8-K: Sono-Tek Reports Strong Q2, Record H1 Revenue Driven by Medical Growth

Sono-Tek Corporation reported strong fiscal second quarter and record first half 2026 financial results, driven by significant growth in the medical market and an increased backlog.

Summary

• Net Sales for the second quarter of fiscal year 2026 increased to $5.163 million, marking the sixth consecutive quarter with sales over $5 million.
• Net income for Q2 FY26 increased 24% to $424 thousand, or $0.03 per share, compared with $341 thousand, or $0.02 per share, in the prior year.
• Record first half fiscal year 2026 revenue increased to $10.30 million compared to $10.19 million year over year.
• Net income for H1 FY26 increased 35% year over year to $909 thousand, or $0.06 per share, compared with $672 thousand, or $0.04 per share.
• The Medical market experienced a 150% year-over-year increase in sales in Q2, reaching $1.00 million, and a 44% increase in H1, reaching $1.812 million.
• Total equipment and service-related backlog increased 50% sequentially to $11.21 million as of August 31, 2025, reflecting new order momentum from the medical market.
• The company updated its FY26 guidance, anticipating modest revenue growth, balancing shifts in clean energy policies with growing demand in the medical device market.
• Cash, cash equivalents, and marketable securities totaled $10.6 million with no outstanding debt as of August 31, 2025.

Sentiment

Score: 8

Explanation: The company demonstrated strong profitability growth and successful diversification into the high-growth medical market, offsetting challenges in the clean energy sector. The significant increase in backlog and strong balance sheet are positive indicators, despite some regional and product category declines.

Positives

• Achieved sixth consecutive quarter of revenue over $5 million, with Q2 FY26 net sales at $5.163 million.
• Q2 FY26 gross profit increased 3% year over year to $2.6 million, with gross margin improving to 50% from 49%.
• Q2 FY26 net income increased 24% year over year to $424 thousand ($0.03 per share).
• Reported record first half fiscal year 2026 revenue of $10.30 million, up 1% year over year.
• H1 FY26 gross profit increased 6% year over year to $5.3 million, with gross margin improving to 51% from 49%.
• H1 FY26 net income increased 35% year over year to $909 thousand ($0.06 per share).
• Medical market sales surged 150% year over year in Q2 to $1.00 million and 44% in H1 to $1.812 million, driven by balloon and stent coating systems.
• Backlog increased 50% sequentially to $11.21 million, indicating strong future order momentum, particularly from the medical market.
• Operating income increased significantly (47% in Q2, 73% in H1) due to higher gross profit and lower operating expenses.
• OEM sales increased 92% in Q2, driven by strong fluxer OEMs and two new OEMs.
• Asia Pacific sales increased 153% year over year in Q2 and 74% in H1, with major growth in China, Japan, and South Korea.
• EMEA sales increased 25% year over year in Q2.
• Maintained a strong balance sheet with $10.6 million in cash, cash equivalents, and marketable securities, and no outstanding debt.
• Successfully diversified into the medical device industry, offsetting challenges in the clean energy sector.
• Growing adoption of advanced coating platforms by leading medical device manufacturers worldwide, with recent orders including a $5 million order for MediCoat systems and over $2.8 million from another major medical device manufacturer.

Negatives

• In-Line Coating Systems sales decreased 24% in Q2, primarily due to a customer-requested delivery delay in the clean energy sector.
• Industrial market sales declined 68% in Q2 and 67% in H1, influenced by a large FY25 European glass coating order that did not repeat.
• US/Canada sales decreased 22% in Q2 and 5% in H1, driven by slowing momentum in the US clean energy industry.
• Latin American sales decreased 45% in Q2 and 46% in H1 due to slow fluxing sales in Mexico.
• Alternative/Clean Energy sales decreased slightly by 3% in Q2, despite a strong backlog.
• Electronics market sales declined slightly by 1% in Q2 and 21% in H1, following strong FY25 semiconductor sales and FY26 customer timing.
• Multi-Axis Coating Systems declined 41% in H1 following strong FY25 for semiconductor systems that did not repeat, and slower clean energy activity in FY26.
• Interest and dividend income decreased slightly in both Q2 and H1.
• Net unrealized gain on marketable securities decreased significantly in both Q2 and H1.

Risks

• General economic and business conditions, including political, regulatory, tax, competitive, and technological developments affecting operations or product demand.
• Inflationary and supply chain pressures.
• Uncertainty regarding the continued strength of sales to the medical device market.
• Dependence on continued private and public funding for the clean energy sector and sustained demand for coating solutions in clean energy and other markets.
• Ability to maintain order backlog.
• Impact of the imposition of tariffs.
• Timely development and market acceptance of new products and continued customer validation of coating technologies.
• Adequacy of financing for operations and growth.
• Ability to manage capacity additions effectively.
• Challenges in enforcing patents.
• Maintenance of operating leverage.
• Consummation of order proposals and completion of large orders on schedule and on budget.
• Successful transition from primarily selling ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems.
• Realization of quarterly and annual revenues within the forecasted range of sales guidance.

Future Outlook

The company updated its full fiscal year 2026 guidance, anticipating modest revenue growth. This outlook balances a cautious view regarding recent shifts in governmental clean energy and tariff policies with a positive offset from growing demand in the medical device market. Management expects continued revenue growth and profitability over the long term, leveraging a strong balance sheet and backlog.

Management Comments

• "We are pleased to report continued growth and profitability in line with our guidance with the continuing trend of over $5 million in quarterly revenue for the past six quarters." Dr. Christopher L. Coccio, Executive Chairman
• "Importantly, we remain solidly profitable with strong margins and effective cost controls." Dr. Christopher L. Coccio, Executive Chairman
• "Based on projected shipments for the second half of our fiscal year 2026, we are raising guidance slightly, now anticipating modest revenue growth, taking into consideration evolving governmental clean energy incentives and tariff policies which each may affect the initiation and timing of customer orders." Dr. Christopher L. Coccio, Executive Chairman
• "Despite the evolving landscape in the clean energy industry, we have successfully offset it with our diversification strategy into other sectors such as the medical device industry." Dr. Christopher L. Coccio, Executive Chairman
• "It is gratifying to see the promising demand in the medical device industry that we projected coming to fruition with our recently announced $5 million dollar order for multiple state-of-the-art MediCoat systems designed for high-precision, scalable manufacturing in addition to our most recent order of over $2.8 million from another major medical device manufacturer." Dr. Christopher L. Coccio, Executive Chairman
• "With a healthy balance sheet, solid backlog and strong customer demand, we remain laser focused on execution and look forward to building on our recent success." Dr. Christopher L. Coccio, Executive Chairman
• "We continue to see the success of our growth strategies with customers moving into complex large-scale production systems with significantly higher average selling prices ASPs." Steve Harshbarger, CEO & President
• "Customer demand and momentum remain strong, and it is validating to see the growing adoption of Sono-Tek's advanced coating platforms by leading medical device manufacturers worldwide." Steve Harshbarger, CEO & President
• "We are well positioned with our strong balance sheet and backlog to navigate potential short-term demand shifts that may result from changes in tariff policies and clean energy incentives." Steve Harshbarger, CEO & President
• "We remain focused on our long-term growth strategy and look forward to continued revenue growth and profitability over the long term." Steve Harshbarger, CEO & President

Industry Context

Sono-Tek is navigating a dynamic market landscape, successfully offsetting a slowdown in the clean energy sector, influenced by shifts in governmental incentives and tariff policies, with robust growth in the medical device industry. This diversification strategy aligns with broader trends of increasing demand for precision coating solutions in high-growth sectors like medical technology and advanced manufacturing, while adapting to evolving policy environments in renewable energy.

Stakeholder Impact

• Shareholders: Positive impact due to increased net income, improved margins, strong backlog, and a healthy balance sheet, suggesting potential for continued growth and profitability.
• Customers: Continued delivery of advanced coating solutions, particularly in the medical device industry, with new large orders indicating strong customer adoption and satisfaction. Potential for delays in clean energy sector deliveries.
• Employees: Continued growth and profitability may lead to job stability and potential for expansion, especially in areas supporting the medical market.
• Suppliers: Continued demand for components for high-ASP systems, particularly for medical and multi-axis coating systems.

Next Steps

• Hold a conference call on October 14, 2025, at 10:30 am ET to discuss the second quarter and first half of fiscal year 2026 financial results.
• Continue to focus on execution and building on recent success, particularly in the medical device industry.
• Remain focused on the long-term growth strategy to achieve continued revenue growth and profitability.
• Anticipate capital expenditures of approximately $300k in fiscal year 2026 for ongoing upgrades to manufacturing facilities.

Key Dates

Recommendation

The company delivered robust financial performance with significant net income growth and improved margins, driven by a successful strategic pivot towards the high-growth medical device market. The 50% sequential increase in backlog signals strong future revenue potential, and the healthy balance sheet with no debt provides financial stability. While there are headwinds in the clean energy sector and some regional declines, the overall diversification strategy and strong demand for advanced coating platforms in critical industries position Sono-Tek for sustained long-term growth and profitability, making it an attractive investment.

Keywords

ultrasonic coating systems, medical devices, clean energy, financial results, Q2 FY26, H1 FY26, backlog, net sales, net income, gross profit, SOTK, NASDAQ, semiconductors, microelectronics