Sono-Tek Corp (SOTK) 2026 Q2 法說會逐字稿

Good day, and welcome to the Sono-Tek second-quarter and first half fiscal year 2026 results conference call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Mr. Kirin Smith with PCG Advisory. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining us today. Sono-Tek released their second quarter and first half fiscal 2026 results this morning. If you don't have a copy of the release, please go to the company's website at sono-tek.com and click the Press Release/News tab in the Investors section.

The product, market and geography sales tables on the last page of the release will be part of today's discussion. With me on the call today are Dr. Chris Coccio, Sono-Tek's Executive Chairman; Steve Harshbarger, CEO and President; and Steve Bagley, Chief Financial Officer.

Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. Please note that various remarks that may be made on this conference call about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's filings with the SEC. The company assumes no obligation to update the information contained in this conference call.

As a reminder, Sono-Tek currently holds two earnings calls for fiscal year. This is our midyear fiscal 2026 call for the second quarter and first half ended August 31, 2025. Our next earnings call will be our full year call for the 12 months ended February 28, 2026, and will be held next May. I would now like to turn the call over to Chris Coccio, Executive Chairman of Sono-Tek. Chris, please go ahead.

Good morning, and thank you, Kirin, and thank you, everyone, for joining us today. We're going to discuss our second quarter and first half fiscal 2026 results that were released this morning before the market opened. I'll begin with some opening remarks and then Steve Harshbarger, CEO and President, we'll go through a deeper business and operational review. This will be followed by Steve Bagley, our Chief Financial Officer, who will provide the financial review. Following their comments, we'll open the call to your questions.

This past August, we held our Annual Shareholder Meeting at our company headquarters and manufacturing facility in Milton, New York. I'd like to thank all the shareholders who attended and were able to see firsthand the core technology, the key advantages and how it's being utilized by our customers in various industries.

They were also able to see how bustling our facility is as we continue to grow. For those newer investors in our company, we welcome the opportunity to showcase our products and technology with an open invitation. As a refresher for the newer and prospective investors on the call today, Sono-Tek developed a revolutionary method of applying precision thin film coatings several decades ago.

The proprietary technology involves the use of our advanced high-frequency ultrasonic nozzles incorporated into specialty motion control systems. They are able to achieve uniform micron and nano thin coatings onto our customers' products. Our unique value proposition and key differentiator is that our thin film coating machines provide dramatic savings at the expense of liquids being applied and are environmentally friendly by minimizing material usage and reducing overspray.

Importantly, this often helps companies comply with increasingly stringent government regulations aimed at reducing hazardous waste entering the environment. But the real key advantage of our ultrasonic coating systems is the ability to apply precision thin films, which are vitally important in today's world, with thousands of products and micro components now requiring a functional or protective coating to be added to them.

A major strategic shift that we made several years ago to offer more complex and complete solutions has meaningfully broadened our addressable market and resulted in significant growth in our average unit selling price. Our larger machines now commonly sell for over $300,000 and system prices can reach $1 million or more. This can significantly impact our quarterly revenue.

Additionally, our move into the clean energy sector has found excellent results in the next-generation solar cell fuel cells, green hydrogen generation and carbon capture applications, as we help shape a sustainable future. This is what we saw last fiscal year, where we saw the largest customer order in our history, followed by an additional order of the same size two weeks later.

More recently, and in line with our diversification strategy, we announced a very large order of over $5 million through a company in the medical device industry. And just yesterday, we announced another large order of over $2.8 million from another major US medical device manufacturer. The beauty of our technology is the immense value it brings across many industries, including the electronics market, life Sciences and clean energy to name a few.

The new year has presented some changes and uncertainties for most businesses, such as changes taking place in relationships with trading partners and the redirection of climate policy and related government spending. On the trade issues, Sono-Tek builds our key ultrasonic hardware at our factory in Milton, New York, and a large portion of our other materials use our US space. So we see minimal concern there.

On the export side, more than half of our current sales are to the US market, and we have been exposed to tariffs in certain other countries for many, many years. So we could be effective for better or worse depending on the outcome of negotiations taking place. Clean energy continues to represent a significant portion of our sales. Fortunately, a large share of these sales come from commercial customers such as US-based solar panel manufacturers and carbon capture and conversion companies.

The solar customers are supported by commercial users and the carbon capture customers by airlines and other corporations focused on reducing their carbon footprint. This includes efforts to develop sustainable aviation fuel and other carbon-based products. While we do anticipate a decline in clean energy orders this year, our diversification strategy helps us to mitigate and offset potential declines.

This is being driven by ongoing enhancements to our equipment across all sectors, including new expanded features and functionalities that are supporting sales in the medical and semiconductor markets. I'm pleased to report that we're seeing strong momentum in the medical device industry, particularly in growing interest for our high-volume production systems and increased demand for our balloon catheter coating machines.

It's important to note that we have used a form of forward deployed engineering with a number of customers now to help them in their subsequent system purchases from us. For the first half of our fiscal year, we experienced modest annual revenue growth, and the second quarter marked the sixth consecutive quarter in a row of revenue over $5 million. On top of that, our first half revenue made a new record high at $10.3 million and net income came in at $917,000, which is up about 36% from the previous year.

We remain encouraged by the path ahead, supported by a solid backlog of $11.2 million and strong balance sheet with $10.6 million in cash and no debt. For the full fiscal year, we are increasing our prior guidance to reflect modest revenue growth. This outlook balances continued caution as the market adjusted the recent shifts in government, clean energy and tariff policies, which we expect will be positively offset by growing demand from the medical device industry. We will continue to refine our guidance as we gain more clarity through the remainder of the year.

In closing my part, we are excited that our investments have begun to pay off, and our strategies have positioned us well for continued success and long-term value creation. Our outlook for growth has been greatly enhanced by the early success of our strategy to shift to larger, more complex systems and platforms for production applications. There are multiple and repeat orders as well as our focus on opening new markets for our unique thin film coating technology.

Thank you. I'll now turn the call over to Steve Harshbarger, our CEO and President. Steve, please go ahead.

Thanks, Chris, and good morning, everybody. Appreciate you all joining us here today. Let me start by saying that we are very pleased with our overall performance and the strategies we have put in place to help shield us from these macro factors with a unique value proposition and clear product offering that solves critical problems for many diverse industries. It's extremely gratifying to see our investments hitting their stride.

Our sales for the second quarter and first half met our guidance with flat to slight revenue growth. That's even with an unplanned customer requested shipment delay that moved one system into the third quarter. This comes on the back of a strong fiscal 2025, which benefited from growth in the clean energy sector.

The strength and resilience of our business continues to grow, and it's exciting to see our diversification strategy paying off with momentum now building in the medical device industry. Our second quarter medical market sales increased by 150% year-over-year or $602,000 to $1 million, and that was led by balloon coating systems shipped to the US, Europe and China.

Regarding the second quarter, revenue was up slightly to $5.16 million and increased sequentially compared to $5.13 million in the first quarter of fiscal 2026. And that's marking the sixth consecutive quarter of revenue over $5 million. Gross profit for the quarter increased 3% year-over-year to $2.6 million compared with $2.5 million last year.

And that's mainly due to a favorable product mix of mature high ASP systems with reduced costs and some favorable warranty expenses in the current period. Net income for the quarter increased 27% to $431,000 and that's compared to $340,000 last year, and that's reflecting a combination of higher gross profit and lower operating expenses.

Now I'll provide a few other key highlights in the quarter. By geography, US Canada sales decreased 22% year-over-year or $775,000 and that's driven by slowing momentum in the US clean energy industry. However, this was positively offset by sales in Asia, which increased by 153% year-over-year or $562,000 with major growth in China and other parts of Asia.

Additionally, we saw EMEA sales increased 25% or $288,000, while Latin America sales were down by $74,000. By product category, integrated coatings system sales, which we're now referring to as in-line coating systems decreased by $493,000 or 24% to $1.53 million, and that was primarily driven by that same customer requested delivery delay that I just mentioned, which came from the clean energy sector and has since now shipped in our Q3 FY 2026.

Here as well, we saw a positive offset with multi-access coating systems increasing by $99,000 or 5% to $2.03 million. Fluxing sales increased by $46,000 or 39% to $165,000, and that's reflecting our increased demand for our fluxers from Asia. Additionally, OEM sales increased by $188,000 or 92% to $394,000 and that's driven by strong shipments to our fluxer OEMs and new optics-related OEM wins. And the spare parts, services and other sales category increased by $161,000 or 18% to $1.04 million.

By end market, as I highlighted earlier, the medical market increased by 150% year-over-year or $602,000 to $1 million and that was again led by balloon coating system sales shipped to both the US, Europe and China. Alternative clean energy decreased slightly by 3% year-over-year, or $65,000 to $2.43 million supported by strong clean energy backlog going into FY 2026.

The electronics markets declined by 1% year-over-year down $22,000 to $1.46 million. The industrial market declined 68% or $517,000 down to $288,000. And that's influenced by a large FY 2025 European glass coating order that didn't repeat. Regarding our first half of fiscal 2026 results, we reported record revenues of $10.3 million compared to $10.19 million in the year ago period.

Gross profit increased 6% year-over-year to $5.3 million compared with $5 million and net income increased 36% year-over-year to $917,000 or $0.06 per share compared with $672,000 or $0.04 per share. The increase in revenue for the first half of fiscal year 2026 was driven by a 65% or $1.82 million increase in sales from in-line coating systems sales reflecting shipments of six high ASP systems to a major solar customer totaling $4.42 million.

While we're not projecting further near-term orders from this customer in FY 2026, we do remain optimistic about potential future demand depending on the customers' execution of expansion plans. The increase in in-line coating systems we experienced was somewhat offset by our product division, which can fluctuate from time to time.

US Canada sales decreased 5% year-over-year or $324,000, driven by slowing momentum in the clean energy industry, but was positively offset by increased sales in Asia with 74% growth year-over-year or $647,000, led by strong medical sales in China and strong alternative energy sales in Japan and South Korea. EMEA sales were relatively flat, declining $60,000 and Latin America sales down $160,000 due to slowing flexing sales in Mexico.

By product category, as I mentioned before, in-line coating system sales increased by $1.82 million or 65% to $4.58 million driven by shipment of 6 high ASP systems to a major solar customer totaling $4.42 million. Fluxing sales increased by $64,000 or 25%, driven by strength in Asia. Multi-access coating systems declined by $1.89 million or 41% to $2.71 million following a strong FY 2025 for semiconductor systems that didn't repeat and slower clean energy activity in FY 2026.

OEM sales were slightly down by $13,000 or 2% and spare parts and services and others were up by $126,000 or 6%. By end market, the medical market rose by 44% or $553,000 driven by strong balloon coating systems shipped to the US, Europe and China and increased stent coating activity in Europe and China.

Alternative energy rose 90% year-over-year to $901,000 by the shipment of the six high ASP solar coating systems I mentioned earlier. The electronics market declined by 21% year-over-year or $646,000 following strong FY 2025 semiconductor sales and FY 2026 timing for similar machines. The industrial market declined 67% or $711,000, influenced by a large FY 2025 European glass coating order that didn't repeat.

We closed the first half of fiscal 2026 with a solid equipment and service-related backlog of $11.2 million, which was near record levels. The backlog clearly represents the strength of our overall business and reflects encouraging order activity. We attribute the increase in sales and the strong backlog as a direct result of our investment in R&D with a strong focus on product expansion.

For the first half, we have invested $1.3 million in R&D compared to $1.4 million in the year ago period. And our balance sheet remains strong, whereas of August 31, our cash, cash equivalents and marketable securities totaled $10.6 million, still again with no outstanding debt. In closing, we're updating our prior guidance to reflect modest growth for revenue.

And this balance continues caution as the market digests recent shifts in the US government clean energy and tariff policy which we will -- which we expect will be positively offset by our growing demand from the medical device industry. And most importantly, we remain very confident in our long-term growth prospects.

Our momentum stems from our deliberate strategy and shift to large customized systems with accelerating ASP and our proprietary ultrasonic nozzles technology, which remains at the core of our systems for all this diversified industries. And we've been able to achieve this significant shift organically through our own development efforts.

With that, I will hand the call over to Mr. Steve Bagley, our CFO, to review our financials in more detail. Steve, please proceed.

Very good. Thank you, Steve, and good morning, everyone. I will first walk you through the fiscal 2026 second quarter results, followed by our first half results. Net sales for the quarter increased slightly to $5.16 million compared to the second quarter of fiscal 2025 and also increased sequentially compared to the first quarter sales of fiscal 2026 of $5.13 million.

Gross profit increased 3% year-over-year or $74,000 to $2.6 million and the gross profit percentage increased to 50% due to a favorable mix of -- product mix of mature high ASP systems with reduced costs and favorable warranty expenses in the current period. Operating expenses decreased to $2.17 million when compared to $2.23 million in the prior year's second quarter.

The decrease is primarily due to reduced marketing and selling expenses. Research and product development costs decreased to $627,000 versus $696,000 in the prior year. And the decrease is primarily due to decreases in research and development materials and supplies and salary expense.

Marketing and selling expenses decreased to $871,000 for the quarter versus $988,000 in the prior year. The decrease is due to a decrease in salary expense related to the departure of a salesperson and a decrease in trade show expenses and travel expenses. These decreases were partially offset by an increase in salaries related to our sales application lab.

General and administrative expenses increased to $670,000 for the quarter compared with $546,000 in the prior year. The increase is primarily due to an increase in salaries, corporate expenses and stock-based compensation expense. These increases were partially offset by decreases in legal and accounting fees.

Operating income increased $135,000 a or 47% to $421,000 compared with $286,000 in the prior year. In the second quarter of fiscal 2026, an increase in gross profit, combined with a decrease in operating expenses were key factors in the increase of operating income. Interest and dividend income remained steady at $82,000 in the second quarter that compares with $85,000 in the prior year's quarter.

Our present investment policy is to invest excess cash in highly liquid low-risk US treasury securities. At August 31, 2025, the majority of our holdings were rated at or above investment grade. In the second quarter, we recorded a tax provision of $103,000 compared to $74,000 in the prior year.

Net income for the quarter was $424,000 or $0.03 per share, and that compares with $341,000 or $0.02 per share in the prior year period. The increase in net income is primarily due to the current period's increase in gross profit and decrease in operating expenses. Now for the financial results for the first six months of fiscal 2026.

Total sales for the first half of fiscal 2026 increased year-over-year by $103,000 to a record $10.3 million. Gross profit increased $283,000 or 6% to $5.3 million, and that's primarily due to product mix and favorable warranty expenses in the current period. The gross profit percentage increased to 51% from 49% in the prior year period.

Operating expenses decreased slightly to $4.35 million when compared to $4.45 million in the prior year's first half. Research and product development costs decreased to $1.3 million versus $1.4 million in the prior year first half, and that's primarily due to decreases in research and development, materials and supplies and salary expense.

Marketing and selling expenses decreased to $1.7 million for the first half, and that compares to $1.9 million in the prior year. The decrease was due to a decrease in salary expense related to the departure of the salesperson and decreases in commission expense, trade show expenses and travel expenses. These decreases were partially offset by an increase in salaries related to our sales application lab.

General and administrative expenses increased slightly to $1.3 million compared with $1.1 million in the prior year. The increase is primarily due to increases in salaries corporate expenses and stock-based compensation expense, and these increases were partially offset by decreases in legal and accounting fees.

Operating income increased considerably by 72% to $381,000 to $905,000 and that compares with $524,000 in the prior year period, and this underscores the operating leverage from our stronger gross profit and a decrease in operating expenses. Operating margin for the first half of fiscal 2026 was 9% compared to 5% in the prior year. In the first half of fiscal 2026, interest and dividend income decreased by $4,000 to $224,000 and that compares with $228,000 in the first half of fiscal 2025.

Additionally, unrealized gains decreased $52,000 to $2,000 as compared with $54,000 in the first half of fiscal 2026 -- 2025. Net income increased $35,000 (sic) to $909,000 or $0.06 per share for the first half of fiscal 2026 compared with $672,000 or $0.04 per share for the first half of fiscal 2025. Diluted weighted average shares outstanding decreased slightly to approximately 15.7 million shares.

We continue to maintain a strong cash position with cash, cash equivalents and marketable securities totaling $10.6 million at August 31, 2025, and we continue to carry no debt on our balance sheet. CapEx for the six months was $113,000. And all of that is directed to ongoing upgrades of our manufacturing and development labs facilities, and we expect to invest approximately $300,000 in new equipment for the full fiscal year. And now we'll open the call for any questions from the audience.

Operator, please go ahead.

(Operator Instructions)

Ted Jackson, Northland Securities.

Thanks, good morning. Congratulations on the quarter.

Hey morning, Ted.

So my first question, Steve, is I want to maybe auger in a little bit on the medical device strength and the Chinese exposure that's from it. In the past, I know that China has been a bit of a difficult market for you because there's been sort of copycat ultrasonic coating vendors there and we've been trying to overcut you in price.

And so I'm a little curious in terms of how the business came about and kind of the competitive dynamics for the win. And this mean that we're going to see you have a better profile in China going forward and maybe some discussion with regards to tariffs around China and any kind of concerns you might have there. That's kind of a mouthful, but that's my first question.

Sure, sure. Yes. Well, China's certainly still low, is on our mind. And I should start by saying that even when we send our advanced coating systems over to China, they actually are not getting our most advanced coating systems that we actually keep those pretty close to home, so they're actually usually getting like one generation behind us, just from a proprietary standpoint.

But we were fortunate that in the medical device industry, in particular, that we've been able to capture some significant orders where these customers evaluated these Chinese copycat companies, and they just found out that the quality just did not meet the bare minimum requirements to compete with Sono-Tek.

So they actually made decisions to pay, it's about maybe 3 or 4 times per machine, if they could buy that same machine from a Chinese manufacturer to get it through Sono-Tek here in the US And that's even with the significant tariff simplifications that are happening. So it's a real complement, I guess, to us from the standpoint of the quality of our systems and it's the one industry that defects are much more critical than, say, like on a printed circuit board, a defect is a life in those industries.

So there is some level of paying a premium in those sorts of particular niches for us right now. And in the balloon are, in particular, that's an area that we believe that we're going to dominate similar to the stent manufacturing area that we've had in the past. So I think China is jumping on that, knowing that they need Sono-Tek if they want to be heading into that market from medical devices.

And then -- so then are these customers -- are these actually Chinese entities. They're not Western companies manufacturing in chinese.

Yes. These particular ones happen to be Chinese manufacturers, which is unusual also, just as you're pointing out, it would be much more common for us to say have a Western entity manufacturing in China that is buying Sono-Tek, that would be a much more common scenario. But in these particular cases, it's actually surprisingly.

Chinese manufacturers that are saying, hey, the quality is so low of our domestically made stuff that we're going to buy Sono-Tek anyway. And that's certainly without encouragement by the Chinese government; the Chinese government has a big push right now to buy made in China. But there are certain technologies that they just are not able to perfect enough that they have to be buying from the US even at these very premium prices over domestic manufacturing equipment.

And then is there a similar industry in -- like in terms of balloon catheters within the Western world? And do you have exposure to there? Or is this driving interest for you outside of China?

Yes, it is. It's kind of similar to the standard industry, which we're very familiar with, and that's one of those areas that we dominate the marketplace that if you capture the two or three major manufacturers of that particular application, you'll tend to get the second-tier manufacturers following them.

And although it's all proprietary and confidential and there's nothing that we're supposed to get out, personnel travel from companies to companies. And so it does tend to snowball upon itself. And I believe right now, we're in a position that we're capturing the major leaders in this particular niche.

And I think it's snowballing across the globe. Geographically, it's snowballing, whether it's to Japan or to China or to Europe or in our home base in the US, they are -- we are becoming the industry standard in this niche? And this is a niche that's just starting to. So what's great is that this is in the beginning basis. So there's a lot of growth ahead of us here for this area.

And then -- so I've got two more questions on medical and then maybe one more. I have others behind it, but I'll get out of line because I can always come back in. So using stent as kind of -- like, let's call it, a guidepost to how the balloon catheter market might turn out. Can you walk us through like when you got your first order in that market and how it evolved?

And then like how many systems have you sold and over what period of time, and just kind of so we can get a sense to that. And then the question behind that is you've had tremendous success within stents. It looks like you're positioned well for balloon. What other stuff is out there for you in the medical market. And then actually, I will step aside, and I'll come back in the queue after some. I'm sure there's a couple others --

Sure. I appreciate that. For sure, we are definitely trying to emulate the success that we had in stent. I guess one of the big differences between the stent market and our newest markets like balloon catheter, coating the drug-eluting balloons, is that our product offering at the time of stent was very limited and it was smaller ASP machines that we're selling for maybe $50,000 to $80,000.

Now those machines probably could have sold for $150,000 to $200,000, if we had the capabilities to add more offerings more capabilities onto those machines. But we didn't at the time. But fortunately, for us now, due to all these investments we've made over the last several years, we are now able to offer a much more sophisticated platform for balloon coating than we would have ever been able to offer for stent coding at the time.

And that has driven the ASP up higher on the machines. But even more importantly, it's resulted in a much more satisfied customer that's really able to see our capabilities beyond just the coating coding part of it. It's the capabilities of manipulating the product. It's the capabilities of curing or cleaning and having this fully integrated systems which drives our ASP up, and we're now finding is starting to help improve gross margins as well is really significant for us, and it opens us up where that customer now recognizes, oh, Sono-Tek, they're not just a stent coating company anymore.

They have manufacturing capabilities for coating just about any one of your medical devices. And although balloons is the one that's kind of taking off for us right now, there's a lot of other things in the hopper that we are also involved with, which we want to repeat and emulate that same process for as well.

Sounds exciting. I'll come back in queue. I know I have more questions --

Thanks, Ted. Good talking to you.

Bill Nicklin, Bill Will Insights.

Steve, I'm on a cell phone and not a great area. So can you hear me?

I got you, Bill. Good morning.

Hey, good morning. Looking at the recent orders you have and kind of what's been taking place over the last few years, there's strong indications that Sono-Tek is intentionally and strategically taking a path of building out your applied engineering model. And I think it's pretty evident through customer accessibility to your lab and involvement in your lab, testing infrastructure, new hires you've made, leadership promotions and so forth.

And it appears to me this is -- this strategy is the functional equivalent of what some popular -- been known as FDE or forward deployed engineers. So in line with that, could you walk me through how the application engineering build-out fits into your broader growth strategy and what specific capabilities or customer outcomes are you building toward?

Sure, sure. That's a great question. And it really -- I would say it gets at the heart of why we continue down a path of what we're now actually starting to refer just as you referenced as forward deployed engineering. That actually came out of the software term, but it's changed and it's grown over time.

The definition of it, it's really a key part of our growth strategy, and it touches on everything from customer adoption to sales efficiency and competitive pricing. And I'll do my best to walk through those areas that you just mentioned. Our forward deployed engineering model builds around what we originally called our custom engineered solutions team and really is core to scaling our growth.

This team creates -- created -- it just was created a couple of years ago now, and it was actually an expansion of our application engineering group and has already grown from one senior engineer now to three individuals, showing the strong demand for what we see in this capability area.

And it enables our most experienced engineers to work directly within the customer production environments to deploy and optimize customized and production scale coating systems. And this hands-on approach really accelerates system adoption. It maximizes the real-world coating performance, and it very much strengthens our long-term partnerships.

And all of these ultimately are key drivers in expanding our high ASP production platforms. And by embedding our FD engineers directly with customers, we're hoping to expect to see shortened sales cycles and improve our win rates because the solutions are already proven in production where they're not just proven in our labs. So over time, this should allow a lower customer acquisition cost.

Since those same embedded engineers, they should often uncover new opportunities within our existing accounts. So I think that might kind of explain where they're coming from. So the really big thing for this model just sets us -- gets us closer to our customers. We move faster and turn that collaboration into bigger business for both sides.

All right, thanks. Maybe following on a little. What are the key performance indicators you're tracking internally to measure whether the FDE group is delivering a return on investment? And what's the expected timeline for margin expansion or growth acceleration because of that?

Yes. We've long tracked the percentage of revenue tied to like laboratory testing and application development, and that's which I think is right around -- currently around 60% to 70% of our shipments are tracked to that right now. And we also certainly measure the revenue tied to the high ASP systems, which now represents roughly two-third of our total sales.

And almost all of these big complex systems pass through that FDE group, that forward deployed engineering team. And while ROI and things are a little bit difficult to quantify directly, we certainly see positive results as more R&D and pilot line systems transition into these large multisystem production lines.

And I would strongly expect margin benefits to build gradually over the next one to two years as more and more of these large accounts move into full-scale production. And that's similar to the multisystem orders for these high ASP systems that we delivered earlier this year for the solar industry, which ended up coming through with really strong margins. So I would expect that to continue with this model.

All right. And one more quick one. How does the application engineering investment affects your competitive position, if you can give me some specifics? And are customers selecting you over competitors, specifically because of this capacity or capability? And how does that translate into pricing power and margin expansion?

So FDE, it's absolutely a clear differentiator. Customers increasingly are going to be choosing Sono-Tek because we bring process engineering expertise directly right into their production floor. So it elevates our role from equipment supplier to really become a technology partner.

And that supports strong pricing and a really strong pricing power when you think about it, it's going to give us much deeper account penetration and more possibilities for recurring revenue from product expansions as well as those same returning customers considering us for new projects, which they may not have otherwise.

So I think we're going to see that roll over into margin expansion fairly quickly for us because as they become higher and higher developed and going through our process, we've seen here historically that the margins will start to expand on those high ASP machines once the first round of them have gone through our manufacturing process.

Thanks, Steve. It's good to see all this hard work and money spent come to fruition and good luck the rest of the year.

I appreciate that, Bill. It's been a significant investment for us, and we're happy to see it taking off for us. So it should be an exciting time.

Dick Ryan, Oak Ridge Financial.

Hey morning, Dick.

Hey, morning, Steve. Thanks for taking the questions and also congrats on the success of the diversification kicking in.

Appreciate that. Thank you.

Just most things have been asked, but just a couple of questions specific. You mentioned two new optics-related OEMs. Can you give a little detail? Is that -- are these significant wins, I mean, obviously, any win is worthy, but can you provide a little more detail on those two new OEMs?

Yes. They are in the optics area, the lens area. What's -- what I would describe as significant for them is that right now, they are not in a wheelhouse for Sono-Tek, I would say, has a great depth of knowledge. But these guys do have significant depth of knowledge and that if we can get embedded with them, we will start to learn a lot more about that industry in that field. And that's very valuable for us.

Often, we need a partner to accelerate our entrance into these newer types of applications because otherwise, it could take us -- with a partner, we might be able to get in, in one to two years, but without a partner, it might take us four or five years to really understand the area effectively. So I think it's going to be significant. It's probably not going to be significant from a revenue standpoint short term, but it could be significant from a new market entrants' long term.

Okay. That sounds good. What's going on in the semi side? That market seems to be holding up well. The front end has got some higher expectations of spending in 2026. What are you seeing on the semi side of the business?

Yes. Well, until this past month, I was thinking more almost flattish, but then we just came out of a trade show, Semicon it's called, in Arizona it was. And it was, by far, the best trade show we've ever had and the best interest of leads and customers talking to us very seriously about equipment. And when I asked about what was the differentiator, although it was a very good year in general for semiconductor at the show, but they said, really, it was our product line expansion this year was significant enough that it was growing our addressable market at the show.

So customers that would have walked by us last year or the year before, now are starting to recognize, oh, these guys have a lot more capabilities then they had over the last several years. And we did make some more significant investments into the show to make sure we showed that and displayed that at the show. You had a larger sized booth with actual machinery there running, but it really paid off for us.

And I think that we're going to start to see that become a fairly significant growth area for the organization over the next year or two as a result of this. And that's still got a long way from stopping the upper peak on this. We're going to be showing some significant new product additions this year, and I think it will be ongoing like that for the next several years that will continue to grow that product offering.

Okay. Have you been able to quantify what the addressable market opportunity might be for you guys?

We haven't put a dollar figure to it, but I will say this that our next strategic shift is moving from what is mostly a 200-millimeter high-tech lab environment over to 300-millimeter environments which are mostly fab directed. And that's the expansion of our product line offering right now is heading in that direction, and that seems to be where most of the investment is heading and where we could bring the biggest benefit and impact.

So I think it's going to be again, higher ASP machines that are more complex. But I think right now, we've got the right strategic partners aligned with us. We've kind of worked out all the details to enter into there this year pretty quickly.

Good. Well, Congrats on that. That's a significant opportunity moving into the 300-millimeter space. I think that's it for me. Good job. Appreciate it. Thanks, Steve.

Always good talking to Dick. Thanks.

Ted Jackson, Northland Securities.

Welcome back, Ted.

I just have a couple more left. So one is just a backlog near record, like over what time frame will that revenue be recognized?

Yes. The largest orders that we have just recently announced, which was that $5 million last month and almost $3 million order that came in last week, or this week, I should say, just yesterday. The bulk of those will be shipping in our FY 2027 year or so after March. But there will probably be some level maybe 15 -- 10% to 15% of that be ship out in the current fiscal year, just the beginning orders for those. So that's the bulk of it, though, it's going to be heading into next year.

And that's why right now, we're only projecting modest growth for the current fiscal year, and that's just because the build time on these machines is significant. So although we'll be able to ship some of them, we won't be able to ship anywhere near a significant portion of them in the current fiscal year.

But we're in good shape for this year. Like I said, so we'll come in at modest growth. Had the clean energy sector kept on full steam like we anticipated, was we probably would have shown huge growth this year. But we deal with what we got. And fortunately, our team here were able to shift really quickly over to capitalizing on the investment we made into building these highly complex machines and just shifting it over to the medical sector very, very effectively.

And then on the second half of '26, you are projecting modest growth for the year. Given that you had a piece of business slipped from the second quarter to the third quarter, would we expect to see your second half sales to be a little more weighted in the third quarter vis-a-vis the fourth quarter because of that?

Yes, I think they're not going to be way off from each other, but it's probably going to be a little bit heavier in Q3 versus Q4 because of that one system that did get, at their customer request get pushed into Q3. So I would suspect Q3 will probably be slightly higher than Q4, but they both should be pretty solid for us.

Do you think that you can take your streak of $5 million-plus revenue quarters from $6 million to $8 million.

We haven't given any projections there yet, but I think I would be disappointed if we don't do it, but we haven't given any formal projections there, but I would be disappointed if we don't do that.

Right, well, that's it for me. Everything else got asked by other people. Thanks.

You're welcome. See you, Ted.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Steve Harshbarger, for any closing remarks.

Okay. Sorry about that. Dropped all my papers here. Well, I just want to thank everybody for joining us today and to tell you all that we look forward to having you come back for our next conference call. Sono-Tek's long-term outlook remains strong, supported by the continued success of our newly developed high ASP platforms across advanced technology markets.

So we look forward to sharing our full fiscal year 2026 results during our next call in May. In the meantime, we will be presenting at some key upcoming investor conferences. Next week, we're actually at LD Micro in California. And please don't hesitate to reach out to us with any questions. And thank you again, and enjoy the rest of your day, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.