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Good morning, and welcome to the Sono-Tek Fiscal Year End 2023 Earnings Conference Call. All participants will be in a listen-only mode for the duration of the call. After today's presentation, there will be an opportunity to ask questions. Please also note that this event is being recorded today. I would now like to turn the conference over to Stephanie Prince with PCG Advisory. Please go ahead.

Thank you, Gerald, and thank you to everyone joining us today. Sono-Tek released their fourth quarter and year end fiscal 2023 results earlier this morning. If you don't have a copy of the release, please go to the company's website at sono-tek.com and click on the press release/news 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 Dr. Chris Coccio, Sono-Tek'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 Coccio, Chairman and CEO of Sono-Tek. Chris?

Thank you, Chris and good morning everyone. For fiscal 2023, total sales decreased 12% to $15.1 million, and this was due to delayed shipments resulting from supply chain challenges and Steve Harshbarger will go more into detail concerning this. During the year, approximately 55% of sales originated outside of the United States and Canada compared with 68% in fiscal 2022. Our gross profit decreased 11% to $7.7 million when compared with fiscal 2022. The gross profit margin was 51% compared with 50% in the prior year. The increase in the gross profit margin was due to less than anticipated warranty costs and a favorable product mix when compared to the prior year. For fiscal 2023, our total operating expenses increased 4% to $7 million compared with 6.7 million in the prior year period. Our research and product development costs increased 24% to $2.1 million for the year, and that is primarily due to increased salaries and the higher costs of research and development materials and supplies, which are for use in the development of new products for new and existing markets. Marketing and selling expenses decreased 6% to $3.2 million for the year. The decline was primarily due to decreases in commissions, salaries, and related costs and these decreases were partially offset by increased travel and trade show expenses. General and administrative expenses increased 2% to $1.7 million, primarily due to an increase in stock-based compensation expense, which was partially offset by decreases in corporate expenses and bad debt expense. Operating income decreased to $683,000 for the year primarily due to the decrease in gross profit combined with the increases in operating expenses. Operating margin for the year was 5% compared with 11% in the prior year. For fiscal 2023, net income was $636,000 or $0.04 per share compared with $2.5 million or $0.16 per share for the prior per fiscal year. The decrease in net income is due to the current period's decrease in operating income and income tax expense combined with the $1 million paycheck protection program loan forgiveness that was recorded in fiscal 2022. Diluted weighted average shares outstanding, increased slightly to approximately 15.8 million shares. Cash, cash equivalents and marketable securities at February 28, 2023 were $11.4 million, an increase of approximately $700,000 when compared to February 28, 2022. At February 28, 2023 there continues to be no debt on our balance sheet. Capital expenditures for the year were approximately $600,000, all of which is directed to ongoing upgrades of our manufacturing and product development lab facilities. And now I'll turn the call over to Steve Harshbarger, President and COO, for an operational review of the year. Steve?

Thanks Steve, and good morning everybody. Thanks for joining us today. I want to dive a bit deeper into our record high backlog and supply chain going into FY 2024. 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 our revenue stream can look lumpy in particular as we saw more and more of these $1 million plus platforms. Now turning to our results, I wanted to remind you that Sono-Tek breaks down our sales in three ways; by market, by product, and by geography and that's how I'm going to address my comments and you can refer to the short tables on the last page of the earnings press release for all of these details. For FY 2023 total sales decreased by 12% compared to last year to $15.1 million. This decline was primarily due to delayed shipments that resulted from supply chain challenges, some of which Dr. Coccio talked about. All of these delayed orders rolled over into the new fiscal year that began on March 1.

Importantly we've begun to see that these follow on sales of spare parts could reach that 10% to 20% of the total order value. By market, key this year, of course, is the impact of supply chain issues which clearly can be seen in the revenue declines from these three markets. The alternative energy, electronics, and medical market sales each decreased by 17%, 23% and 15% respectively. This is because large portions of all of these markets use our multi-axis coating systems which have been particularly impacted by the delayed deliveries that resulted from these challenges. As I mentioned, all shipments have shipped into the current fiscal year, and we have not received a single cancellation. The industrial market grew by 131% due to the shipment of 71% of a large multisystem order in fiscal 2023. The remaining 29% of that order is scheduled for shipment in the current fiscal quarter. The 62% decline in the merging R&D and other category reflects the shift into other market basket sectors for new applications that have become successfully established. By geography, approximately 45% of sales originated in the U.S. and Canada in fiscal 2023 compared to 32% in fiscal 2022. This shift was positively impacted by several U.S. Government initiatives to invest in the green energy sector and other research markets. For the year APAC revenue decreased by 39% impacted we believe, by reduced sales to China as a result of several China based manufacturing sites moving operations back to the U.S. and Mexico. In addition, the strong U.S. dollar temporarily made our products more expensive in Japan and South Korea where we have good customer relationships, but this resulted in several delayed purchases. Backlog on February 28, 2023 was $8.5 million, which is 60% higher than as it was last year end, and reflecting the delayed shipments of several large orders, as we've talked about. Customer deposits more than doubled to $2.8 million from $1.2 million, a 143% year-over-year increase and this increase reflects the new orders we've been receiving during this fiscal 2023. In closing, and as Chris mentioned earlier, our expectations for our first quarter that ends May 31, the supply chain challenges will still impact our deliveries in the current quarter resulting in lower revenue compared to Q4 FY 2013. We expect higher revenue in subsequent quarters over the balance of the year as we ship new orders and as well as the large number of orders that are presently in our backlog. I'll now turn back to the operator to open this up for our Q&A.

And our first question here will come from Bill Nicklin with Circle N Advisors. Please go ahead with your question.

Good morning.

Good morning, Bill. Thanks for joining us.

Right, thanks for taking my questions. I have three questions all focused on revenue expansion, visibility. The first is kind of the nature of the order that you're getting now, I've noticed that in your most recent announcements we see the terminology multiphase program for additional systems and multi-systems. What appears to be taking place is quite different than the size and cadence of Sono-Tek's orders in the past or at least as long as I've been following the company. The announcements also indicate that individual systems within the order are each priced higher than most orders in the past and my guess is this is likely because they're from production equipment. So my question is, can you get a little more granular on what is taking place and what this means for the visibility of revenues and revenue growth out over the next few quarters and even years?

Yes, yes. You're correct. The word -- wording of multiphase is significant for most of these large platform machines would have the very high ASPs that we're now starting to sell more often. The manufacturing cycle is much longer than our smaller $100,000 machines that we have been traditionally been selling. So, when our customers need the fastest possible deliveries to meet urgent requirements, they need to share this with Sono-Tek, and they start to coordinate their schedules for production requirements. Really, it can be a good year in advance of when they actually need our machines to reach the manufacturing floor. This does create a situation where we start to get much better visibility of what's likely to come down the pipeline for future orders. And this is what we're seeing in particular from the clean energy sector, I would say, you know, customers are placing their first orders for high volume manufacturing systems and presenting their planned configurations for the follow-on machines to meet their ultimate production needs say that they would have. Sono-Tek, we don't share these current forecast requirements until their production plans of course transitions into a PO for us. But I can tell you that most of our customers buying these large platform systems in the clean energy sector, they aren't just looking to buy one or two machines. They often have the need to buy five to 10 systems to meet their production requirements over the next one to two years. The urgency of these green energy customers, in particular, going from R&D to pilot lines, to multiple high volume production lines, it's really like nothing that I've ever seen. And it's certainly of course driven by these massive amount of money that's being put into this particular industry sector.

And did that answer your questions, bill?

Yes, okay. I heard a beep kind of coverage you up, yes. Getting even more specific given what you're looking at now, what's the largest number of production machines you expect from a single customer? And then on other customer orders, are there similar situations that were maybe somewhat smaller number of systems?

Yes. For sure again, the larger customers out of the green energy sector, again, in particular that are transitioning from R&D over to high volume product pilot lines, they're all looking at multiple lines. They are all looking at five to 10 to even up to 15 lines that should be happening. And again, these are the machines with the high ASPs that are over $1 million typically. And we are continuing still to get a regular flow of R&D machines on top of that that are coming in for R&D and pilot line machines that are, they're still, that's still the kind of flow business, I would describe it as a one

All right. So if I understand correctly, on the announcements that you've made, where there are $600,000 machines and $1 million machines, the orders that you just referenced will be multiples of that $600,000 or multiples of the $1 million number.

Yes, yes, yes, that's -- they all have the high potential of being multiple to that. None of these customers are buying those first production machines for the intent of that being, that this is the beginning phase for them. If they only bought one machine, there would have been something that went terribly wrong. They all intend to buy multiple machines. The demand for these green energy products right now, it's just skyrocketed so quickly, that in order to hit what their volume needs are for their products they have to buy multiple lines. Again an area of like typically five to 10 systems,

All right. And not to belabor it, but just to be clear, on the announcement that you've already made, where you said a machine was $600,000, that's for one machine and you have multiple right after one, so if a customer is going to buy 10 machines over time, then that's $6 million.

You're a 100% correct, yes. So they -- when we, the announcement for those ones for $1.1 million, that's for one machine, and if that customer needs 10, it would be 10 machines, 10 times 1.1, or 10 times $660,000, correct.

All right, that's great. Now, second question. Several industrial companies that I follow have been impeded by supply chain problems, and they now in their conference calls say they're coming out of this period and they're having bubbles in shipments. But then they say they're heading back toward what most of them are describing as a broad based normalization, where normal is lower shipments than in the past few quarters. So the bubble moved through the system. It sounds like you're experiencing the same thing, but given the orders you're getting and it's kind of a new normal with expectations of significantly higher growth for an extended period of time, am I correct on that?

Yes, supply chain, like you mentioned the impacted us for FY 2023 revenue, and we will, certainly will see a revenue bubble working its way through into our FY 2024 due to these delayed shipments. And although we are definitely predicting our revenue to be more lumpy from quarter-to-quarter due to the increased frequency of these large ASP platform machines, we're still feeling very good about continued revenue growth for FY 2024 supply, for the -- during the supply chain surge and after the supply chain surge, because of these high ASP production systems that are starting to flow more regularly into our backlog. When you're only a $15 million to $20 million revenue company like we are now, it starts to make a huge impact when we start adding a flow of $1 million machines on top of what is our historically normal business already. So I think that's going to be the real big difference as we get a flow of these $1 million machines coming in more regularly, and that's what we should be seeing happening.

All right, thanks. Now, just to, again, to get quite granular on this, from what you're saying is starting in June, the quarter that's coming up, you'll see some improvement in the supply chain issues, and then that will continue to improve through the year. But from the orders you're booking, it looks like that that bubble or jump in shipments because of normal shipments plus the catch up from the supply chain problems, that even with that moving through, you'll be able to replenish your backlog at a higher rate than the shipments are going out?

Yes, yes. You hit the nail on the head that -- I think if you find that -- if you start tracking our backlog, we'll become the strongest future indicator of where we're heading because we're anticipating our order intake to exceed the shipments going out, as our demand for our products increases. So yes we anticipate a strong enough bookings to replenish our backlog.

Great. And last question, if you will. It appears as you're going from R&D orders to pilot project orders and production line orders, at least my visualization of a production line is that your equipment will probably be sitting alongside of your customer's equipment or equipment that your customer is buying from another vendor for a different purpose, to have a complete production line. How does this, and number one, am I correct, but number two, how does this affect the nature of the orders you're receiving? And also, does it open orders for arrangements between Sono-Tek and other equipment suppliers? There are OEMs that might accelerate your growth down the road where in the past you were selling single units that were kind of standalone and there was nothing else driving the business other than a single new order coming in over the transom.

Yes, it's true. What you're saying is that there's, of course many machines that make up the complete manufacturing line in these coating processes. And we recognize the machine sitting before and after the ultrasonic coating systems, are often really critical to the end results of the product that we're coating. And many of our customers would really prefer for Sono-Tek to also supply the equipment standing alongside our coating systems and to take full responsibility for large parts of the manufacturing process. So we've been rapidly increasing the number of strategic outsourcing partners we work with. They're from a variety of several different disciplines. And this allows us to supply our, an increasingly larger end customer solution which continues then to drive higher and higher ASP for us. And some of these strategic partners also create some additional potential opportunities for even closer relationships in the future actually.

That's great. Thank you. It looks like you've got the ball teed up here and I appreciate all your efforts and let's see what happens. It sounds pretty positive. Thank you.

I appreciate it, bill. Thanks.

And our next question will come from Ted Jackson with Northland. Please go ahead with your question.

Hey, good morning.

Hey, good morning, Ted.

So I'm going to sort of at a more higher level follow up on some of Bill's line of thought. So looking at your backlog, which by the way is impressive, if I kind of look at the historical backlog, if you look back, say, two years and go forward, you used to kind of see your backlog going to be, call it, 25% of the four, 12-month revenue. And then clearly with all the supply chain issues it's been kind of in the 35% to 40% range in the last part of the fiscal year. If I was to look at that $8.5 million of backlog in the understanding that, that's going to go out in fiscal 2024 and say that, hey, that's 40% of fiscal 2024 revenue, which would be kind of like the high end, higher than the high end of what we've seen the last couple of quarters, you'd be pushing north of $20 million of revenue. Is that a fair way to look at your business or is that maybe too aggressive for you?

Well, we haven't given projections about stating what our full fiscal year revenue will be. But everything that's in that backlog right now, $8.5 million, will be shipping out this year -- or we're anticipating, I should say, to shipping out this year. And I don't think there's anything in that backlog right now that's on the edge, for example, of not being able to ship. The order intake is still going really strong. I think that there is no reason for us to anticipate it not to continue to go really strong. And without saying exactly where we think we're going to come in for the year other than we're going to definitely be showing growth, I think it's looking really positive. Now whether those really large orders that we're anticipating, because there are some really large orders that we're anticipating getting here from multiple systems, whether the majority of those will be able to ship out in FY 2024 or not is a question. Because I wouldn't be shocked if we see our backlog just start to accelerate even with healthy revenue going out. But I wouldn't be surprised if our backlog really starts to beef up and look very, very good for FY 2025 with still a healthy revenue stream going out in FY 2024. Because the production lead time on a lot of these machines is longer than typical for us. So a lot of these million dollar plus machines can have build times of six to 12 months depending on what the configuration is. So it is something we need to just keep in mind that the long build times on these large platform machines. Our smaller platform machines, which now I consider our flow business, still have relatively short lead times on them, if you're talking about $100,000 or $200,000 machines.

Yes, if I might add here for a moment, Steve. Over the years, Sono-Tek's had a business that's grown at a -- we liked it, 10% growth, whatever. But things have really changed in the last year or so. Moving into -- I think those questions pointed out, we're moving into the production phase of our business. So instead of selling 1 unit that for -- well, it felt good, $0.5 million or something, we're now in a position to sell multiple units. So that's a change in our business structure. And the other area that was highlighted in the previous question, is this a bubble that will come and go? And we don't really see it that way because of the large amount of money that the government is putting into this clean energy sector, in particular, which is coming through to us now and over the future. So I think there are two changes that have taken place in our business really within the past year or two, and that's moving into production and the large amount of federal funding in the clean energy area. And then Steve Harshbarger just mentioned the third strategic change, which we're doing, which is pre and post processing. Wherever we see an opportunity to add on to our basic structure, we do it. So I think without forecasting numbers, what I've seen in my tenure is a change in the business structure, and I'm very optimistic about it personally from this comparison with the past.

Well, I'm optimistic. I just want you to don't let me get too optimistic, that's all. It sounds like you guys are on the cusp of really having some good stuff happen. Let's keep going on the revenue stuff. So just thinking about sort of what's going to drive FY 2024 revenue. So when we kind of look at kind of your line items, the multi-axis systems, clearly that's where you've had some hang-ups on where your larger systems are. They were down quite a bit from 2022. Can we -- I mean, given what you're seeing in backlog and given that we're expecting to see $0.5 million of revenue to flow through with some large multi-systems, multi-axis systems in there, is there -- is it realistic that we could see 2024 that you come back to -- that you would at least meet what you did in 2022 on that particular line item and perhaps exceed it?

Most certainly for the multi-access coating systems, we should be on track to exceeding it this year. And that's partially driven by these delayed shipments that didn't go up for us in FY 2023 that are in our backlog now. So there's a lot of multi-axis coating systems that you'll see, especially coming from the clean energy sector and the electronics sector, in particular, that we'll be shipping out in FY 2024. The other good news is where we had our most significant supply chain challenges is in the multi-axis coating area. But Sono-Tek, we've done a pretty good job of accelerating our in-house capabilities in this area, which should allow us to achieve shipments at a more expedient manner than what we had encountered this past year. So that should allow us to get ourselves back closer to a norm without supply chain challenges, at least during the second half of this fiscal year, which will help again for the multi-axis coating systems, because that is -- the orders intake on multi-axis coating systems has not slowed. It's actually grown. It's just our ability to ship the machines which makes it appear like it was a slower year in FY 2023.

Then just on the fluxing systems, I mean, you talked about how you're going through kind of an upgrade process, if you would. I mean, you put up the strongest numbers that you've seen in that area since fiscal 2019. Is that something that is sustainable? I mean, is that like the strength you've seen in that business as you go through this upgrade and the movement of a lot of manufacturing out of China towards Mexico, U.S., is that something that we should continue to see in 2024 or is it the kind of thing that will fade, and we'll go back towards kind of the numbers that we've seen, like say from 2020 through 2022?

Yes. I would predict the fluxing area to remain stable for us. I don't think it's going to go down, but it's not going to show huge massive increases. It's not where like government sectors are really investing or anything like that. But what has been significant for us there is these customers that are moving from China back to Mexico, in particular, even more so than the U.S., they may already have systems in China, but they don't send those machines back to the U.S. The machines are only valued between $25,000 to $50,000 and it's not really worth them to send back a used machine to Mexico. So they buy new machines. And the great thing about our latest platform system in the fluxing area, the SonoFlux X2, it's about 40% higher priced than our traditional spray fluxers. So part of what you're seeing there with increased fluxing revenue is the increasing -- increased ASP of our fluxing platforms as well. There's a good reason why they haven't increased ASP because they reduce your flux by a lot more compared to our old systems, and they have a lot more functionality. So customers that have tried them and said, oh wow, this is really worth upgrading our own fluxing system that we have from Sono-Tek already to our new Sono-Tek machine.

Shifting over to the income statement and just on the OpEx side, so we've got all this wind in your sails. I mean, is there any -- I mean, how should we think about your operating expenditures in 2024? Are there any serious investments that need to be made in your sales and marketing or your R&D efforts or is that something that's going to be more kind of steady-state, moderate growth?

Yes, we did...

I guess I'm asking is, will we see some operating leverage is where I guess is where I'm going with it.

Got you. We started to see some operating leverage in the prior year that I suspect, going into FY 2025 is when we'll probably see the most leverage start to occur, that we've already invested quite a bit into. It's all just been finished recently into expanding our manufacturing facility and invested those finances into that right now. So we've taken over one more building that we had been renting. And all the expenditures and things to renovate to be able to do production into those areas, of which now we're starting to do has now happened. So a lot of the expenses have been completed in that area. Did you have anything else to add on that one?

When you look at the operating expenses, the R&D, that's always pretty much for product development, so we should see some of that come down the line hopefully in revenue. The marketing and selling, what -- the decrease what you see there is primarily in commissions due to the decrease in sales. But overall, one major variable of course is always our advertising, our trade show and that started to pick back up last year due to COVID. So you should see something there. The G&A, if you look at it, it was flat. And I would -- I don't expect anything to really come through on that next year, but that's my expectation right now.

Yes.

Okay Chris.

And I should also add, just to add to what Steve Bagley was saying, we do put a lot of emphasis on what's called research and development or product development. But the other issue, of course, as you all know, inflation is occurring in salaried people as well and particularly in the top level engineering talent. So we're doing what we have to do to maintain a quality workforce there as opposed to starting losing people to some other company and then having to retrain. So there's two things going on there, our continued emphasis on R&D and the inflation of salaries that's taking place.

I mean, that's one of the major -- that just -- as an offshoot, as Chris mentioned on the salaries, that's where you would see leverage in a number of different ways, because it takes people a little bit of time to get up to speed, but we've had to maintain our current level of our engineers here, so that will pay off.

Just because you brought this -- brought up the investment with regards to the new building and the productivity, how should we think about CapEx in 2024? Maybe call it $50,000 or that is in 2023, I mean, should we think it kind of flat, should maybe taper off a little bit now that you've kind of moved through that?

Although we did finish our expansion needs here, I think we anticipate it to be flat though, because I think we're going to have to be continuing to expand based on our projections looking forward. So where I thought it might go down a little bit this year, I'm no longer anticipating it to go down as long as we see this really strong order intake happening, we'll have to just be continuing our expansion plans, which would give us similar CapEx expenditures.

Okay. And then my last question, and then I'm hogging the mic, but you've built up this inventory. You kind of went through it being part of it being your response to the supply chain issues. Will we see these inventory numbers ever trend down or should we expect this to be kind of the new norm going forward?

I would hope that they will trend down, but I don't see it happening this fiscal year. Right now, we're still just so cautious with supply chain issues. And until we see that supply chain these issues resolve 100%, it's just forcing us to make the inventory very high at this moment. Now it's very safe inventory. We're having a nice flow of orders, but it's just forcing us to keep it high at this point. But hopefully, at some point, when the world returns back to normal with supply chain, that we won't have to worry about that.

Yes, I think we all learned a lesson, too. I mean, we've managed our inventory levels very aggressively in the past. And we saw this coming to some extent, so we started to build up inventory, not enough though to forestall any problems as seen in our numbers. I think what Steve said is true, though. As we find out that the supplies are now available, we can back off a bit, but I don't think we'll ever go down to the level that we were before.

Okay. Well, that's it from me, and I just want to finish and just say I'm looking forward to 2024 and 2025. It seems like you guys are on the cusp of some really exciting stuff, and I'm looking forward to watching it play out.

Thanks.

Thanks Ted.

Thank you.

Our next question here will come from Avi Fisher with Long Cast Advisors. Please go ahead.

Hi, Good morning. Just two or three quick questions. What products are delayed because of supply chain issues, which...?

Yes. The primary product line is our multi-axis coating machines. That's where we really got clobbered. And those multi-axis coating machines are very heavily used in our larger platform systems directed at both the electronics sector and the green energy sector and a little bit in the medical sector as well. But they're not very commonly used in the industrial sector, for example.

Okay. So presumably, I mean, what we're really talking about is a robot, right? The robot arm that comes from a supplier, right? That you get from a supplier?

Yes. It's motion, I would describe it as motion platforms and product handling platforms. But it's -- they're not, for example, like simple XY

And are those coming from -- I mean, presumably, I think those are coming from like ABD or from somewhere in Japan? Is that...?

While we do have one robot that we purchased from -- it's a very inexpensive robot from Japan, which is kind of like a vanilla machine that just steps out the same thing. It's for a very, very low entry point for small universities. The majority of our robots are all custom-engineered solutions and they're manufactured in the U.S., either by Sono-Tek or in combination with our partners. And the product that we're looking at there, and fortunately, they're -- our partner, there is no equivalent vendor to them in the U.S. or Europe that has similar sort of products, their capabilities, I should say, even more so than products, it's the capabilities. There are some out of China that we've identified, but they have their own supply chain and shipment problems coming out of China as well. That's why we were really heading down the path of bringing a lot of this expertise in-house and increasing our own internal capabilities. Even though this industry partner, other than the delayed shipments, they're a really good quality, really good price, but we need to get a little more control ourselves of the supply chain. So that's why we brought some of those talents internally within Sono-Tek.

Is there -- I'm just going to sort of say something, like presumably whoever this partner, you're a fairly small partner to them currently. But as your addressable market grows, as your R&D clients move into production, is there an opportunity for you actually to instead of doing this on your own to get closer to your partner and say, hey look, let's work together. We think we can sell multiples of the units we're selling now. That will move us up the priority chain. We'll be a little more important to them. And now you may have a co-branded product that can address a large, an even larger market. Is that something you've thought about at all?

The partner is someone -- do you want to answer that question, Dr. Coccio? Are you speaking up?

Yes, you're on the right track, and we are doing what you say without necessarily going so far as co-branding. But we've had multiple conversations with that vendor, who is more than a vendor in our eyes because we work so closely together. And we brought customers in to show them how capable they are to serve us and therefore we to serve the customer. So yes, we're -- the alternative, as Steve pointed out is, yes you can go to China, but we're not going to go to China to look for that type of thing, not just for the supply chain issues, but also for the potential loss of some of the business technology and some of our proprietary information. So I think we're on the right track in terms of both helping our partners do better with us and also, as Steve has pointed out, we're on a track to be able to produce a substantial amount of these particular specialty robotics, if you want to use that word, we call them multi-axis systems in-house.

I'm sorry if you've said this. Have you elaborated on how much you expect to spend on this pursuit to bring more in-house?

We've already made the bulk of the investment upfront already. And it actually started prior to COVID is when we started this process because we recognized our high dependence on this vendor. And it's mostly been in R&D and engineering talent that we had to bring in. And so this -- the machines that we are now shipping that we've taken on through internally made products are going -- shipping out now from Sono-Tek. As Dr. Coccio mentioned, there's about 25% of them are coming out internally made right now. But the bulk of the investment is already done at this point. Now it's just continuing to upgrade and improve it to the next level. But again, our industry partner is actually very good as a partner. So we appreciate them for their capabilities as well. But I think it's a smart move for us to have both of these avenues going at the same time. But we don't see any other big significant investment coming down the pipeline for that.

Got it. And just to clarify what you just said, it sounds like you're having this parallel track of, you are continuing to work with your partner and also doing some more in-house.

Yes, that's correct. That's correct.

Okay. One last question. You've talked in the past about kind of roll-to-roll and I see on your website, you have this wide track system. But I didn't hear you, maybe I missed it, but I didn't hear you talk too much about the roll-to-roll systems. Can you just sort of talk about how that's progressing, perhaps some of the units you're selling or what -- how that pipeline looks? Thank you.

Yes, sure. We are still progressing with the project. It's still an active program. We still have customers that come in and we've sold a few roll-to-roll machines at this point. The primary target market for us, for roll-to-roll, you might recall, is going towards the green energy sector for coating of membranes used for fuel cells or carbon capture or green hydrogen generation. And we have -- that customer remains very much is expressing that they plan to go to roll-to-roll, but we still have not seen them make the transition. We actually thought they would have done it this year. But right now, it seems like they're primarily just focused on single pieces and not going to roll-to-roll yet. But they still are talking about short-term, making the transition to roll-to-roll. So we have got ourselves to a point where we're ready to transition with the market when they are prepared to make that move. But we're kind of waiting for the market to go there. And we still believe it will go there, and we'll be ready when it does happen.

And has this customer sort of deferred because they're looking at other technologies? Are they looking at CBD instead or are they just looking to raise funding so they can move ahead at scale?

Yes, it's actually broadly for the whole industry is looking to go towards, not one particular customer, the whole industry for these coating of membranes is looking to go towards roll-to-roll ultimately, although they are not doing it today right now at this very moment. And that it's not a replacement. For this particular application of coatings membranes, they don't -- they can't do this application by CBD. So for our competition in this particular area is slot-die coating. But thankfully, we have some performance advantages about our coatings compared to slot-die, which makes most customers choose our technology over slot die technology.

And are -- so this -- the roll-to-roll opportunity, broadly speaking, it's not even in the backlog right now?

Broadly speaking, it's not. We'll get an occasional machine here and there. We are still making advances behind the scenes in our laboratories with it and we are bringing customers in to see it. They can understand the technology and they can prepare for us for when they want to make the transition that they've got a partner in Sono-Tek that is prepared for them when they want to do that.

And when or if your clients are ready to move up to a production scale, how long would it take you to produce the first unit?

I don't think it would take us long at all because we have the machines in-house right now. We've actually made the bulk of the investment there, which allows us to show these systems to the customers. So we're close. Now again these are almost always to some level customized machines, so it's going to be long lead time products. But when they say they're ready, I think we're prepared to take the orders.

Awesome. All right, thanks very much. I appreciate your time. Thank you.

Good chatting, Avi.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Dr. Chris Coccio for any closing remarks.

Yes. Thank you, and thanks to everyone for joining us today. Sono-Tek has a strong outlook for growth based on the high utility of our products in many high-tech and emerging markets. We look forward to our next call in October that will review the midyear 2024 results. So please contact us directly if you have any questions in the quarter that if you will. Be well, stay safe. And I would just remind you once again that we will be at LD Micro in Los Angeles, Wednesday, June 7. Thank you and good bye.