Sono Tek (SOTK) FY 2027 earnings call transcript

I think speed for the next gen, like the next rev, will be very quick to give us the thumbs up or thumbs down, like, hey, this meets the need. Speed in general for actual implementation, once you have a proven, known, good processes, does tend to be a little bit slower, believe it or not, in that semiconductor industry, They tend to move very quickly on proven methodologies and are a little more cautious on things that have been only lab proven or pilot line proven.

So I suspect for a really significant impact, we may be out one, two years, maybe even three years for a really significant impact for the point where they're saying, hey, I want to buy 10 of these machines to go into this fab. I think, you know, we could be looking a few years out, but I think we'll start to see some level of impact relatively quick from the standpoint of, oh, we got our first machine in, or we got the first couple of machines in for this new processes.

That will be able to, I think, get under our belt relatively quickly, meaning within, say, like a year or something along those lines. Okay.

I actually have stepped up the marketing spend. I guess it's around a million a quarter. Leveraged that pretty nicely in Q1, kind of less so in this quarter, and maybe the outlook, presumably, for the second half. Is this going to be, you know, you have to carry that cost because you're seeing pretty significant benefits, but aren't going to have the revenue at least for a quarter or two? Is that kind of the right way to be thinking about it? I think so. We are now starting to say, hey, in order to really accelerate things, we have to start making some more significant investments prior to that.

And we've got the money, and we're profitable enough that we could say, hey, double down on this bet. Do you really want to only hire one or two guys in this area when you can hire four and get a much more significant benefit? In a year from now, so although the short-term Q1 or Q3, Q4, you know, it may not be as attractive in margins as, say, like the earlier first half, but right behind that is going to be orders that we're anticipating will be higher revenue, and it should, based upon our existing backlogs, looking like maybe better margin orders as well. And I'm hoping that we'll see more of that fall into the backlog of these high ASP, high volume orders, which give really good gross margins.

We still have a pretty good amount of time left in this current fiscal year to fill up next fiscal year. So I'm hoping that we'll see – we need to make these large high ASP orders not happen twice a year. We need to make them be happening every month. So that's our strategy that we need to get to that point.

Yeah you right And perhaps we should break out another segment in there of the 150 to say 500 and then have the 500 and over possibly Some of these larger orders like take this last million order that 10 machines but they each around So they're not even million-dollar machines, but they're significantly large machines, and there's quantity 10 of them.

And that's because it's a mature customer shipping a lot of machines. The order prior to that for $3.6 million was a single manufacturing line, and that's a customer that was buying machines that was around $700,000, $800,000, and they probably could have been buying, even back when we sold them $700,000, $800,000 machines, they could have been buying machines that were $3.6 million from us had we had the capabilities at that time. So in an ideal world, when that customer says, I want three or five machines, and I don't know when that will be, that's going to be driven by their manufacturing needs, that we won't be selling three or five, seven or $800,000 machines. We'll be selling three or five, $3.6 million machines.

You know, so continuing to drive that ASP higher and higher is super vital for our strategy. And right now, what we're seeing is the high ASP orders are coming in through like the mid area, you know, that $500,000, $700,000 single price ASP machine, but they're coming through for lots of them. And ultimately, we certainly would like to see those coming through for a million-plus, maybe even $2 million-plus order machines.

So that's going to be a super important part of our strategy to make those machines, offer this customer so much capabilities and so much incentive to want to buy the whole existing platform with as much as we can provide will be very important to drive the company's growth. Okay.

Yeah, you hit the nail on the head. It's definitely not equipment that we are making, say, the core components in-house, but we're doing all the systems integration, which is very significant. And even more so, we're doing the application engineering process integration. So understanding, for example, what type of post-cleaning process or after a curing process, and how to do, say, a measurement machine in the process and what type of measurement machine. So we are actually, the FDE team becomes these experts in not just applying a thin film coating, but it's how to measure the coating, how to clean the product prior, how to cure the product after. So it's a very difficult, challenging area unless you have that application's know-how.

So no one really wants to buy those machines from somebody else other than SONO TEK because we're the only one that's going to prove to them that what we spec in will work for your particular coding need. And they're willing to pay a premium in order to get rid of that risk where they have to try to figure it out themselves.

But it also then drastically reduces our time to be able to figure out how to make that particular product and become experts in everything. And for sure, as we sell more and more of a particular expertise, then we certainly would consider bringing it in-house. But we certainly prefer to become experts in understanding it before we consider manufacturing it.

Sure. And I should specify, there's actually three forward-deployed engineers, but four in the group. There's also a project manager that works with that forward-deployed engineering team that helps to coordinate everything coming in. And that's the area where we're considering bringing in more of the forward-deployed engineers. And these are guys that have in-depth experience in both ultrasonic coding, but also equipment integration and the processes. Most of them have gone through the area for the application engineering area for many, many years. It would be common for a mature, proven application, something that we consider, oh, this has got high priority for it to shift from our existing application engineering team, which has typically already proven things in the lab for the customer.

And then they say, listen, this group is now ready to scale. And we are going to then shift that customer over to the FDE team for them to show them how we can scale into production for their requirements. And it would be typical for them to work on maybe two to three major accounts that are possibly that are orders in-house to some level, while also feeding in every month maybe one to two other proposals that they would be putting together for new potential customers. So, you know, they might look at a dozen things or maybe even two dozen things potentially per year. Some of them only may be taking a day, but some of them stretching over several months, maybe even a full year for a very big one.

And, you know, so for example, this last $7.2 million order, that engineer there, he has been working with that customer on and off probably 25% of his time for three years. And that customer has given us, oh, in the area of now $14 million of orders, something in that area. And we anticipate and hope for more orders from that customer also. So he will probably actually always be into that account 25% of his time as long as the customer is still moving forward with us. So it's not a huge group, and that's why it's critical that as we start to see and get pulled in by enough customers where we say, oh, we could really use two more forward deployed engineers, it's really very easy bets to make.

They're low-risk bets for us to say big return, and so far that strategy seems to be working nicely.

Yeah, so the project manager is more coordination for the forward deploy engineering team. And it's kind of a support role, I would describe it, for the forward deployed engineering team so they can be spending their time on the really hardcore technical stuff where the project manager is more likely just to coordinate, you know, how we're going to be deploying what the forward deployed engineers has already decided.

And one more time with the question there I apologize Karen Dr Kee I just want to understand the reporting structure right because I think that at least what was missing for me in one of the discussions that I had is that it seems as if maybe there might be an information flow gap between the flow of deployed engineering team and maybe like sales in terms of being able to predict or understand when the orders come next I'm trying to understand that reporting. Yeah, yeah, sure. So the forward deployed engineers, they report to our application engineering manager who actually manages two teams. He manages the application engineering team, which is, again, those are the guys that are taking orders into the lab, proving it primarily on the R&D level and feeding it back to the customers for R&D machines.

And then he, and consulting with the sales team, will make a decision and say, hey, this is a significant opportunity that is ready to shift from R&D to production. And then they feed it off to the forward deployed engineering team. And then once it's reached, the forward deployed engineering team, and if it does turn into an order, we actually then have another team that comes in and says, all right, this is going to be a significant production system going through our processes. So we have to then get, you know, the quality system in and everybody else from a manufacturing standpoint of how we're going to build the machines and how we're going to do it at economical costs, of course.

And nice talking to you, Karen.

Sure. Let me just see here. I apologize. Long conversations there. I just want to thank everybody today for joining us. I hope you enjoyed the conference call, and we look forward to updating you again at the end of the fiscal year. And thanks again for everybody that joined the conference call. Take care.