Sono-Tek Corporation (SOTK) Earnings Call Transcript & Summary

Well, I welcome you all to our 2023 Shareholder Meeting. As you probably remember, our calendar year or fiscal year starts in March and it ends in February. So we're talking about what ended in February 2023. We're now in 2024, our fiscal calendar. And when the company was set up, there was some advantage to do that from an auditing standpoint. So that's where we have that. I want to tell you that we're now in a very exciting time. It's really -- the last year has been a tough one. We'll get into some of the details in the supply chain. But we see an awful lot of excitement right at this point going forward. I'm very happy to be able to share that with you. We have a safe harbor statement, which is required by the SEC. I think we've seen this many times before and just says, we don't know the future. I would like to read the quote from Yogi Berra, it says, it's hard to predict things, especially the future. I want to acknowledge the Board. It's a top-notch Board, has been with us for many years, as you could see. They all had very key jobs before they retired. And so we're really lucky at a small company to have that team. And I want to shout out one of our directors, Dr. Donald Mowbray. He's been with us since 2003, and he is going to retire at the end of this term, which is next August. So I want to thank him for all he has done with the company including this patent or ceramic nozzle technology, which he worked with Harvey Bergeron. And so we have [indiscernible]. So thank you, Don. He's also the Chairman of our Compensation Committee, so I have treated him well. This is our team here. And again, I think we're very fortunate to have this type of team. I don't think you'll have to look hard to find a better team. And I think the people in any company, they're the most important aspect. Technology is important. Marketing is important, but it's the people who work there, work for you and work for each other to create a future of this company in this area. I want to have a special thanks to Maria Kuha. She was appointed last year as the Vice President. And she has had one of the toughest jobs in our company this last year because supply chain, supply chain, supply chain, you see everybody talks about it. Very hard to get stuff in. So if you want to get stuff out, you got to get it in first. And we did a remarkable job under the circumstances. So thank you, team, and thank you, Maria [indiscernible] Dr. Harvey Berger, invented this back in the 70s, it's in [indiscernible] hand and we used to sell those as systems for maybe $5,000. But we've now pioneered a host of applications that involve very large pieces of equipment, and we're in the million-dollar range now, all based around that nozzle, all based around that technology. So we excel at that, there's nobody else in the world who can copy and compete with us. We have over 50% market share even with the copycats, since probably a dozen copycats around the world, and financed by their governments. So it's a fantastic lies. And it puts down, of course, since you probably know very thin film systems. It involves firmware, software and precision hardware, I mean that's another key protection of this company, the intellectual property that goes in building these things. So the applications above here in that chart, they're critical to our society today, and we're laser focused on dominating these thin film applications. This picture here is a drug-coated balloon. The heart disease treatment industry has grown over the years, evolved and since are the treatment of choice right now. Coating with drugs that our company allows the medical company to apply. So our equipment is able to do that. So the next generation is going to be just the balloon itself, put the balloon in, expand it, leave it there for a while, maybe 10 minutes, take it out, nothing's left behind. So that's a -- that could be a wonderful innovation when it gets to the market. We're quite excited being involved in that type of opportunity for society. So the other thing I want to mention is industrial applications. There are 3 main areas that we have been evolving, this shows a glass line. At the end, it's being sprayed with an acidic spray of protective which has also textile lines. There's also food processing lines. One of our directors, you'll see Riemer helped us to pioneer that area. So we have sales in all those areas. And what's very visible here is the old-fashioned technology, this is the technology that we can take the shower using pressures right now. You don't realize it, but 85% to 90% of that water just bounces off and goes down to drain. It doesn't do anything. So this is our system in operation. It is an operation and if you have good eyes, you might be able to see some of the ultrasonic mist being applied to that glass, and it protects it every bit of screen that goes with much reduced emissions, of course, cost savings and high precision. So as time goes on, these things become more and more important to society. Don't waste things, don't pollute. And so Sono-Tek is really at the forefront of that. And then these are some actual applications of things that we have coating for customers and then they buy our equipment, MEMs, Handheld devices, flexible electronics; in the medical area, I mentioned stents and balloons, but also diagnostic devices. And in the clean energy area, which is the most exciting one right now because it's a kind of massive funds that are going into it, solar cells, fuel cells and electrolysis and carbon capture. And there's going to be ups and downs in that energy market, but these areas are excellent ones for us and for the future. So we have great people and great technology and resolve important problems, we should have good financial results, and we do. If you take a look at our cash, our stockholders' equity and our debt, you can see that everything is going in the right direction. And the right direction here is down to 0. And so that just shows how the company has been successful over the years in achieving that. So the thing that's important about cash right now is it's a great asset to have in this high interest rate environment. And it also gives us the independence to look at different market developments, technology developments since we look at outside acquisition, which we do continuously to see if there's something that will fit synergistically with us without exposing us to a significant risk. The other aspect of our financial performance is to get revenue and the revenue dropped a bit this year. And you can see what happened with the backlog. The backlog went up and the revenue dropped a bit. And -- but we still have fantastic gross margins. That's an important measure. It's twice as high as other manufacturing companies, and it means we have high pricing power and high protection as the barrier to competition. So I mentioned this earlier about the challenge of supply chain. That shows up right there in those charts. And I'm happy to say that right now, going into the end of the second quarter, which ends next week, we think we're going to be up 40% to 45% in sales over last year's second quarter which is I think is the biggest increase I've ever seen. And we think the year is going to be up 25%. So it's just things are breaking free. They're not healed, and Steve will mention that. There still are supply chain issues and Maria still going to have some issues as we go forward. But it's so much better than it's been. So we're very happy to report them. This has been called the [ bright ] chart by somebody. But it's important when you talk to newish potential investors because it shows the track record for the past decade, and everything has been very positive. Now why is that important? Because when Steve and I go to investor conferences, and we talk to a lot of investors and we're competing with other companies there, everybody is talking about how great the future is going to be. They've got this great thing. It's going to be wonderful. You should buy our stock. And we say, yes, that's true, we do too, but we actually have a track record that shows that we can be very successful in all of these areas. So that's the reason for the [ bright ] chart. I'm going to turn it over to Steve Harshbarger now. I know taking into more detail.

Thanks, Dr. Coccio. Okay. Good morning, everybody. I appreciate you all joining us today. I think I know most of you out here but for anybody that doesn't know me, my name is Steve Harshbarger. I've been the President and COO of Sono-Tek, for approaching 11 years now. And I've actually been with the company now for just over 30 years. So long time, I remember, first task when I came here to Sono-Tek was semi-fat machines and our dial-up Internet. I still have my email address by the way. I don't know [indiscernible] look, Sono-Tek was actually established 18 years before I got here, so that's 48 years ago. So you might be wondering what was the catalyst that ignites our growth over the last 9 or 10 years. Well, about a decade ago, we began to see a significant shift in the way in which manufacturers were applying functional and protective coatings on to products that historically never had coatings on that. And this created this rapidly expanding addressable market for us to go after. When you look at all these coating applications and this circles up here, these are all thin film coating [ needs in these little circles. ] And many of them have nanotechnology liquids that are applied on to these areas, which are highly synergistic with Sono-Tek equipment. Sono-Tek equipment now, those coatings and thin film [ needs and things like ] glasses that we wear on our heads, our foods, our textiles, there's hundreds of different and thousands of different coatings that go into the components, they go into the electronic devices and sensors that we use. Almost every medical device now has some sort of functional tech to coating on it. The items that go into the parts that make up a car has hundreds of coatings processes that go into those parts. They complete a car, so with this really rapidly expanding opportunities, it's been a very important part of Sono-Tek strategy to focus on growth-oriented sectors, which are often developing disruptive technology products where we can get in on the ground floor early in the development stages. We're recognizing the significant number of opportunities from our rapidly expanding addressable market. Sono-Tek implemented 2 very important strategic initiatives, leading us down to 2 clear pathways for growth. The first was the shift to provide full system solutions. After many years, Sono-Tek was primarily focused on selling small ultrasonic nozzle setups that were primarily directed at the R&D marketplace. And then about a decade ago, we began a process of making a very important strategic shift from being a high-quality equipment provider over to becoming a full systems machine solution provider. This was a change in our strategy to provide our customers with much more than just a well functional machine. We became focused to provide our customers with all the know-how, including all the hardware and all the software and all the process expertise for their specific application needs within your specific marketplaces. As part of this process, we've also established this network of industry equipment partners from a variety of different disciplines that allow us to take on this much larger machine integrated production lines than we could ever take on by ourselves, which continues to drive our ASPs, our average selling prices up higher and higher [indiscernible] The second significant shift pathway that we established was to accelerate our growth was the rapid expansion of our engineering -- application engineering team and our laboratory facility, which is both here in our New York lab right here and as well as our overseas labs located at our international distributor sites. Most of our customers visit Sono-Tek labs prior to purchasing Sono-Tek machines. Potential customers that visit our labs, they have this very high rate of converting to be a purchase at the end of the visit. Our application engineering team, they really guide our customers in several ways. They will help to define the proper liquid chemistries that they're using. They will customize the product handling needs for the customers. They will define and integrate the machine that makes it before or after the ultrasonic coating process and they'll leave it up and go right out to the end customer manufacturing sites and helping develop that complete coating process for them. This full system solutions approach, it really differentiates Sono-Tek from our competitors. And it builds this really strong relationship with the customer where we become much more of a harder to the customer than a conventional vendor. When looking at our growth strategies, it helps with the segment Sono-Tek markets into 3 distinct categories: our established markets, our emerging markets and our transitioning markets. Our established markets, consist of products that we've been selling for well over 10 years now, these are kind of our bread and butter products like our spray fluxing platforms, our industrial float glass coating platforms and our stent-coating systems. Now as an example, we have thousands of spray fluxers use Sono-Tek installed around the world. And these are used by the largest PCB contract manufacturers in the world. This is an area that were considered industry standard. Our industrial float glass coating systems are also installed around the world, and many of them have been in operation for well over 15 years. And our stent-coating systems that are used by most of the largest medical device manufacturers in the world. The chances are if anybody here ever happens to need a stent to be implanted in their body, it's a very high percentage [indiscernible] coated using a [indiscernible] system. With all of these established markets, we have this very stable recurring revenue stream for spare parts just due to the large number of machines that we have out there in the field. And we're always continually evolving our next-generation platform with advanced features and capabilities. So most of these established customers, they'll return back to Sono-Tek and they'll upgrade to our next-gen system as our technologies advance. We like to apply our emerging markets as new applications that we've successfully captured over the recent past. These were most often developed by our application engineering team, working directly with customers in the Sono-Tek laboratories. And customers bringing us emerging market applications are typically for products that might be 1 to 2 generations away remember reaching the public. And we often get helped to pay -- and pay and help them develop those coating processes. These are very unique capabilities that Sono-Tek provides. And most of our customers from the microelectronics area, the clean energy sector and the medical device sector will go through that process with us. Now the category of transitioning markets, now this is one of the most exciting areas for Sono-Tek. This involves industries that are presently using Sono-Tek equipment and are transitioning from R&D and pilot lines to high-volume production lines. So these customers typically have very established processes using our R&D equipment and they're not just scaling for high-volume production. For this market, we typically provide very advanced multi-access coating robotic platforms with sophisticated product handling and highly engineered solutions that are integrated along several steps in the manufacturing process. These are machines with accelerating ASPs. They're typically in that $1 million or $0.5 million to $1.5 million range. And these customers often require multiple production lines to meet their end-to-end coating requirements. We have this very large customer base out there for Sono-Tek that's using our R&D machines and guiding these customers to transition from R&D to high-volume production machines is a very important part of our strategy. Recent government initiatives are really beginning to have this big positive impact upon Sono-Tek customers transitioning from R&D to high-volume production. And shown on this slide here, are just a few of the highlights of the government initiatives that are underway. Now this is much larger than anything we've ever seen in the world before. It's massive amounts of money that's coming from governments, directed at industry sectors. Just at the clean energy sector, there's well over $1 trillion that's being directed at that green economy. Now that starts to drastically expand our total addressable market. Now it's going to take some time for all of that money to reach our potential customers and then for those customers to invest in Sono-Tek machinery, but we're already currently seeing orders in this current fiscal year due to these government initiatives that are coming in. Clean energy sector, this is where I personally see our most significant number of pathways for growth accelerated by these massive government investments. And it's going to be a very substantial market for us, as we head into the future. As I mentioned, Sono-Tek has this large customer base using our R&D and pilot line machines or the manufacturing of what they call PEM electrolyzers. These are just an area of things like green hydrogen generation, fuel cells and carbon capture. Our ultrasonic coating systems apply this very critical catalyst layer onto a membrane, which lies at the heart of where these clean energy reactions take place. Now this market, it's been very slow to transition to high-volume production historically. But that's all changing now due to these massive government initiatives that are underway. And we're already now seeing a number of orders coming into us that are high-volume production machines from the clean energy sector that is due for delivery in both this current fiscal year and next fiscal year in [indiscernible]. It's the -- over the past year, we've been on several significant milestone orders from the clean energy sector. And it was just now about 3 weeks ago, we announced our largest order in Sono-Tek history. It was $2.2 million that came in, very significant for us. Now you'll start to notice that these orders have a recurring theme. There are large platform machines, high ASPs, and we're starting to see these in accelerating rate in the coming months and years, and we're going to be continuing to see that. You can see on this slide that all 4 of these press releases are from the clean energy sector and 3 of these press releases are for orders valued at well over $1 million. At this point, let me just introduce to you, Robb Engle, Executive Vice President of Sono-Tek. Robb is in charge of Technical Services, including the engineering department and the information technology department.

Thank you, Steve. Good morning, everyone. So I'll be talking about 2 basic energies that the engineering department has been working on. I can tell you, it used to be a really exciting time back in 2006 and 2008, when the sales managers would come to me and say, "Hey, we're going to build a whole new machine." And we would do that a couple of times a year. And now that's our daily book. We're reading these quotes nonstop, we are always going to build a whole new machine. And it's a really exciting time for me. This platform was born out of a couple of things that we've already alluded to. The first part of it was we've relied on a key vendor to do these large platform 3-axis coating systems for a very long time. And over the course of, I don't know, 3 to 5 years ago, their prices started to go up astronomically, well ahead of what we thought we could charge our customers. So the energy was put on to the engineering department to come up with our own where we can scale our own volume and save some on the margins and have our own platform. And then while we began to work on it, that same vendor actually started to fail us really badly in terms of lead times, right? So where we used to be able to get a machine from them in 4 months, they were quoting us 8 to 12 months, and our customers like what happened, what happened? So again, the energy that was put on the engineering department was to develop a platform that would be lower cost and we could be more in control of the supply chain and make sure that we could deliver it on a more timely basis. So we came up with a NovoCoat. So this is a much larger platform than we've done before. It's much more [ capable. ] It's infinitely expandable in terms of its capabilities. Now we can coordinate with the before and after the coating parts, it can be turned into a [ conveyor ] system. The platform can grow all the way up to a potential of 1.5 meters x 1.5 meters. That's -- those are very large systems. Most customers can't fit a machine like that through regular -- takes plan. So the way we went about trying to address the supply chain issue, and this was not an easy thing to be clear. Traditionally, when you want to engineer a new platform, you'll just pick components by vendors. This vendor needs requirement. Well, we took a step back, and this is very much thanks to Randy Copeman, and he said -- his word for it was, we'll make it agnostic. And I was like, well, agnostic. I think you mean generic. So what that means is we specify what the components need to do, and then we can identify a whole list of vendors that can supply those products for us. So if one of them lets us down and believe me, many of them have, then we can go switch to their competition. And so engineering it from the bottom up with that mindset really allowed us to overcome a lot of the hurdles that we've been facing on so many of the other platforms, especially from that main vendor. And we engineered it according to the most modern engineering control system platforms, which is to have a single, very capable controller and then distributed controls at the points where they need to be. So there's a lot of high-speed network communications and a lot of the most modern technologies. So we're definitely future-proofed on where that platform needs to come from. So that's the NovoCoat. And hopefully, all of you will get to see one later that we have out on the floor. We've already shipped 3 of them to customers. And we expect that to be one of the primary platforms for our growth going forward. So yes, I just got a couple of new warnings, I get warnings every day. It's part of my morning routine to take a look at the current cybersecurity threat for the day. On the distribution list for the FBI, they identified us as a key manufacturer of semiconductor support equipment. And so what was going on is we took a look at the whole picture. We didn't initially plan to take a look at the whole picture, but it started out with the endpoint security. So there's a lot of individual computers that are all connected to a network. We call those end points. And all of those need to be protected just like peer computer at home. And when we used to protect the end points with, it was basically an enterprise version of what you probably use at home. It wasn't that fancy. And when their support started to disintegrate because there wasn't a lot of value in it for them, we decided to look at a better approach to that. So we did all of our studies. There's a lot of studies out there. The primary one is called a [ MITRE ] study, and they perform them every year. And we looked at a few options, and we decided to upgrade that. And it wasn't that bad of an upgrade financially speaking. I think we went from $1,500 a year to maybe $8,000 a year just for endpoint protection, but it's an umbrella package. And it's very modern and it's very well supported, all through the cloud, all automatically. And it even protects when the salespeople take their laptops home, it even protects them when they're at home or have to be here. Now that is designed to specifically address phishing, spear phishing, ransomware and USB thumb-drive based attacks. You got to be careful about those little licenses. We all know where they're manufactured right. So we ended up going through with that with a plan that we were going to do a whole lot more comprehensive protection of the company in light of what the current threat environment is today. So then came time for us to renew the firewall. Now thanks to [ Henry Louis ] and the team, it's going back like to 2012. When we upgraded our -- seriously upgraded our infrastructure here, we chose a company that was in the top 3. And if I end up spilling their name, no, I don't intend to. But it's a company that's in the top 3 of the [ MITRE ] studies for the last 10 years. And we chose them at that time because we thought the price to protection ratio, their reputation was a sound fit for us. And it's not cheap. That one's actually quite expensive. But that protects us from people trying to get into our network from outside, and they do an extremely good job. So when it came time to renew that because that was reaching end of life. We, again, looked freshly at all the [ MITRE ] studies, and we found out they're still in the top 3. So it became kind of a no-brainer for us, so continuing with that company, fantastic reputation. So we upgraded the firewall. The next thing we did was all of -- because it was last redone in 2012, all of our network switching equipment was starting to get tired. And what we wanted to do was make the company more agile, more responsive and more productive. So we upgraded all of the switches. And surprisingly, it didn't cost as much as I thought it was going to. I was pleasantly relieved of that at that time. But we're at that point now where all of the network switch gear is brand new. And the last upgrade that we're looking at doing is the core server technology, which is, again, it's reaching end of life. So this is -- the key to what we're aiming for here is to have the servers integrated in a very hardware structured network to give backups on a continual basis. So no matter what type of attack we might end up horribly to, I honestly think we're very difficult to attack. But we will have a backup in place, both on site and in the cloud on a basis that runs continuously and without intervention by anybody. And the end goal of that is to create our protective plan to an insurance company to say, we want to buy cybersecurity insurance from you and we don't want it to be too expensive. And that way if something does happen, it's extremely dangerous like a company-wide ransomware attack. We can just show them the evidence. This is what we're facing. And they can say, don't worry about it, we'll pay, we'll pay. We'll unlock you, you'll be running tomorrow or they'll say, no, we can beat this. Your backup system is good. We just recovered you till yesterday, you guys can keep going. So that's the goal with the energy that we're working on there. And now I'll turn this over to Vice President, Chris Cichetti.

Thank you, Robb. I should just introduce Chris Cichetti. Chris Cichetti has expanded his role this past year. So Chris is now in charge of all the [ funding ] operations, including the sales department, the application engineering department and the service team now.

Thanks, Steve. So talking about growth, Steve alluded before about the systems that we're working on that company for and after our spray coating system. So what I want to talk about are a couple of those. A couple of examples of what we're working on now. In the past, we've talked about conveyors and board inverters, small add-ons. But what we're doing now is working with a lot more partners, OEM partners to offer our end customers even more packages, right? And a lot of that is product handling. So product handling is very important in most of our -- with most of our customers, but in particular, the semiconductor industry where everything comes in a cassette. I think the cassette has 20 or 25 wafers in it and what the customers want is just to put that cassette in a machine and the machine does everything, and they come back a couple of hours later, they get a cassette and they move it to the next machine. So we've developed a partnership with someone who makes automated wafer handling robots. Now this robot can handle either one of our SPT systems or 2 of our SPT systems. This is the way for handling robot in a center. These are SPT systems on the site. So we've now turned our SPT which is an R&D piece of equipment into a full high-volume production piece of equipment. And this is what the customers want. This is the feedback that we get, and this is what we're doing internally to increase our growth. And Steve talked about our average selling price. When we add something like this on and put it as a full package and offer this full solution, the price of this goes up astronomically compared to just one single R&D machine. So another example is a tray stacker. So what tray stacker is, is a device that goes both before and after our spray coating system and an operator will load a prepopulated tray that might have 5, 10, 15, 100 parts on it and maybe a stack of 20 events. They'll put it in, they'll walk away, the tray stacker on the input side will load our spray-coating chamber one at a time. The coat part, it will go to the output 1. And as this one goes down, this one goes up. And a couple of hours later, they come back and they get a full stack of completed parts to bring it to the next process, and they move on. One more example are curing and drying stations. So we're putting down wet coatings, wet coatings need to be dried or cured one way or another before their next process step. So these in-line systems would go after our spray coating system so that when the material leaves our machine, it gets cure to dry, and then it goes on to the next phase of its life. One more example I want to talk about is advanced data management. So with the advent of Industry 4.0, a lot of our customers, they want more data. They want all of the data. And Robb talked about this a little bit. Our software engineering team created our NovoCoat with that in mind, we're able to give that data and also accept feedback. So now with these manufacturing execution systems or factory control systems, there's one master brain and all of the individual systems in the line are talking to that brain and they're actively participating. So the downstream machines can give feedback to the upstream machines through this data management, and they can tweak -- it can be an automatic tweaking of the process, so your end output stays consistent, right? So they're not isolated stations anymore. Everything is interlined and interconnected and everything can be managed. One other thing that's actually very big, Steve talked about us getting some really big orders, multimillion-dollar orders. And the most recent one, the main thing with that was us accepting the responsibility to work with Allen-Bradley PLCs. Now in the history of Sono-Tek, we've always avoided PLCs because it takes another level of software programming that we didn't have. But Robb's bolstered our software engineering team to the point where we're willing to take that on, and we're willing to learn another programming language. And a lot of our customers want us to use these Allen-Bradley PLCs, they're bulletproof, they're robust. They've been in the industry forever, and they're easy to work with. So we've finally taken that leap and it's already paying off and that's going to help us increase our growth in the future, especially with these big industrial customers because they want that. Now we can do it, we're offering it. Another thing I want to talk about quickly with all of these one-stop shopping thing where we want to offer this full line, and we're working with these OEM partners. We also have to offer service. So we're taking on the responsibility of both sales and service. And what we're doing now is we're being proactive with our spare parts. We've always had a nice chunk of business that's from spare parts, but it's always been reactive or passive. So what we're doing now is being very proactive about it and getting these spare parts list out in front of customers before they even get their machine. And then when the service person goes and installs the machine, they review it with them and they give them their honest opinion about what they should really have. What are the consumables they should keep on hand, maybe some critical parts that they want to keep on hand based on a supply chain issue, right, something that we may not keep in stock that could take us months to get. They don't want to be in a line-down situation. So being proactive about that is hopefully going to bolster that spare parts revenue even more. Along with the spare parts, we're also starting to offer service plans. So we're rolling this out slowly. It's our XY machines and domestic only, and we're going to see how it goes, but this is equated to your home heating system. A lot of you probably are on a service plan with their home heating system, mechanic, whatever, where they come once a year, they check on everything and they make recommendations or they tweak the system a little bit. So that's kind of our goal. We want our guys to get out there and check on the systems once a year. And then while they're in front of that system, they can train anyone new or they can give recommendations on process or recommendations on spare parts that they might want to get or "Hey, your system is a couple of years old, you might want to consider buying this higher level of spares." Now that it's a little bit old or "Hey, you may want to consider getting a new system in the near future because the one you have is getting a little outdated." So that's kind of the idea with this. And again, we're rolling it out domestically with our XYZ systems for now, and we're going to see how this boosts our year-over-year revenue. It's going to be something where we enter these plans and then they're just renewed annually. And a bigger part of this is the big high-dollar machines that we're selling now. This is a requirement from a lot of those customers. They want us to be on site within 24 hours or 24/7 phone support. So we're customizing plans for them that are specific to meet their needs. And along with that, typically comes a very robust and comprehensive spare parts package. We're basically saying, if you want us to be there and fix the problems that you might have, you need to have this set of spare parts so that when we come there, we know that you have the part that you might need. So it's going to boost both ends. And for our basic packages, we just have 3 levels. This is basically your silver, gold, platinum levels with our Sono-Tek names. These are names based on our nozzles though but they are basically your silver, gold, platinum type things. And with that, I'm going to pass it back to Steve.

Thanks, Chris. Let's see. On this slide, I just want to dive a bit deeper into our record high backlog and the supply chain challenges of last year. Let me first explain that Sono-Tek records full revenue recognition at the time of shipment. We only hold back some very small financial allocation for installation activities. So what that occurs is our revenue stream can look a bit lumpy quarter-to-quarter, in particular, as we add more and more of the $1 million-plus orders into our backlog. Now at our FY 2023 year-end, we recorded a record high backlog of $8.5 million, as Dr. Coccio mentioned, and that's significantly higher than our historical sort of backlogs. This was a result of 2 occurrences really happening simultaneously. One, a high increase of order intake from systems with high ASPs from the green energy sector in combination with some of the supply chain challenges that we accrued throughout the year. Now these lingering supply chain challenges continue to impact our first quarter of FY 2024, what was now closed 3 months ago or so. And that results in both our revenue and year-over-year income being down. While at the same time, though, our order intake remained very strong, and our backlog continued to climb to new record highs. Now the good news is when we restarted our Q2 FY 2024, which was now June of this year, we have significantly reduced the bulk of these supply chain issues that were occurring, so we did it by increasing our inventory levels, setting very early the order points for their systems and the introduction of in-house made assemblies which we are presently outsourcing prior such as the NovoCoat that Robb Engle discussed with you earlier. And as we approach the end of our Q2, which is now closing in just a week from now, we are projecting that a large number of these supply chain constraint orders will have cleared from our backlog. Now the very exciting news in what we set a press announcement this morning, probably maybe not even read and it came out at 9:25 just prior to this meeting, is our growth initiatives that we've been using are working. Sono-Tek's continued expansion of full system solutions with high ASPs and high-value application engineering support is really what our high-tech industries desire. And our customer base and our orders are now growing as a result of it. And at the close of our Q1 FY 2024, we announced again that our backlog reached new record highs of $10 million which was more than double the prior fiscal year. And as Dr. Coccio mentioned earlier that we're now projecting our Q2 revenue to be somewhere between 40% to 45% year-over-year increase and our full fiscal year to be greater than 25% sales growth. Most importantly, the investments we've made should position us in a very strong place for continued growth trajectory going into this next fiscal year. This is a very exciting time for Sono-Tek right now. Now we've positioned ourselves in the right markets with the right products and really an excellent team to execute upon our growth strategies. And equally as important, those that are familiar with Sono-Tek, we really understand the importance that we're making on these critical high-tech manufacturing operations around the world, many of which are really -- they're vital to the U.S. economy and health and well-being on this planet. We believe that our results prove our strategies for growth of the company are working, and we're very fortunate to have a workforce of really smart, hard-working individuals here at Sono-Tek that really understand the importance of what we're building here. That concludes the formal part of the presentation. I am now going to hand it over back to Dr. Coccio for some final remarks. And then we'll after that -- following that, we'll take some Q&As.

Thank you, Steve. So today, and it's already out there in the press release, I'm announcing upcoming management transition that's going to take place at the end of the calendar year, so December 31. I've been here for 22 years as CEO. I [indiscernible] Chairman and CEO to Executive Chairman at the end of the year. So I'll recommend that the Board at that time, appoint Steve Harshbarger to follow on for me as CEO and President. He and I worked closely for 22 years and look forward to continuing to work with him and with the rest of the company to advance our future. The nice thing about the Executive Chairman role, which is becoming more trendy throughout the industry is that, continue as the Chairman of the Board, but I also will be part of the executive team. And so that will allow me to be involved on a regular basis as I have in the past many years. And it also helps when we make presentation. Our investment relations firm has strongly recommended that there should be 2 people at those presentations. And if you've been to any of those, it's a half an hour, half an hour, half an hour and you're constantly being introduced by shareholders, and it can be a little challenging for 1 person for about 2 days or so. I will continue to do that with Steve. So this is an amazing company. And so I really didn't want to hopefully go. It's been very exciting and very rewarding and I love the people here, and I love the company. And so I'm looking forward to continuing that with Steve and the rest of the team. I think the best is yet to come. I thought that was -- that we got the best when we went up onto NASDAQ and our stock went up a lot, couple, we had a wonderful time in New York City. But I really see the future is, it's going to eclipse that. There's just so much happening and it's happening rapidly. And we're gearing up for it, and we want to pursue it with everything that we can. So thank you, team. Thank you shareholders, Steve Harshbarger.

Before we jump into the Q&A, I also just want to thank Dr. Coccio for his leadership [indiscernible] showed the organization over the last 22 years, both to the organization, hold onto me personally. It's really been very valuable, and I thank him on behalf of everybody, thank you, and we continue to look forward to the relationship going forward with you in the future, your guidance and wisdom will be of immense value to us. So thanks again, Chris. Appreciate it. And we'll now open up the floor to some questions from [indiscernible] Chris, Robb or the management team, we'd be happy to answer. If you guys have any questions for us.

I'm interested in kind of the size and shape of the total addressable market. Size is pretty evident, what I'm asking for is shape, is that where is the total addressable market growing the fastest and has the greatest opportunity over the next 2, 3 years to really propel the company opportunities?

Yes. I mean right now, these massive government -- these government initiatives happening in some places the chipset, goes into the semiconductor arena, kind of those going into the green energy sector where we're seeing the biggest acceleration and it's happening very fast as in the clean energy sector. There's so much money being put out there right now for the idea of carbon -- CO2 reduction in the world. And these are all -- these climate bills are related to that right now. And these customers that we've been working with for over 5, 10 years now that have always been 2 to 5 people, maybe 10 people in their company. All of a sudden, they just become 300 people, and they have projections of going to 1,000 people. And now they say, these companies that bought one R&D machine or 2 R&D machines are saying, Oh! we need a lot of production machines that hit our goals moving forward. And they have the backing financially to do this right now. So that's a very exciting area that's moving super quick for us right now. And fortunately, on the engineering team, they've been able to design and make that shift of our production machines. And I mean that was not a simple task. We were primarily make these R&D machines but they've made the shift of saying, "Hey, that $100,000 machine, which worked well for you. We can make you a $1.5 million machine that can take you to high volume production, and it will work, and we're shipping those now, and they're being installed successfully. It's not like amazing. Customers are happy for them. They're saying, yes, these are out there. They're being shipped, they're operational. And now they're starting to talk about, "Hey, when's the next machines." So that's where the TAM starts to really grow in that area for us. And then we do have some established markets like the semiconductor area or the solar area, where these are really being generating revenue. There are companies that are bringing in significant revenue sources themselves. They have a massive growth initiatives right now. It's pretty -- nothing like that I've ever seen. And it's exciting that we're right in the heart of it. Even if the economy starts to cluster in the sectors that we're in, I just don't see it happening right now. We're not in those sectors that would be -- we can't say we're industry recession proof, but we're pretty close to that in the industries that we're in, which is exciting.

And just a follow on, so could you relate the effect that average selling price is having on the total addressable market, so is it growing mainly because the machines are getting more expensive? Or is it growing because of the number of units or the diversity of demand?

Yes. The -- it's kind of goes hand in hand. What Chris Cichetti was describing to you earlier today about that system we call the SPT, which is just an ultrasonic coating system for semiconductor wafers. We wouldn't capture that order that wants a bigger machine if we didn't have it. We have to have those extra components on either side of it, which starts to grow our total addressable market because that's a customer. It's a larger customer, but they wouldn't even consider us if we didn't have the machine that's before and after it. So that starts -- every time we add on this extra accessory, it since before or after our machine, it starts to expand the total addressable market within the existing fields that we're already in, but it's just putting us into more high-volume production considerations.

I think also the capabilities of the machines. One of the most significant advancements that we've made over the course of the last 5 years has been to transition from a machine that just puts a perfect coating down every time is to a machine that puts the perfect coating down every time, tells you exactly how much it put down, communicates that to the central MES system and predicts for you when you're going to need to do maintenance on the machine, can talk to the machine before it, the machine alter it. All of the capabilities that we add on to a given platform also expand the machine's viability to more established customers.

Although I guess what you're saying is, and if you take it to the financial is that your competitive moat getting wider and wider and wider -- at the same time, the markets are getting bigger. So you're going to be getting at least as big or a bigger market share than you did before on a rapidly expanding [ margin. ]

Yes I think, one of the things that people expect when you keep on adding on other systems is that your gross margin goes down. But it didn't and that's because of the -- what you just described as a competitive moat, right.