Good day, and welcome to the Sonotech Corporation Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Stephanie Prince, PCG Advisory.
Please go ahead.
Thank you, Carrie, and thank you to everyone joining us today. Sonotech released their Q2 fiscal results pre market this morning. If you don't have a copy of the release, please go to the company's website at sonotech.com and Click on the Press ReleaseNews 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 Chris Cocchio, Sonitek's Chairman and CEO Steve Harshbarger, President and COO 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. I would now like to turn the call over to Chris Cocchio, Chairman and CEO, Sanitek.
Chris?
Thank you, Stephanie. Good morning, everyone. Thank you for joining us today for our first ever earnings conference call. For now, we're planning to hold 2 earnings calls for fiscal year At mid year, like today, and for year end results, Sanotech's fiscal year end is February 28. Today, we are going to discuss our results that were released earlier this morning for the Q2 of fiscal 2022 Ended August 31, 2021.
I will begin with some opening remarks and then Steve Bagley, Chief Financial Officer will provide a financial review of the Q2. Steve Harshberger, President and COO, will then go For those of you who are new to Sanotech, Sanotech developed a revolutionary method of applying precision thin film coatings several decades ago. The proprietary technology involves the use of patented high frequency ultrasonic nozzles incorporated into motion control systems that are able to achieve uniform micron thin coatings for customers. We focused on important high-tech markets that require the Disabilities such as semiconductor manufacturing, Antel's electronic devices, medical devices, fuel and solar cells And industrial processes too such as glass lines, textiles and even food coatings. Over the years, we've expanded our footprint for the U.
S, Our solutions offer dramatic savings in the raw material, water and energy usage, And we are environmentally friendly among other advantages. The strategic shift that we made several years ago to offer more complex complete solutions versus component sales has broadened our addressable market and has resulted in significant growth in our average selling prices. Our larger machines now often sell for over $300,000 and system prices sometimes reach over 1,000,000 We anticipate demand for NonoTech's technology will keep growing as electronic devices continue to become more miniaturized And the usage of implantable medical devices continues to grow around the world. The 2nd quarter was strong And built on our recent trends, net sales increased 17% year over year and gross profit was up 28%. We ended the period with a very strong balance sheet with nearly $10,000,000 in cash and 0 debt.
We expect to finish the year with double digit sales Growth and income, the highest in our history. And there is a lot of upside and opportunity for growth in our focused markets of semiconductor, Medical and Clean Energy. Our team's hard work and accomplishments were recognized during the quarter when we were approved to uplist our common stock To the NASDAQ Capital Market in August, the increased exposure from being listed on a national exchange has Our shareholders' much higher trading volume and visibility with institutional investment community. We're excited to ring the bell at NASDAQ to commemorate this important milestone. I'll now turn the call over to Steve Pagli, our CFO,
For the Q2 of fiscal 2022, net sales were $4,100,000 up 17% or $590,000 from the Q2 of last year. During the quarter, approximately 62% of sales Originated outside of the U. S. And Canada compared with 38% in the prior year period. Gross profit increased 28% Year over year to approximately $2,100,000 the gross profit margin was 51% compared with 46.6 percent for the prior year period, an improvement of 4.40 basis points.
The improvement is due to increased sales combined with a favorable product mix. Operating income increased 123% to $449,000 Growth in revenue and gross profit were key factors in the improvement of operating income, which were partially offset by increased operating expenses. Operating margin for the quarter increased To 11% compared with 5.8% in the prior year period. Net income increased 93% to $344,000 On a per share basis, earnings were $0.02 compared with $0.01 in the prior year. Diluted weighted average shares outstanding slightly increased to 15,602,000 compared to $15,533,000 for the prior year quarter.
Cash and cash equivalents And short term investments at August 31, 2021 were $9,700,000 an increase of $1,100,000 When compared to our fiscal year end February 28, 2021, there was no debt on the balance sheet at quarter end. 2nd quarter CapEx was $147,000 for ongoing upgrades of the company's manufacturing facilities. And for the full fiscal year, we project CapEx will total approximately $300,000 to $350,000 I'll now turn the call over to Steve Harshberger, President and COO, for a second quarter operational review. Steve?
Thanks, Steve, and good morning, everybody. I appreciate you all taking the time to listen to our call today. If you look at our Q2 earnings release that was put out this morning, You'll see in the short tables on the last page that we break down our sales in 3 ways, by markets, products, geography, And that's how I'm going to talk about them this morning. Fiscal second quarter net sales were $4,070,000 which is up 17 or nearly 600,000 and that's in comparison to the Q2 of last year. By product line, the 2nd quarter sales increase was Primarily driven by significant shipment of multi axis coating systems.
The systems shipped with this order are now being used to coat electronic diagnostic devices for Our OEM sales were up 613,000 or 264 percent, And this was due to strong sales from our OEM semiconductor partners and as well as our OEM PCB fluxing partners. Looking at the market segments, Sales to the electronics market increased by 79% in Q2. This was primarily driven by strong sales to China for our OEM systems used in the semiconductor market As well as those systems that I just mentioned to quote the electronic diagnostic devices for rapid COVID test kits. The alternative energy market was also strong for us. We continue to see growing investments in the clean energy sector from both government as well as private industry That are driving demand for our machines used for coating membranes in fuel cells as well as carbon capture applications.
By geography, approximately 62% of our sales originated outside of the U. S. And Canada compared with 38% in last year's Q2. These strong overseas sales were primarily driven from APAC and that was led by China, which reflects the transition of several countries as well as companies emerging from COVID-nineteen lockdowns And bringing the manufacturing operations really back online. The shipments to China during the Q2 included strong sales for our stent coating machines, The delivery of a newly developed specialty medical device coating system and another follow on strong quarter for our OEM semiconductor customers.
Looking at APAC outside of China, sales included a new machine that shipped to Singapore for EMI coating, Electromagnetic emission coating, which is an area we've spoken about several times as part of our focused growth initiatives, as well as we had a repeat order for our latest Balloon catheter coating machine that was shipped to Japan. Sales to the U. S. And Canada did dip year over year, and this was primarily due to the shipment of a large Typically vary from period to period. There was also a large order for an from the advanced energy market in last year's Q2 that didn't repeat in the current period.
Throughout the COVID pandemic, Sonatek has really been adapting and refocusing our sales efforts to those countries that are most operational During these COVID-nineteen peaks and dips, this strategy has been really helpful to us in softening the impact of the pandemic on our operations. And we expect the sales tactic to be part of Sonotech's go to market strategy for the foreseeable future here. Backlog reached a company high record of $6,332,000 at the end of our second quarter. This is an increase 45% from the end of the first quarter, an increase of 64% compared to the end of fiscal 2021, 6 months ago. We believe this growth is really directly related to our expanding product line and the increasing activity of our application development laboratories.
Our network of labs located at Sanotech distributor sites around the globe and our home base here in New York, of course, are staffed with highly experienced application engineers They work together with our customers to develop solutions for their next generation of coated products. These labs are an important advantage for Sanotech And they really separate us from others. In closing, Sonotech has a lot of momentum and a strong outlook, And we're excited about our opportunities for growth in our focused markets of semiconductor, medical and clean energy. Looking ahead, The sales growth guidance for the back half of our fiscal year is for double digit increases over the comparable periods of last year for both the 3rd as well as the 4th quarters. And for the fiscal year, which will be ending now February 28, 2022, Sanotech is expecting double digit year over year growth, which will be our highest annual sales in corporate history.
So this concludes the formal part of our presentation. And we'd now like to open up the call for questions,
Our first question We'll come from Dick Ryan of Colliers. Please go ahead.
Great. Thank you for taking the questions and also for starting to host The earnings calls, I think that's important for the shareholder base. Steve, just a question on trying to look at orders and backlog. Can you give us the level of orders in the quarter and kind of the makeup of backlog? If I recall last quarter, There was one large system, 1,500,000 in there.
Did that deliver? Are there any large orders sitting in the $6,300,000
backlog? Sure. Good morning, Dick. The system, which is a 6 axis robot system that's being sold into the semiconductor machine is still in our backlog right now. Right now, we anticipate that unit to be going out in our Q4 of this year When that's planned to be shipping out, so another 5 months or 4 or 5 months from now.
The backlog, Other than that, there's a good chunk of it's going to be shipping this fiscal year. We do anticipate that's probably $1,000,000 to 1,500,000 That's in that backlog that will be heading out in next fiscal year though also, which is typical because some of these larger platform machines now That we offer, which are high value and high dollars, they'd have a longer time to build them and ship them. So that would be as to be expected for us. Does that answer your question there, Dick?
Yes. And then just also, I mean, I didn't know if there was anything that's flipped or Any cancellations in the backlog? And how did the orders look for Q2?
The orders were solid. I mean, obviously, you got reflected in our backlog is just increasing so much. I mean, this is the highest backlog we think we've ever had and I know we've ever had in company It's pretty exciting for us to see this acceleration and so many of our growth initiatives really starting to come through for us and to show promise. So most of these large machines, even though the orders were taken in Q2, they did not ship in Q2, that they're going to be going in Q3, Q4 or Q1. Again, and we don't actually report on the orders Received by the it is of course always reflected in our backlog.
You can see that reflects it right there as far as the number of orders that came in for us obviously was quite high.
Okay. How about you gave sales guidance for the back half of the year. Any comment you'd care to share on Margins that you're anticipating for Q3 or Q4 either on the gross margin side or operating side?
Sure. I mean, this past quarter, obviously, our margins were a bit higher than typical for us. We typically operate margins that are in The mid to high 40s, 45% to 49% range and this quarter was a little bit higher than that As a result of a lot of OEM systems, our nozzles, if we sell nozzles, we make excellent, excellent margins on those. And those are Lower dollar systems, but very high margin systems. And that's what was reflected in the margins this quarter.
Heading forward, I think we'll probably long term be getting back down into our normal operating range for margins, which is going to be the high 40s. However, at least short term, we are still seeing a lot of these OEM customers, in particular, coming out of Asia, Often through support the semiconductor industry, there's that chip shortage that's happening and it's being and impacting everybody, not just us here in the U. S. So we're seeing a lot of our Asia customers, the OEMs in particular, buying a lot of our smaller OEM kits, which Nice profit margins on them. And I think that's going to be continuing for at least another quarter or so.
And I don't know if we'll continue beyond that, but it's going to continue for some period of time here.
Okay, great. One last one. The alternative energy, you've had some, Well, let's say, 1z, 2z business kind of going into fuel cells and then you've talked about CO2 capture, can you kind of tie that in with your new efforts and partnerships For the roll to roll capability that's looking out over the next year or so and just try to tie those together for me.
Sure. The area where Sanotech is really focused and where our markets that our product service for Coating membranes, they call it the PEM membrane on fuel cells or the membranes on CO2 carbon capture applications. And this is an application that on either marketplace, they're very, very similar. I mean, almost all the people That are in companies that are manufacturing carbon capture devices have come out of the fuel cell industry. And it's because the technology is very, very similar.
And so for us, the transition from An area that we really knew well, I mean, we were awesome at coating fuel cell membranes, was very simple for us to go over to carbon capture membranes. And our customer base is they knew us already as well because many of them came again from fuel cells. So What we're seeing now is some of these customers as they start to increase their volumes, they are changing over from doing Lowtomidvolumemanufacturingovertohighervolumemanufacturing. And what's happened with that is they start to Have an increased demand to go to roll to roll coating technology for these membranes versus individual pieces of them. And it's we've really been following it based on letting the market bring us there.
If you were to ask the same question a couple of years ago, we'd say, well, no one's doing rotor roll because no one's making any volume of these. Now they're starting to really plan to do roll to roll and starting to do higher volumes. So we've engaged an outside partner, which comes from this industry and has a great deal of experience with roll to roll technology for the creation of these membranes. And the combination of this partner that's really has this Awesome experience in roll to roll with our coating experience, we believe is going to be a real win for us. So now this partner is helping us develop A new coating machine that will involve roll to roll technology for membranes that will be applicable both for fuel cell as well as Carbon capture and we also are hoping that that will allow us to expand in other areas outside of These membranes, once we get familiar with roll to roll technology.
So there is some additional follow on markets that we hope to be able to serve as a result of This program that we have going on right now today.
Okay, great. Thank you and congratulations.
Thanks, Dick. Appreciate it.
Next question comes from Bill Nicklin of Circle N. Please go ahead.
Good morning.
Good morning, Bill.
Could you help me out with kind of a capacity question? I know You have a complex of buildings, which you own on a fairly extensive piece of land. Given Those facilities in your current mix or your projected mix of business, How much revenues do you think you can get out of the existing facilities If you build out into the buildings that are still have some vacant space in them?
Sure, sure. Well, our latest expansion, which was now completed last year, should allow us to easily go over $20,000,000 in sales Within our existing buildings, they are likely up to $23,000,000 $24,000,000 possibly. But we have the ability to also And to some of the buildings that we own and are presently renting in our complex. And that would allow us to reach somewhere in the area of that 40,000,000 And that is our plan. As we grow, we have we're only shining short term leases with our tenants.
And as we grow, we are just we'll take over one next building and the next building at a time. We actually have right now 3 buildings that we are not presently Occupying and we're renting, and we're just taking those over one at a time. And that's been what we've been doing even in the last couple of years. We've been taking more space and more space every year.
Thanks. Another capacity question. How do you get your new employees That they tend to be engineers when you get them. How do you get them up to speed on what is really a very sophisticated Technology that you use in your products?
Yes. It's a good question because I'll tell you, new employee recruits are hard to get in the present work environment. We tried lots of methods for recruitment such Job fairs, the web, conventional help widen ads, none of these really were great, Doug. I got to tell you, the best Methods that we've really seen are word-of-mouth from fellow employees and a really strong internship program, which we've developed over the years. We try to recruit like the brightest engineers in their college classes really early on and then get them to join us when they're still students.
And once they join, then they get excited about what Sonotag is doing here and we hope to hold on to them for a lot of years following. And our technology is, just as you mentioned, it's so unique that it really takes 1, 2, 3 years before someone is really fully effective to So employee retention is really important to us. I think our headcount right now is Around 75 people today in that area. And I think we have 5 or 6 job open positions that are right now to support our
Okay. That's it for me. I appreciate it. Nice job. Looks like You've been hiring the right people because they're turning out the numbers and that's what counts for us.
Thank you.
Thanks, Bill. Appreciate it. Good talking to you.
Seeing no further questions, this concludes the question and I'd now like to turn the conference back over to Chris Coccio for any closing remarks.
Okay. Thank you and thank you all for joining us today. We've got a really exciting future. Our business is strong and accelerating and Every area that we've been looking at and talking about has got great potential for us. Please contact us directly if you have any further questions.
We'll hold the year end conference call when we report results for our fiscal year 2022 ending February 2022. Have a great day and be well. Bye now.
Thank you. Conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.