Sono-Tek Corp. (NASDAQ: SOTK) — Q3 FY2024 Form 10-Q
Reporting period: Third quarter ended November 30, 2023; year-to-date figures cover the nine months then ended. Sono-Tek designs and manufactures ultrasonic coating systems for electronics, alternative energy, medical, industrial, and other markets. Fiscal 2024 ends February 29, 2024. Financial statements are unaudited.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Net sales | $5.690 million | $3.586 million | $14.932 million | $11.401 million |
| Gross profit; margin | $2.926 million; 51% | $1.824 million; 51% | $7.504 million; 50% | $5.827 million; 51% |
| Operating income; margin | $721,000; 13% | $103,000; 3% | $1.195 million; 8% | $662,000; 6% |
| Net income | $690,000 | $105,000 | $1.285 million | $573,000 |
| Diluted EPS | $0.04 | $0.01 | $0.08 | $0.04 |
- Q3 revenue rose 59%; management attributed growth primarily to strong shipments in alternative/clean energy and medical. Nine-month revenue increased 31%.
- Alternative energy sales grew 189% in Q3 and 134% year to date. Medical sales increased 53% in Q3; industrial sales rose 95% year to date. Electronics/microelectronics revenue fell 14% year to date, reflecting weaker PCB fluxer sales.
- Q3 gross margin was unchanged year over year; nine-month gross margin declined one percentage point, partly because of lower sales of higher-margin OEM products. Operating expenses increased 28% in Q3 and 22% year to date, with research and product development the largest increase.
- Interest and dividend income plus unrealized securities gains totaled approximately $170,000 in Q3 and $411,000 year to date; management cited the higher-interest-rate environment.
Cash, liquidity and debt
- At November 30, cash and cash equivalents were $2.982 million and marketable securities were $9.609 million, totaling $12.591 million. Working capital was $12.072 million, up from $11.117 million at February 28, 2023.
- Nine-month operating cash flow was $1.442 million, compared with $995,000 in the prior-year period. Cash and cash equivalents decreased $373,000; investing activities used $1.815 million, including equipment purchases and net purchases of marketable securities.
- The company reported no outstanding borrowings under its $1.5 million revolving credit line. $60,294 was in use to collateralize letters of credit, leaving $1.440 million unused; the line is payable on demand and secured by receivables and inventory.
- Inventory rose to $4.253 million from $3.243 million at fiscal year-end. Customer deposits, recorded as current liabilities, were $3.143 million.
Material changes, outlook and risks
- Backlog was $10.439 million at November 30, up 96% year over year and nearly matching the prior quarter’s record. Management noted three additional production-scale solar systems for one customer remained in backlog. Backlog is not a guarantee of revenue or shipment timing.
- The company provided no quantified revenue or earnings guidance in the supplied filing text. It identified quarter-to-quarter variability in orders and shipments, particularly as larger systems form a greater share of sales.
- Management cited risks including economic and market conditions, inflation and supply-chain pressures, tariffs, competition and technology changes, backlog cancellations, customer acceptance of new products, timely completion of large orders, and the shift toward more complex complete-system solutions. It also noted uncertainty about residual COVID-19 and supply-chain effects.
- Foreign sales were 40% of revenue in both Q3 and the first nine months, down from 56% and 55%, respectively, a year earlier. One customer represented 13% of Q3 sales; one customer represented 25% of receivables at November 30.
- The filing reports no material commitments or contingencies and no pending legal actions. No material changes to previously disclosed risk factors were reported. Management stated disclosure controls were effective and there were no material quarterly changes in internal control over financial reporting.
- $2.666 million of bank deposits exceeded FDIC-insured limits at November 30. The filing says market-rate risk was not material and that sales transactions are completed in U.S. dollars.
Important facts for investors to verify
- Whether the elevated backlog converts to shipments and revenue on schedule, including the remaining solar systems, and whether large-order timing creates quarterly volatility.
- Whether sales growth persists as alternative-energy and medical shipments rise, while electronics and PCB-related demand remains weaker.
- Whether gross margins hold as product and channel mix changes, and whether higher research, sales, and staffing costs translate into sustained operating leverage.
- Whether inventory growth and customer-deposit timing affect cash conversion; nine-month operating cash flow benefited from increases in payables, accrued expenses, and deposits.
- Exposure to the customer representing 25% of receivables, the 13% Q3 sales customer, foreign-market shifts, and uninsured bank deposits.
- Any subsequent quantified guidance or material changes to supply-chain conditions, large orders, or customer demand; the filing provides no clear numerical outlook.