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

Nelson Obus: Very helpful. Look, last question. It’s one heck of a ramp in sales. By the way, you should be happy that of course that your gross margins held practically at 50%. But last question, I mean, you have a big ramp in sales. What’s your capacity utilization? I mean, do you have the ability to grow physically into this incredible ramp up in revenues?

Steve Harshbarger: Yeah, within the existing facility here, we’re fortunate, we bought our industrial complex, which is five buildings, of which we’re in three of those five buildings right now. And that was, within those three buildings right now, we think we can get up to around the $25 million to $30 million area. And that with then moving our existing tenants out, which we have short-term leases on the remaining two tenants, one of them ends in May of this coming year, and the other one ends shortly after that. We should be able to get up into the $40 million, maybe mid-$40s million or so of revenue within the existing facility. Now once we go beyond that, we will have to start thinking about further expansion. But at least we have enough existing space within our complex right now to get up into that mid-$40s million for revenue.

Nelson Obus: Good, okay, great. Thank you, great quarter.

Steve Harshbarger: Thank you.

Dr. Chris Coccio: Thank you.

Operator: The next question comes from Bill Nicklin. Please go ahead.

Bill Nicklin: Hi, thanks. You guys must be working hard, because you’re all sick. From a shareholder perspective, we really appreciate your sacrifice. So anyway, I just want to touch back quickly on the gross margin thing, because you’ve been running about 50%. You’re now doing the larger production machines, which have more spare parts associated with the order and also service. So it would seem to me that your margins ought to stay as high as they were in the past, which therefore keeps them above the 50% margin, which I think analysts have in their models out there. So am I missing something?

Steve Harshbarger: Well, you bring up a good point there Bill, that you know one of the areas that we’re just now starting to roll into our revenue stream is for the large ASP machines that we send out there in the field. We’re finding that the customers are buying 10% to 15% extra revenue from us for service contracts or spare parts packages, and those are both obviously very high margin areas. Now today, we only have a handful of these million dollar plus lines out there that are in operation. But as that fleet of machines starts to increase, we should start to see a much more significant revenue stream come in, where it will start to become significant and it should be a high margin revenue stream. It’s going to take some time for that to build, but the more and more of these we put down in the field – and that’s a recurring thing too.

They don’t just buy those service contracts one year. It’s every year kind of recurring revenue stream, maybe for the life of the machine, 10, 15 years or something like that. So that should definitely impact our margins in a positive way.

Bill Nicklin: Thanks. Second question. This recent production equipment order, is this an anomaly or is this something you expect to see going forward, something that has legs?

Steve Harshbarger: I certainly don’t think it’s an anomaly. You know there is, in particular in the green energy sector right now, the clean energy sector, there’s so many of these customers that are transitioning to high volume production. They’ve got an established process with our machines for either R&D and pilot line scale. And now they have found the money all of a sudden from all these government initiatives, and private industry I should say too, that is complementing the government initiatives to immediately scale to high volume production. That’s a customer base that we’ve had for a long time. It’s been a huge customer base of ours, but they’ve never had the financial backing to say, I’m going to make that transition over to high volume production, but they do now.