Sono-Tek Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended February 28, 2023; comparisons are with the fiscal year ended February 28, 2022. Sono-Tek designs and manufactures custom ultrasonic coating systems for electronics, medical, alternative energy, industrial, and other markets.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $15.06 million | $17.13 million | Down 12% |
| Gross profit / margin | $7.65 million / 50.8% | $8.61 million / 50.3% | Profit down 11%; margin up 0.5 percentage point |
| Operating income / margin | $683,000 / about 5% | $1.89 million / about 11% | Down 64% |
| Net income | $636,000 | $2.54 million | Down 75% |
| Basic and diluted EPS | $0.04 | $0.16 | Lower year over year |
| Cash from operating activities | $1.33 million | $2.32 million | Down $994,000 |
| Cash, cash equivalents and marketable securities | $11.45 million | $10.71 million | Up $736,000 |
| Working capital | $11.12 million | $10.78 million | Up $335,000 |
Gross margin improved due to product mix and lower-than-expected warranty and installation costs. Operating expenses rose 4% to $6.97 million, including a 24% increase in research and product development spending to $2.15 million. FY2022 net income included a $1.01 million gain from PPP loan forgiveness; FY2023 had no comparable gain.
At year-end, total liabilities were $5.54 million and stockholders’ equity was $14.63 million. The company reported no outstanding borrowings under its $1.5 million revolving credit line; $145,000 of capacity secured customer letters of credit, leaving $1.355 million unused. The filing describes no long-term debt outstanding. Cash flow from investing was negative $2.81 million, including $556,000 of equipment and facility spending and net purchases of $2.26 million in marketable securities.
Material changes and business drivers
- Sales fell primarily because supply-chain constraints delayed components and shipments, especially for complex, longer-lead-time systems. Management said several planned FY2023 shipments shifted into FY2024.
- Year-end backlog reached a record $8.5 million, up 60% from $5.3 million, reflecting large clean-energy system orders and slower fulfillment amid supply constraints. Backlog is not a guarantee of recognized revenue.
- Multi-Axis Coating Systems sales declined 32% to $6.79 million. Fluxing Systems rose 71% to $1.18 million, while “Other” sales increased 29% to $3.84 million.
- Industrial-market sales increased 131% to $2.44 million, including a large multi-system order. Electronics/Microelectronics sales declined 23%, medical declined 15%, and alternative energy declined 17%.
- International sales were $8.25 million, or 55% of revenue, versus 68% in FY2022. U.S. and Canada sales rose 24%; APAC sales fell 39% and EMEA sales fell 34%.
- Two customers represented 14% of FY2023 sales; four customers represented 44% of year-end receivables.
Outlook, risks and other notable items
The filing provides no specific revenue or earnings guidance. Management described the record backlog, expanded markets, product development, and broader geographic reach as a foundation for future growth, but cautioned that shipment timing and results remain uncertain. The company expects supply-chain constraints and longer component lead times may continue into FY2024.
Principal risks include component availability and supplier concentration, dependence on purchase orders and a small number of customers, delivery and production capacity constraints, inflation and labor costs, international and foreign-exchange exposure, competition and technology changes, and reliance on a single manufacturing facility in Milton, New York. Management also highlighted economic and geopolitical uncertainty, including the war in Ukraine, and ongoing pandemic-related disruptions.
The company reported no pending legal actions or material commitments and contingencies other than letters of credit. It reported no off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor reported no critical audit matters and issued an unqualified opinion on the FY2023 financial statements. The filing states that $2.892 million of cash exceeded the FDIC-insured limit. No cash dividends have been paid, and there are no current plans to pay them.
Most important facts for investors to verify
- Whether the $8.5 million backlog converts to revenue on schedule, particularly the systems delayed into FY2024.
- Whether supply availability, production capacity, and delivery times improve without eroding gross margins.
- Whether sales recover in electronics, medical, and alternative energy, and whether industrial growth is repeatable beyond the large disclosed order.
- Customer concentration, receivables collectability, and the extent to which customer deposits support orders still to be fulfilled.
- Cash and investment liquidity, including uninsured bank deposits and the composition and valuation of marketable securities.