Sono-Tek Corporation (NASDAQ:SOTK) Q2 2024 Earnings Call Transcript

Either they don’t have them or they have them quarterly. But in this particular situation, given the time we’re in, given what the promise your company has, doesn’t that make sense to consider doing it quarterly?

Steve Harshbarger : That’s good input, Nelson. I will say that we had typically never done any quarterly calls at all. So this is all relatively new for us, and we thought as a start we’d get our feet wet with doing them semi-annually, but its good input. Maybe we should be thinking about going to quarterly conference calls. We had at some point planned to make that transition once we kind of got our feet wet into this whole process. As you know, the IR aspects of this is relatively new for our organization, but that may be a good next step for us to follow on, and I’ll discuss that with our BOD going forward.

Nelson Obus: I think you’re hiding your light under a bushel basket. You’ve given us numbers that are quite attractive and quite counter to what a lot of industrial companies are experiencing. So getting rid of that bushel basket, I think, would be something to think about. The other question is, look, I understand why the gross margins percentages are down slightly in terms of the mix, in terms of your gearing up for a lot of additional work and hiring some more specialists. But as you look out, do you anticipate perhaps in a normalized environment some operating leverage, which would be reflected in higher gross margins on a higher revenue base or is that not in the cards?

Steve Harshbarger: I think that we will see – oh, go ahead Chris. Do you want to speak to this?

Dr. Chris Coccio: Yeah, I was going to say that there are trends that are competing with each other. Typically, when a company starts to bring in more outside equipment into their sale, you would expect the margins to go down, gross margins, but that hasn’t happened here. I think that’s the other side of the coin, is that we’re probably getting some credit for our dominance in this market that’s been holding it into the 40’s. Actually, it’s been in the high 40s, but our history is in the 40s and it’s staying in there. So there are things going on, on both sides of that.

Steve Harshbarger : The one thing I would add to that, that this past quarter, Nelson, we had a couple of things occur that affected the gross margin. One is, our OEM sales were unusually low as a result of our OEM partners building up excess inventory. They basically didn’t anticipate that they were going to – they thought they were going to have supply chain issues, so they built up excess inventory and our OEM sales are very high margin items. And that happened in combination with some new products that we introduced in this quarter. And these new products, it was that NovoCote platform that I mentioned earlier. They are quite complex, big platform systems that a lot went into. And your first release of those new products, you don’t put as much focus into reducing costs as you do to get them out there and having them functioning well for the need.

And as for most of our product lines, once we release a product line, we’ll typically over six months or so follow that product line with some reduction in costs, which don’t affect quality of course. But they are just things that you could say, hey, listen, where can we make some efficiencies in that manufacturing process with different parts or different ways to build things that will reduce some costs out of there? So I do think there’ll be a couple of things that will occur simultaneously here, that will help margins in the future, in addition to just general operational leverage that we’re bound to see some of that happen, I would say, at some point here.