Sono-Tek (SOTK) Q2 2027 earnings review
Sono-Tek's orders rebound, but its quarterly profit falls
Sono-Tek's medical customers kept sales growing, but profit fell while new orders rebuilt the backlog. Sales rose 1% as machines for stents and balloon catheters replaced lost clean-energy work, and higher sales and engineering spending pulled net income down 14%. Chief executive Steve Harshbarger kept the full-year plan at flat to modest growth, which by our math leaves second-half sales below last year's. The backlog grew during the quarter, and three more large orders arrived after it closed.
| Revenue | $5.23M +1% from a year ago |
|---|---|
| Net income | $366,000 −14% from a year ago |
| Backlog at August 31 | $9.51M +23% from May 31 |
| Full-year revenue outlook | Unchanged flat to modest growth on last year's $20.9M |
⚖️ Verdict: 🟢 Bullish
The story got better because the order drought ended. Orders had trailed shipments for two straight quarters, and this time new orders exceeded shipments by a third by our math, with a further $7.2 million landing after the quarter closed for next fiscal year. The bad news: costs grew faster than sales, so profit fell, and the unchanged plan still points to lower sales in the second half.
The question now is whether the medical business can keep sales steady between large shipments. Either customers keep moving production lines onto Sono-Tek machines and the backlog refills every quarter, or the orders come in batches and sales keep swinging from one quarter to the next. The November backlog and third-quarter revenue will tell.
🐂 Bull Case
Orders Rebounded and Point to Next Fiscal Year
Sono-Tek builds coating machines that can cost more than a million dollars each, so its backlog, the value of orders not yet shipped, matters more than one quarter's sales. That backlog had shrunk for two quarters in a row by the end of May.
In the three months to August the coating-systems maker took in about $7.0 million of new orders by our math, well above what it shipped. The company tied the rise to "improved order momentum during the second quarter", and the orders kept coming after the books closed.
- New orders in the quarter, by our math: about $7.0 million, or 1.3 times sales
- Backlog at August 31: $9.51 million, up 23% from May 31
- Orders received after quarter end: $7.19 million, all expected to ship in fiscal 2028
The later orders ship in fiscal 2028, so they do not help this year. But they give next year far more cover than this year had, and that matters because management warned in April that it could not see beyond the first half.
What to watch: the backlog at November 30, and whether Harshbarger names further large orders. A backlog still above $9 million would show the rebound was broad rather than a single batch of orders.
Medical Customers Are Now Buying Production Machines
Sono-Tek's medical customers make stents and balloon catheters, the devices surgeons use to open blocked arteries. Chief executive Steve Harshbarger said the shift from laboratory work to production lines is now under way: "We are particularly encouraged by the increasing adoption of our technology as customers move from development into commercial manufacturing."
The numbers support him. Medical sales reached $3.11 million, three times the year-ago level, on "shipments of balloon coating systems and specialty stent-coating systems". Most of that work is in the United States, where sales rose 35% and the company sells direct without distributor commissions, which it said last quarter helps gross margin.
What to watch: third-quarter medical sales against this quarter's level, which will show whether the business has settled higher or peaked on a few large shipments. A reading near this quarter would confirm the production-line shift Harshbarger describes.
🐻 Bear Case
Costs Rose Faster Than Sales and Profit Fell
The headline of Sono-Tek's release says operating income rose 41%, but that is the first-half figure. In the second quarter alone the coating-systems maker earned less than a year earlier, because spending grew faster than gross profit. Operating income fell 9% and net income 14%.
- Gross margin: 53%, up from 50% a year ago
- Operating expenses: up 10%, against sales up 1%
- Marketing and selling costs: 19.1% of sales, up 2.2 percentage points
- Research and development: 13.0% of sales, up 0.8 points
- Operating margin: 7.3%, down 0.9 points
The margin gain looks temporary, because the company called the mix "unusually favorable" and gross margin already slipped about four points from the first quarter. The extra costs do not slip back the same way: last quarter management said the money went into sales, engineering and business development staff, and those people stay on the payroll.
What to watch: operating expenses as a share of sales in the third quarter, against 46% this quarter. If that share stays above 40% while gross margin drifts back toward last year's level, the operating leverage of fiscal 2026 goes into reverse.
Outlook Implies Lower Second-Half Sales
Sono-Tek gives no dollar range for the year. Its plan calls for "flat to modest revenue growth" on last year's $20.9 million, and management repeated that wording without change. The first half grew 6%, so by our math the second half comes in below last year's unless "modest" means at least 3%.
At the flat end, second-half sales fall about 6% from a year ago by our math. Chief executive Steve Harshbarger tied the outlook to "the timing of several large, higher-value production platform orders", which he said can bring "increased quarter-to-quarter variability as these systems become a larger portion of our business".
This matters because the orders received after the quarter closed ship next fiscal year, not this one. So the order rebound fills fiscal 2028 while the coming two quarters depend on the backlog already in hand, and the company has not said how much of it ships by February.
What to watch: third-quarter revenue against last year's $5.0 million. A figure below it would confirm that the lower end of the plan is the live case and that the order rebound arrived too late for this year.
Clean-Energy Sales Keep Falling on US Policy Shifts
In fiscal 2025 alternative energy was Sono-Tek's largest market, with machines for hydrogen electrolysers, fuel cells and solar cells. Those sales have almost disappeared, and the company blamed "the significant shifts in U.S. government policy and spending within the clean energy sector". Several other lines shrank with it.
- Alternative energy: down 78% to $535,000
- Electronics: down 17%
- Spare parts and service, the steadier part of the business: down 22%
- Asia-Pacific: down 45%; Europe, Middle East and Africa: down 33%
This matters because medical now supplies 59% of sales. If a medical shipment slips a quarter, nothing else is growing fast enough to cover it, since industrial, the only other riser, is still under $400,000 a quarter.
What to watch: electronics and alternative-energy sales in the third quarter. If both decline again, medical will have to grow every quarter just to keep total sales level with last year.
👓 Other Themes
A Higher Tax Rate Cut Net Income Further
Net income fell further than operating income this quarter, and the gap is mostly tax. Sono-Tek paid 26% of pretax profit in tax, against 19% a year ago, and the release does not say why. Interest on its growing cash pile nearly doubled, to $154,000, but a small loss on its securities took part of that back.
💲 Other KPIs
Rising again: deposits grew 16% from May, after falling by a third in the spring. Customer deposits are cash customers pay up front when they order a machine, so they tend to move with new orders, and this increase fits the backlog rebound. They remain below February's $3.07 million, because those year-end deposits turned into first-half shipments.
Up for a fourth straight quarter, to $17.8 million, with no debt. Cash rose $1.1 million in the quarter, helped by profit and by higher customer deposits. Sono-Tek has barely used its buyback authorization: the diluted share count edged up 0.5% from a year ago, so profit per share gets no help from repurchases.
Down 63% since February, as Sono-Tek collected on the large systems it shipped around its fiscal year-end. Receivables are bills customers have not yet paid, and a fall this steep with sales still growing means the cash arrived, which is where much of the first half's cash gain came from. From May the figure barely moved.
🔮 Guidance
Unchanged. The plan still has sales for the year about level with last year's $20.9 million, with room for a little growth. The first half grew 6%, so by our math the second half comes in between 6% lower than last year and level with it, depending on what "modest" means. Chief executive Steve Harshbarger tied the range to "the timing of several large, higher-value production platform orders".
❓ Key Questions
What does modest growth mean in dollars?
The plan has no numbers. By our math each percentage point of growth is about $209,000 of sales, and the gap between flat and 3% decides whether second-half sales fall or hold level with last year.
How much of the backlog ships by February?
The orders received after quarter end ship next fiscal year. The split of the existing backlog between the next two quarters and fiscal 2028 sets the third and fourth quarters, and the release does not give it.
When does the 300mm semiconductor machine bring revenue?
Management said in April that deliveries would most likely start in fiscal 2028. OEM sales to a semiconductor customer in China grew this quarter, but the release does not mention the new machine.
Will Sono-Tek start using its buyback authorization?
Cash keeps rising with no debt, the share count edged up, and management said in April that board thinking on repurchases could change. The release says nothing about buybacks.
Has the factory capacity expansion started?
Management planned a mezzanine costing $500,000 to $600,000 this calendar year to lift annual capacity to about $35 million. The release does not mention it, and the new orders will need the space.