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ST

SONO TEK CORP (SOTK)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 net sales were $5.19M, down 9% year over year (vs. $5.69M), but up slightly sequentially (+1% vs. Q2’s $5.16M); gross margin compressed to 45% (vs. 51% YoY) on product/geographic mix and distributor discounts .
  • Alternative/Clean Energy revenue surged 42% to $2.96M as customers transition from R&D to higher-ASP production systems; Multi-Axis systems revenue rose 20% to $3.56M .
  • Management guided FY2025 revenue to “over $20 million” with continued profitability (raised specificity vs. prior directional growth commentary), supported by a strong backlog of $10.56M and $12.7M cash/securities, no debt .
  • No standalone Q3 earnings call transcript (company holds two calls annually: mid-year and year-end); themes from the Q2 call emphasize clean energy production systems rollouts, ASP expansion, and internalization of capabilities to mitigate supply chain risk .
  • Share repurchase program announced Nov 4, 2024 for up to $2.0M provides incremental capital allocation support amid record backlog and strong balance sheet .

What Went Well and What Went Wrong

What Went Well

  • Strong Alternative/Clean Energy growth (+42% YoY to $2.96M) as customers move from R&D/pilot lines to production-scale systems with significantly higher ASPs: “these more advanced systems come with significantly higher ASPs” .
  • Multi-Axis Coating systems up 20% (+$0.60M) to $3.56M, including a $1.12M production system; services/spares grew 24% to $1.22M, expanding recurring revenue streams .
  • Backlog remains robust ($10.56M) and FY2025 revenue guided to “over $20M” with continued profitability: “projected revenue of over $20 million…with continued profitability” .

What Went Wrong

  • Gross margin fell to 45% (from 51% YoY) and operating income decreased 73% to $0.20M (operating margin 4%), driven by mix and reclassification of labor to COGS .
  • Medical (-33%) and Industrial (-59%) markets weakened YoY; EMEA revenue down 35% while U.S. & Canada declined 17% as APAC mix increased (64%), contributing to margin headwinds .
  • Integrated Coating Systems revenue dropped 94% YoY on tough prior-year comps (very strong orders last year), underscoring quarterly variability tied to timing of large high-ASP systems .

Financial Results

Quarterly progression (oldest → newest)

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue ($USD Millions)$5.031 $5.162 $5.191
Gross Margin (%)48.8% 49% 45%
Operating Income ($USD Millions)$0.238 $0.286 $0.198
Operating Margin (%)4.7% 6% 4%
Net Income ($USD Millions)$0.331 $0.341 $0.274
Net Margin (%)6.6% 7% 5%
Diluted EPS ($USD)$0.02 $0.02 $0.02

Q3 FY2025 vs. Q3 FY2024

MetricQ3 FY2024Q3 FY2025YoY Change
Revenue ($USD Millions)$5.690 $5.191 -9%
Gross Profit ($USD Millions)$2.926 $2.343 -20%
Gross Margin (%)51% 45% -600 bps
Operating Income ($USD Millions)$0.721 $0.198 -73%
Operating Margin (%)13% 4% -900 bps
Net Income ($USD Millions)$0.690 $0.274 -60%
Diluted EPS ($USD)$0.04 $0.02 -$0.02

Estimates vs. Actuals

MetricConsensus EstimateActualBeat/Miss
Revenue ($USD Millions)N/A (S&P Global consensus unavailable at time of query)$5.191 N/A
Diluted EPS ($USD)N/A (S&P Global consensus unavailable at time of query)$0.02 N/A

Product Sales (Q3 FY2025)

ProductQ3 FY2024 ($USD)Q3 FY2025 ($USD)YoY Change
Multi-Axis Coating Systems$2,962,000 $3,563,000 +20% (+$601,000)
Integrated Coating Systems$1,418,000 $81,000 -94% (-$1,337,000)
Fluxing Systems$62,000 $71,000 +15% (+$9,000)
OEM Systems$268,000 $259,000 -3% (-$9,000)
Spare Parts, Services & Other$980,000 $1,217,000 +24% (+$237,000)
Total$5,690,000 $5,191,000 -9% (-$499,000)

Market Sales (Q3 FY2025)

MarketQ3 FY2024 ($USD)Q3 FY2025 ($USD)YoY Change
Alternative/Clean Energy$2,083,000 $2,959,000 +42% (+$876,000)
Electronics/Microelectronics$1,374,000 $1,016,000 -26% (-$358,000)
Medical$1,340,000 $897,000 -33% (-$443,000)
Industrial$741,000 $302,000 -59% (-$439,000)
Emerging R&D & Other$152,000 $17,000 -89% (-$135,000)
Total$5,690,000 $5,191,000 -9% (-$499,000)

Geographic Sales (Q3 FY2025)

GeographyQ3 FY2024 ($USD)Q3 FY2025 ($USD)YoY Change
U.S. & Canada$3,421,000 $2,823,000 -17% (-$598,000)
APAC$681,000 $1,114,000 +64% (+$433,000)
EMEA$1,476,000 $957,000 -35% (-$519,000)
Latin America$112,000 $297,000 +165% (+$185,000)
Total$5,690,000 $5,191,000 -9% (-$499,000)

KPIs and Balance Sheet (Quarterly)

KPIQ1 FY2025Q2 FY2025Q3 FY2025
Backlog ($USD)$7,830,000 $11,700,000 (record) $10,564,060
Cash, Cash Equivalents & Marketable Securities ($USD)$12.2M $11.6M $12.7M
Customer Deposits ($USD)$3,339,816 $3,225,273 $3,363,301
DebtNone None None

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY2025“Continued sales growth for full fiscal year over last fiscal year” (Q1) “Revenue of over $20 million for FY2025” (Q3) Raised specificity (threshold introduced)
ProfitabilityFY2025Continued profitability implied by strong H1 performance (Q2) Continued profitability reiterated (Q3) Maintained
Q2 Revenue GrowthQ2 FY2025Guide: +2%–5% sequential (from Q1) Delivered: +3% sequential to $5.162M Achieved vs guidance

Earnings Call Themes & Trends

Note: No standalone Q3 call; company holds only mid-year and year-end calls .

TopicPrevious Mentions (Q1 and Q2)Current Period (Q3)Trend
Transition to production-scale systems (Clean Energy)Altair/PLC-based platforms; 3 integrated systems shipped ($2.19M); largest orders in history; multi-site rollout planned (Phase 2, future Phases 3–4) Clean Energy +42% YoY to $2.96M; Multi-Axis +20% to $3.56M Improving
ASP expansion and variabilityHigher ASPs drive revenue variability; backlog growth supports future periods Continued emphasis on high-ASP orders; quarterly variability expected Stable (known driver)
Geographic mix and China/APAC dynamicsAPAC down; China weakness; U.S. & Canada supported by CHIPS/IRA APAC +64%; U.S. & Canada -17%; EMEA -35%; LatAm +165% Mixed (margin headwind from intl/distributor mix)
Supply chain/internalization (Aries/NovoCoat)Internalization to mitigate vendor issues; margin benefits expected over time Margin pressure near term from mix and labor reclassification to COGS Longer-term positive; near-term margin headwind
Capacity scalingCurrent footprint supports ~$24–29M; full site ~$40–44M potential FY2025 revenue guided >$20M Building toward capacity

Management Commentary

  • “Projected revenue of over $20 million for the first time with continued profitability…a fitting milestone” — Dr. Christopher L. Coccio (Executive Chairman) .
  • “Customers moving from R&D and pilot systems to complex large-scale production systems…these more advanced systems come with significantly higher ASPs” — Steve Harshbarger (CEO & President) .
  • Q2 call: “Largest customer order in our history…followed by another…our record backlog increased to $11.7 million” — Dr. Christopher L. Coccio .
  • Q2 call: “Altair…PLC-based systems significantly expanded our addressable market; six more high ASP systems in backlog” — Steve Harshbarger .
  • Q2 call: Internalization (“NovoCoat”) reducing vendor risk and supporting future margin expansion — Steve Harshbarger .

Q&A Highlights (from Q2 call)

  • Clean Energy rollout visibility: ~$5.9M backlog with deliveries planned across Q1–Q3 FY2026 for a multinational solar customer; potential phases beyond initial rollout .
  • Backlog composition/timing: ~Half of record backlog slated for current FY2025 shipments; medical mix healthy alongside clean energy .
  • Capacity ceiling and scaling: Current footprint ~$24–29M with layout efficiencies; full facility ~$40–44M potential before further expansion .
  • Pipeline/“Emerging R&D”: Faster transition into product-market baskets as capabilities mature, reducing time spent in R&D category .
  • Supply chain internalization: Ongoing internal build driving resilience and margin benefits over next 1–2 years .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 FY2025 revenue and EPS was unavailable at time of query; consequently, estimate comparisons are not provided.
  • Given limited micro-cap coverage and quarterly variability from high-ASP systems timing, we expect sell-side models to revisit margin trajectory (gross margin compression from 51% to 45%) and segment/geography mix assumptions in outer quarters .

Key Takeaways for Investors

  • Clean Energy momentum is accelerating: +42% YoY market growth; continued transition to high-ASP production systems supports medium-term revenue scale and operating leverage .
  • Near-term margins compressed on mix/geography and COGS labor reclassification; expect volatility tied to timing of large systems shipments; service/spares growth (+24%) is a positive recurring tailwind .
  • Backlog/cash provide visibility and optionality: $10.56M backlog, $12.7M cash/securities, no debt; FY2025 guided >$20M revenue with profitability, aligning with existing capacity envelope .
  • Geographic mix shift (APAC up, U.S./EMEA down) is a watch item for margin trajectory; distributor discounts and international sales can pressure gross margin .
  • Capital returns: $2.0M buyback authorization adds downside support while scaling high-ASP platforms; monitor execution vs. growth investments .
  • Medium-term thesis: Altair/Aries initiatives deepen vertical integration and expand addressable markets; as internalization matures, margins should benefit, with revenue scale possible to ~$29M in current footprint and ~$40–44M with full site .
  • Trading implications: Expect stock sensitivity to backlog announcements and large order timing; headline beats/misses likely driven by quarterly shipment cadence and margin mix. A clear FY2025 “> $20M” guide and strong backlogs are supportive catalysts; margin stabilization would be a key trigger for rerating .