recent years, taking on expense that has pressured your bottom line. In regard to this, what benchmarks do you use to judge what spending is appropriate and where do you go from here with your spending levels?

Steve Harshbarger (CEO)

Yeah. Yeah. You know, you're right. We've made some significant investments to support this strategy of expanding our product lines. We're now just beginning to see the results. You know, in FY 2025, we shipped approximately $6 million in products that were tied to our recent development efforts. More than half of that total came from what we are defining as those, you know, high ASP, high average selling price platforms, which are really the ones that are over like the $500,000 area. The remainder involved existing, you know, mid-size systems that we were adding increased complexities and capabilities. You know, for example, you know, we'd be transforming a $150,000 system conventionally for us into a $300,000 system with a lot more capabilities and complexities. You know, these efforts, you know, they support our objective to broaden the scope of our full systems offering.

It increases the average selling price, delivers greater value to our customers. You know, we do our best to benchmark the spending against strategic potential growth areas and long-term return on investments.

Bill Nicklin (Senior Portfolio Manager)

Thanks. I noticed I drove by the plant the other day. The place looks terrific. Congratulations on that. Along with that and the expansion that you're taking, what do you see as the potential for efficiencies throughout the manufacturing operation? Is there any low-hanging fruit that you can get there?

Steve Harshbarger (CEO)

Yeah. I mean, you know, we're always working to improve operational efficiencies, you know, here that, you know, with these high ASP systems, you know, becoming a bigger part of our product mix, we are very focused on standardizing certain subsystems and refining the production flow. You know, the idea here is that these efforts will help us to reduce lead times and hopefully improve margins, you know, without sacrificing our abilities to make customizations where it matters. We are making some operational layouts in this manner. That's a lot of the CapEx spending that you've seen over recent years has been to that idea there of trying to increase our operational efficiencies in those areas.

Bill Nicklin (Senior Portfolio Manager)

Okay. Thanks. I heard Steve Bagley say something about share repurchases. Where are you with the share repurchasing program as far as getting it completed? What are the odds that if you get it completed, you could see an increase in the future?

Steve Harshbarger (CEO)

Oh, yeah. You know, of course, as we put out there already, we currently have an active share repurchase program in place, which authorizes, it's up to, I believe, $2 million in buybacks.

Bill Nicklin (Senior Portfolio Manager)

Yes.

Steve Harshbarger (CEO)

At this time, we haven't provided guidance beyond that, but I can assure you that the program is definitely something we continue to evaluate closely. It is regularly discussed at the board level every quarter, you know, as part of our capital allocation strategy. Unfortunately, I haven't given guidance beyond that at this point.

Bill Nicklin (Senior Portfolio Manager)

All right. Thank you. That does it for me.

Steve Harshbarger (CEO)

All right. It was good talking to you, Bill. Take care.

Operator (participant)

The next question will come from Dick Ryan with Oak Ridge Financial. Please go ahead.

Dick Ryan (Vice President and Senior Research Analyst)

Thank you. Hey, Steve, I think most things have been asked. I just have a couple more on the end markets. Medical, the positive commentary there may be a point of clarification. Maybe I didn't have it right. I thought medical had been negatively influenced with the softness in China. If that's the case and China continues to be kind of a non-event, where are you seeing the progress? You mentioned from stents to balloons, but is it a geographical expansion, or where do you see the growth in the medical coming from?

Steve Harshbarger (CEO)

Good morning, Dick. Yeah. For sure, we have seen a shift in the geographic area for our medical customers. You know, there was a period of time where China, we had a huge medical component out of the China marketplace. At this point, China, as I mentioned earlier, it's only 2.5% of our total sales, of which most of that probably is medical, but it's not a significant marketplace for us any longer. Where we are now picking up the most significant customers in the medical market is in the U.S. and the EU. The U.S. is being our strongest area. You know, our systems now, due to our increased capabilities, you know, our very basic systems kind of got us into the China market because they wanted very basic systems. The U.S. market and the EU market wanted more complex systems with more controls and capabilities.

That is what we are now delivering to that marketplace. These are, I would say, much more sophisticated systems than what we were delivering into the China market by demand of the customer here. There are capabilities to meet that demand. Almost everything we are showing for increases there is coming from either the EU or the U.S. at this point.

Dick Ryan (Vice President and Senior Research Analyst)

Is this just an evolution to more complex systems, or are you taking share from somebody else?

Steve Harshbarger (CEO)

For the medical market in particular, we do not do a lot with outsourced partners in this area. We are actually able to pretty much provide the complete solution internally. We are providing the end systems to that marketplace. It is nice. It should be really nice margin systems for us. And great that we have put in most of that R&D effort is already behind us in order to be able to meet the needs of the demands of that market.

Dick Ryan (Vice President and Senior Research Analyst)

Okay. On the semi side, your commentary kind of is flying in the face of what has, you know, been pretty well telegraphed, the state of the semi marketplace. How are you seeing that more positive commentary? Again, is it similar to medical where you're getting some of your more complex solutions in front of, you know, a fab or two and they're able to kind of evaluate your new capabilities when, you know, if they're going at capacity, they don't have an opportunity to look at alternative solutions? How are you making the progress on the semi side?

Steve Harshbarger (CEO)

Yeah. For sure, we're offering solutions that the competition can't offer. You know, so for most of the applications we're going into and considering proposals for the fab side, it's typically for a product that has something unique about it, which requires our unique ultrasonic spray. So that's, you know, we find these opportunities every now and then. And now that we have found the correct strategic partners to develop these complex solutions, and it's mostly in the wafer handling complexities more than anything else, but we found a great partner there to team up with, which allows us to provide this larger offering. Like I said, I think our first proposal that we've just recently put out there increased a machine that we would have normally sold for about $300,000-$850,000.

More importantly, our machine would have never even been considered for that fab if we did not have those increased capabilities to team up with our basic machine also. That is what is most important, that we would not even have been in the running for that order without having this increased capability.

Dick Ryan (Vice President and Senior Research Analyst)

Whose technology is the robotic wafer handling? Is it yours? Is it your partner's? Is that an opportunity where you could kind of bring that in-house at some point, either organically or through acquisitions?

Steve Harshbarger (CEO)

Both are possible. The partner we found is a very good strategic partner for us. They're not that far away. We're not sharing their name. What's nice with this partner is that they are very used to working with companies like Sono-Tek. You know, this is actually their business model is to team up with companies like Sono-Tek, which have unique capabilities and have a really good front end of the organization to get into the semiconductor fabs. I mean, that's one thing that we're usually quite successful on is introduction of new products when we can find a targeted market.

Our application engineering expertise really comes into play because if we can bring them into our lab, prove that we can meet the needs for what they're looking to achieve in their fab, then you're really in the door as long as you can show that you can provide that full system solution.

Dick Ryan (Vice President and Senior Research Analyst)

Okay. Appreciate it. Thank you.

Steve Harshbarger (CEO)

Good talking to you, Dick.

Operator (participant)

The next question is a follow-up from Bill Nicklin with Circle N Advisors. Please go ahead.

Bill Nicklin (Senior Portfolio Manager)

Thanks again. On the medical side, if we look back at the total addressable market for you in the stent business and what you were selling to China and I guess some U.S. companies too, if you look at what you're seeing now in the medical side, can you compare and where you're looking at these larger production machines, could you give me some idea of the total addressable market in the new areas that you're addressing relative to the total addressable market in the stent market, the old traditional stent market?

Steve Harshbarger (CEO)

Yeah. I think the number of machines ultimately could be similar to where we were at with the stents, say, 10 years ago. You know, for example, you take the Chinese market right now, which even though we do not sell a ton in China right now, we still believe we are not dominating that marketplace because they bought our machines over so many years, you know, where we have sold hundreds of stent coating machines into that marketplace. You know, in the area of probably 200 machines in total. It could be even higher than that off the top of my head, but it is in that ballpark-ish area. I think there is no reason to think that we could not be selling similar volumes of our balloon coating systems.

The difference is instead of selling inexpensive machines at, say, $50,000-$70,000 in China, we could be selling machines that are close to the $200,000 range, a little bit higher than that, but in the U.S. and European market that have a lot more capabilities.

Bill Nicklin (Senior Portfolio Manager)

In dollar value, I think you've told me you're looking at 2-3x greater revenue potential in what you're selling now or intend to sell.

Steve Harshbarger (CEO)

Correct. This is all new market compared to, you know, the stent market is a very mature market at this point, established. There is a lot of growth happening in that other area where the stent market is continuing to stay. You know, a lot of our customers in that area, especially over time, will likely not purchase a new machine for some years, but certainly will be.

Steve Bagley (CFO)

Yeah. I'd like to make a comment, Bill. Some of the market research that you can tune into online talks about the medical device being $8.2 billion, growing at 7.7%. And then the catheter, which is what we were talking about as a newer area for us, well, it's $2 billion and it's growing at 6.5%. These are really healthy markets that we've tapped into. I think what Steve is saying, you know, we really are trying to focus in on those two areas. We've been in the stent coating business for a long time, but when you look at that growth rate, there might be more opportunities there for us.

Bill Nicklin (Senior Portfolio Manager)

Right. Because I see back a few months ago you introduced a catheter coating machine.

I imagine that just visually, even if you look at the coating of catheters, it would appear to be a larger market requiring larger production machines than what you've been quoting. Is that accurate?

Steve Bagley (CFO)

Yeah. You know, that's a set that I personally have not thought about before, but that is separate catheter coatings. But there's also just catheter coatings that are treating some of the infections that are caused by the great use of catheters these days in hospital settings. In a way, what we thought was one market has become three markets. We certainly can pursue them all with our equipment.

Bill Nicklin (Senior Portfolio Manager)

Right. All right. That's helpful. Thank you.

Steve Harshbarger (CEO)

Thanks, Bill.

Steve Bagley (CFO)

You're welcome.

Operator (participant)

Again, if you have a question, please press star, then one. Our next question will come from Daniel Balchin. He's a private investor. Please go ahead, sir.

Speaker 8

Hello. I've just got sort of two questions. Apologies, I'm from England, so there might be a bit of delay on the call. The first question for me is, I understand sort of the kick that we get from high average selling prices, but how does that really translate to us as investors? I would assume that the gross margins are fairly similar for that. I would also assume that there's not so much operating leverage because a lot of these high ASP machines will have a fair amount of application engineering anyway. I'm just wondering, Steve, what's the sort of the real benefit of these high ASP machines?

Steve Harshbarger (CEO)

Yeah. Good question, Daniel. I think the big benefit, and as you mentioned, the margins are similar. I think we will start to see some leverage, but it may not be a huge amount of leverage as things go forward. Most importantly, these high ASP machines are primarily directed into high volume manufacturing operations where our historical machines were very much focused towards R&D and pilot line machines. We'd sell one, two, maybe five machines, and then they would have to transition over to the production machines, which we couldn't supply. The difference is the production machines, no one ever wants to buy one, two, or five production machines. That's where they're usually looking to buy 10-20 production machines.

I think it's kind of exponential because you start to see a higher price machine, but the demand for the number of the machines significantly increases if you can sell production volume machines versus the R&D and pilot volume machines. That's when you can really start to see some.

Speaker 8

I see. Yeah. That makes sense.

Within the balloon catheters, you know, all of this sort of stuff, are those sort of caps at around $300,000, or is there a possibility for single machines to be of the same level as we have in alternative energy, you know, millions of dollars?

Steve Harshbarger (CEO)

Yeah. I think for this particular, at this stage, you know, the customers we're dealing with there right now actually have been using our R&D machines to start that were in that $80,000-$120,000 machines area. They've now received first the pilot line machines and have now are going through the process of production volume machines, which put them again up towards that $250,000 area. I don't believe our first introduction of this will be beyond that. If we could sell a couple hundred machines to various customers that are in that $250,000 area, that would be a pretty good success for us. With that said, I think there is a chance though in the next follow-on stage to possibly increase the offering there even further. You know, there are processes that sit before and after the actual coating stage.

That is always something that we're always looking to do. Every time we accomplish one stage, we always move on to the next stage. It's kind of like that first jump we made in the semiconductor machine where we went from selling a $100,000 one up, and now we're up to around a $300,000 machine. Now we're taking that $300,000 machine and saying, "All right, how do we make it into a $500,000-$1 million machine?" I suspect there could be a similar evolution there to happen. It probably in the medical sector for balloon catheter in particular, it probably will not happen this year, but it could potentially happen in future years.

Speaker 8

Okay. Two final questions. How successful do you think Sono-Tek is as a standalone business? Like, would it be the case that you think Sono-Tek could benefit from some sort of integration within another company or something like that? Like, how well do you think it is running as a standalone business?

Steve Harshbarger (CEO)

You know, I think we still have a long runway ahead of us with a lot of organic growth potential. With that said, I think as we start to reach some sort of critical mastery, when you start to get that $20 million-$40 million area, I think when we're up and around the $40 million area that we'll probably become on the radar of a lot of companies is my suspicion because that kind of seems like it's a critical area when you hit it right around $40 million. I think, you know, that Sono-Tek, although we believe in our organic growth ourselves, but, you know, if someone came to acquire us and if it was the right decision for the stockholders and the right decision for the employees, you know, we would always consider any opportunities that way as well.

You know, like I said, I think the road ahead of us right now, we can do a lot just organic growth. If we find the right acquisition partner and opportunity, we would still always ourselves even look at an acquisition because we are in a very healthy cash position to make very synergistic acquisitions if they made sense for us.

Speaker 8

Okay. Thank you. Do you have any guidance on CapEx? Maybe you've published it, but do you have any guidance on that for 2026 and also somewhat 2027?

Steve Harshbarger (CEO)

Yeah. We actually anticipated CapEx to drop just a little bit this year. I think we were around $500,000 last year, and this year I think we're anticipating it to be around $430,000. The reason for that is that we actually made a lot of really significant investments over the last three years into our facilities, into being prepared for growth in the facilities. A lot of what we had to do in preparation to be heading towards, you know, $40 million, those expenses have already been incurred. It's not like we're really slowing anything down there. It's just we've made a lot of the investments already.

Speaker 8

Okay. Thank you.

Steve Harshbarger (CEO)

Nice talking to you, Daniel.

Operator (participant)

The next question will come from Andy Nubi with Nubi Investments. Please go ahead.

Speaker 9

Hey, thanks for taking my question. I'm just curious how you guys are focused on, if at all, with battery technology. You mentioned wafer technology. I'm just curious if you're in the space of EV battery fads or not.

Steve Harshbarger (CEO)

Sure, Andy. Yeah. It's a good question. There are two primary areas that we've been involved in battery. One is thin film batteries, and that's kind of a newer R&D area of batteries, but it's a fast-growing area. They're often applying nano coatings, and we certainly have a presence primarily in the R&D market for these new thin film batteries. I know that's unlike a lithium battery. Independent of that, we have a customer base that is using our ultrasonic coating systems to apply a protective barrier coating onto lithium batteries. This is associated with the fire dangers of batteries. Right now, they wrap batteries with a material to reduce the chances of a flame occurring or a fire occurring.

There is a pretty big push right now to see if that can be done through a spray coating technique to increase the reliability of that barrier coating working. That is the other area of exploration that we are involved in pretty significantly in that area as well. The actual lithium battery materials themselves, we do not really get involved into it just because they are so thick that they cannot typically be coated. The barrier coating, we most certainly, it is an active area in our labs and with our customers.

Speaker 9

Okay. So would you say that that's something that you are developing? Is it necessarily something you're selling, or you have active customers that are purchasing those kinds of solutions from Sono-Tek?

Steve Harshbarger (CEO)

Active customers that are both working with us and to some level purchasing, but it's mostly on the R&D stage purchasing. It's one of those areas that we spend in particular more time on than a lot of applications because we believe this has got some legs. When we identify a market that we think, "Oh, this could really take off and become big," we really try to dive in deep and get a lot of application know-how and understanding for those. It's an area that we have quite a bit of depth in, and we believe in the future of it, even though it's small right now.

Speaker 9

Very interesting. Thank you so much.

Steve Harshbarger (CEO)

Yeah, you're welcome.

Operator (participant)

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Steve Harshbarger for any closing remarks. Please go ahead, sir.

Chris Coccio (Executive Chairman)

Apologize. There we go.

Operator (participant)

Mr. Harshbarger, your line is open for closing remarks.

Steve Harshbarger (CEO)

Oh, thank you. I apologize. I think I just hit the mute button by mistake there. Thank you all for joining us today. Sono-Tek's long-term outlook remains strong, supported by the continued success of our newly developed high ASP platforms across advanced technology markets. We look forward to sharing our fiscal 2026 results during our next call in October. In the meantime, please do not hesitate to reach out to myself or Dr. Coccio with any questions that you may have. Thanks again. Enjoy the rest of your day, and we look forward to talking to you again in the future.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.