Sono-Tek Corporation

Good day. Welcome to the Winter 2024 November Investor Summit. The next presenting company is Stono Tech Corporation. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your question. I'd now like to turn the floor over to today's host, Steve Harshbarger, at the president and CEO of Sonotech Corporation. The floor is yours.

Thanks, Kelly, and good afternoon, everybody. Thanks for joining us today. Again, as Kelly mentioned, my name is Steve Harshberger, and I was appointed CEO of Sonotech in January of this year. I've been president of Sonotech for the past 11 years, and I've been with the company actually for over 30 years now. Let me first just thank the Investor Summit for inviting us to join the event today, and I'm excited to share more about the Solitech story with you. Okay, this next slide, of course, is the standard Safe Harbor slide, and this is just a reminder that this presentation may contain some forward-looking statements, and of course that we never really can predict or guarantee what the future holds. You know, you can please refer to the Safe Harbor language on this slide, which I'm sure you're already familiar with. This slide shows our executive and senior management team at Sonotech, which I'm quite proud to be working alongside. Importantly, we've all been working together for over a decade, and in some cases over two decades. Amongst this team are really the most experienced and knowledgeable minds in the world in the field of ultrasonic coding technology. a short history of Sonoteq. The company was founded back in 1975 by Dr. Harvey Berger, the inventor of the ultrasonic atomizing nozzle, which still to this day is the heart of all Sonoteq coating machines. At the time, the invention of the ultrasonic nozzle was a technically impressive achievement, but it really didn't significantly impact the world around us for many years. In fact, It took several decades for the ultrasonic nozzle to transition from a small R&D device into the large full system solutions we build today. You can see these along the top of this page. These large thin film coating systems that you see along the top of this slide are sold primarily into five market segments that we categorize as the microelectronics market, the alternative energy market, the medical device market, the industrial market and the emerging R&D market. On the right-hand side of this slide, you can see that three years ago, we made a decision to up-list onto NASDAQ, and here you can see all of our market data. What is an ultrasonic nozzle? Well, if you look towards the center of this slide, you can see a cross-section of an ultrasonic nozzle. This is an electromechanical device that is small enough to hold in the palm of your hand and will atomize liquid into very small, controllable, micron-sized droplets. And there are many configurations of the ultrasonic nozzle that Sonaltech has developed, and they are at the heart of every Sonaltech coating machine. Sometimes our systems only need one or two ultrasonic nozzles. But sometimes there can be a dozen or more of these devices, depending on the application and the size of the product the customer wants coated with a thin film. And these ultrasonic nozzles, in conjunction with some very sophisticated motion platforms that Sonotech manufactures, allow us to apply very thin nano to micron thick coatings on the customer's product with extremely high uniformity. Now, this next slide shows you a cross-section of a thin film that's been ultrasonically spray-coated using one of our coating machines. This film happens to be a perovskite layer, and this is commonly used in the clean energy sector, often for advanced solar applications. Now, I'm sure it's likely difficult for you to see this here, but the scale on this slide shows the pictures reflects the thin film coating That's about one micron or slightly less than this picture. And to put this thickness in perspective, human hair is about 70 microns thick. So this coating is about one-seventieth the thickness of a human hair that we're creating. And our machines often create coatings that are even thinner than this, and it's really all depending upon the application requirements. Now this slide shows you the three primary disruptive markets that Spinal Tech is particularly focused on for growth. In the microelectronics market, we're primarily concentrated on thin film coatings applied to semiconductor chips and handheld electronic devices. The medical device markets range from drug coating machines for applying coatings onto things like stents or balloon catheter coatings to coatings on microfluidic devices. and really a wide range of other implantable devices that we coat. Lastly, you can see here the alternative energy market is really turning out a very high level of disruptive products that Sonotec systems coat like fuel cells, advanced solar cells, or membranes that are used in green hydrogen generation. In all of these markets, Sonotec is very often working with well-known leading global technology companies which NDAs unfortunately prevent us from talking about who they are specifically, but many of these are the big Fortune 500 type of companies. Now this slide contains our financials and our revenue history with our most recently closed fiscal year FY2024 showing 30% year-over-year growth with $1.4 million in net income. You can see a fairly consistent upward revenue growth trajectory with one blip down in our FY 2023 revenue, which was a supply chain issue coming out of COVID, which we've since implemented increased vertical integration to reduce the possibility from this happening again. Significantly, though, even during that on-plan supply chain induced dip in our FY 2023 revenue, you will notice that we still stayed profitable. You can also see on this slide our healthy gross margins that are consistently above 45%. We have a very strong cash position with almost $12 million of cash and cash equivalent. We have zero debt, and that includes owning our own industrial park and everything within it. You can see here that we have a history of consistently remaining profitable alongside that growth trajectory. I believe this gives our investor base a very strong sense of security with Donald Tech. A common question I often get from our investors is to ask, what changed in the past 10 to 12 years to accelerate our growth, which had been somewhat stagnant prior to this? Well, about a decade ago, we started to see a significant shift in the rate of which manufacturers were applying functional and protective coatings on some new products that really historically never had coating on them. Protective and functional nano thin films are now on so many products in our daily lives. They're on our foods, our clothes, our medical devices, and glasses, including thousands of different functional films that are on the components in our electronic device sensors. An item like a car has hundreds of different coating processes that are required in the manufacturing of the parts that go into that car. With all of these opportunities, it's been a very important part of Sanotech's strategy to focus on growth-oriented sectors that are developing disruptive technology products where we can often get in on the ground floor early in the development stages. Recognizing the significant number of opportunities within our rapidly expanding addressable market, Sonotech implemented three strategic initiatives leading us down clear pathways for growth. The first was the shift to provide full system solutions. Historically, Sonotech primarily catered to the R&D sector with very basic ultrasonic nozzle setups, and we'd leave it to our customers to navigate any additional integration or modification requirements themselves to meet the needs of their specific application. Then about a decade ago, Sonotech began a very important strategic shift in our strategy to provide our customers with much more than just these basic ultrasonic atomizing nozzles kits. We became focused to provide our customers with all of the know-how, including all the hardware, all the software, and all the process expertise for their specific application needs within their specific markets. This shift propelled Sonotech's efforts to develop large integrated production lines, which really increases the value to our customers and enables us to justify a higher average selling prices across our product offering. The second significant pathway we established to accelerate our growth was the rapid expansion of our application engineering capabilities. and our laboratory facilities, both here in our US lab as well as our overseas distributor labs. Our application engineering team guide our customers in several ways. They'll help to define the proper liquid chemistry. They'll customize product handlings. They'll define and integrate the necessary machines that might sit before or after the ultrasonic coating process. And they'll even visit the end customer manufacturing sites to help develop the complete process. This full system solutions approach really differentiates Sonotech from our competitors and builds a very strong relationship with our customers. We're really no longer a vendor, but really instead we become this partner that's attached at the hip with our customers. The third and perhaps the most significant pathway to accelerator growth was the enhancement of our internal capabilities to develop and manufacture coating platforms that were scalable from R&D all the way through high-volume manufacturing. Now, these pictures on the right-hand side of the slide show you the transformative journey we've gone through over recent years. The top image is a typical R&D system. The middle picture here is a pilot line system, and the bottom pic is a high-volume production system. Interestingly, it's not uncommon for a single customer to utilize all three of these systems. In phase one, they may validate their product's coding feasibility on a, say, $50,000 to $70,000 R&D system, and then progress on to phase two where they scale up their manufacturing operations with a pilot line system ranging from $100,000 to, say, $200,000. And finally, in phase three, they may transition to high-volume production, where the average selling price of these machines can span from $250,000 to well over a million dollars. The ability to strategically guide our customers through this process is really critical, and our focus is now on these large production platforms to propel our growth trajectory. I should note here that, you know, Sonotech could have easily spent less money and not invested into these growth initiatives which would have brought more money to the bottom line and potentially even a short-term higher stock price. But our future would certainly not look as bright had it not been for these investments in our growth initiatives. Now, this slide shows the progression of our average selling price over the past eight years. The blue bar represents systems price under $75,000. while the orange systems are falling within the $75,000 to $150,000 range. The green signifies our larger systems orders that are committing prices exceeding over $150,000 here. Notably, you can see our sales in the small platform category, the machines that are under that $75,000 area, have remained steady. While our growth has been propelled by our focused strategic shift to expand our product offering for larger platform systems with higher ASPs or average selling prices. We've witnessed over 50% growth in the system's price between $75,000 to $150,000, alongside a threefold increase in sales of machines priced over $150,000. This upward trajectory is expected to continue. with particular focus on continuing to accelerate sales of our highest ASP machines. Of course, again, represented by that green section. We can say this upward trajectory on our high ASP production lines is projected with really high level of confidence because two of our most recently announced press releases announced orders that we received that had ASP production volume machines that were in the area of $2.9 million each for a combined $6 million of high ASP platforms. And these are that are now presently in our backlog and are scheduled for FY2026 delivery. The other press release we recently announced and not shown on this screen is a share buyback program we're in the process of implementing. We believe our stock price of recent has been on the low side and we really plan to take advantage of buying on these dips. Over government initiatives over the past several years, big positive impact on accelerating sound of tech customers transitioning from R&D over to high volume production lines in the clean energy sector in particular. Shown on this slide are just several of the highlights from government initiatives that are underway. Combined, the government's programs total well over $1 trillion that's being directed at the green economy, which starts to really drastically expand our total addressable market. We have a very large customer base using our R&D and pilot line systems in the clean energy sector. to manufacture PEM electrolyzers, which are used in the area of green hydrogen generation, fuel cells, and carbon capture and reclaim applications. Our ultrasonic coating machines apply a critical catalyst layer onto a membrane, which lies at the heart of where these clean energy reactions take place. Now, this market has historically been very slow to transition to production volumes, but that's changing due to these massive government investments. We see an acceleration of our green energy customer base transitioning from R&D to production. And as I just mentioned, we already have almost $6 million of large platform, high ASP, average selling price, production systems in our backlog for planned FY2026 shipment to the clean energy market. Over the past few weeks, I've also spent quite a bit of time diving into the potential impact of our customers from the green energy space with the upcoming administration change. It seems like a consensus for most policy experts is that we shouldn't see a significant impact on the primary areas that Sonotech focuses on in the clean energy market, at least not for the next several years. Both administrations, they've expressed that energy independence is of very high importance. And while the Trump administration is certainly going to include new policies for carbon-based fuels as part of their overall package for energy independence, they have overall shown bipartisan support for developing the hydrogen economy and growing U.S.-based manufacturing capabilities of solar. And this is where most of Sonotech's significant clean energy customers are from. The clean energy sectors that I look at and are most likely to be negatively impacted by the administration appears to be things like wind and electric vehicles. And these are both areas in which Sonotech customers have minimal involvement. Now, this slide updates you on where we're at halfway through our fiscal year 2025, and more importantly, reflects why we're so optimistic for FY2026 and beyond. Our first half FY2025 results showed an 11% year-over-year increase in revenue and a 13% year-over-year increase in net income. Putting us in a good position for FY2025, which closes on us on February 28th of 2025. But more importantly here, you can see an ongoing trend of our accelerating backlog, which is more than triple where it was six years ago. And last month, a little over a month ago now, we again announced another record high backlog of $11.7 million that is halfway through our current fiscal year, FY2025.

Some key takeaways that I hope you can remember about Sonotech.