NTIC - Earnings call transcript Q3 2018 | Northern Technologies International Corporation

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Operator

Good day, ladies and gentlemen and welcome to the Northern Technologies International Corporation Third Quarter 2018 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call maybe recorded.

As part of the discussion today, the representatives from NTIC will be making certain forward-looking statements regarding NTIC’s future financial and operating results as well as their business plans, objectives and expectations. Please be advised that these forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and that NTIC desires to avail itself of the protections of the Safe Harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in NTIC’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. and SEC. filings reports make NTIC these the with read other that future will Please any to disclaims NTIC duty statements. its forward-looking update or revise today’s like your Mr. I introduce conference, for now CEO, President would and to host to Lynch. Patrick Sir, you may begin.

Patrick Lynch

also release you. this financial CEO I at NTIC’s in results available NTIC’s Please were am Patrick fiscal information our press Wolsfeld, and note Matt issued Good that morning. earlier with XXXX Thank and am CFO. Lynch, is this I morning here third ntic.com. the quarter

During we our results review XX% a during key fiscal increasing XX%. on third net earnings conclude various XXXX sales with by NTIC update, year, with give along the then the fiscal NTIC and our business with this results, continued financial guidance and quarter over will call, XXXX aspects for net income sales third of session. over growing question-and-answer attributable quarter brief net to the comment financial to strong achieve

ZERUST I gain our total only last the achieved record In quarter year. our continue experienced partners At XXXX below earnings all third fiscal last three are around pleased significantly completed, of already our same total venture fact, time, market sales. slightly joint are solutions year. we report far so to quarters core share than as of industrial per to the diluted am only with many higher sales for the total fiscal share world of

quarter. quarter – the emerging its consecutive growth with consecutive sales consecutive quarter profitable significant and Our profitable and NTIC completed segment quarter China closed Natur-Tec business fifth its fourth fourth year-over-year

fiscal for record company. We are the expect XXXX be to a by year encouraged successes these and

products third demand the to our So, continued drivers strong examine Natur-Tec perform products industrial for let’s for with and well. quarter. our these Global the core ZERUST remains highlight,

Total increased XX, XX.X% to its quarter increased XXXX. May quarterly X months XXXX, $XX.X increased to NTIC compared May a not in and result ventures, as JV For market our ended Natur-Tec X%, our specifically total the last to share the joint for financial grew realized ZERUST sales net business across stronger consolidate ZERUST consolidated sales sales of euro. and XXXX compared all increased $XX.X sales the by third This net sales for million $XX.X XX, in a the we the improved ventures oil segments, the do XX.X%, to period XX%. increased million Growth statements, which gas increase from sales XX.X% of was increased same sales third quarter and demand, the joint was net ended record fiscal year. nearly fiscal industrial net XX.X% global million to

sales period sales XX.X% XXXX to throughout NTIC stable fiscal China our million remain XXXX to of a NTIC the year. fiscal compared these last $X.X the higher market XXXX across thus sales fiscal trends with Sequentially, customer fourth primarily proactively our during improved of new are made we project. The industrial well to range quarter to quarter Favorable due the our in owned third same remainder XXXX. We was fiscal expiration a customer and this work segments during fiscal subsidiary to slightly increased and sectors ZERUST of sales sectors. within products far the due down I growth were into pleased increased we demand million base core these towards continued JV am for with China and the optimistic have progress Net partners market as fiscal have as continue to and the into of quarter our will of the performance. existing $X.X third by XXXX wholly

fourth the we customers across expect and reaccelerate new our remain reach well convert in we However, expect obtain expand continue can customers aggressively strong from sales that continue market across to in China We China. as former we trends our as our China opportunities as to JV quarter sectors. remains as NTIC to confident sales we

improved and oil third fiscal for same the past compared XX.X% expected, were the gas over As net X and to year. sales fiscal XXXX of months the last period up quarter

as We continue within within of trends expected a continue and to advancing growing number compelling of our coming gas to projects solutions are improve towards products industry. large expected believe in our provide to category Sales oil and this this the growing quarters contracts. result

order pipeline Specifically, from a fourth for sales products. control benefit quarter oil and are expected corrosion new to gas large

of largely the it represents within significant products we is project-based protect oil our to technology this for While NTIC’s believe pipeline order, market services. gas another and application use a VCI and validates the and assets

Now, turning our Bioplastics to business. Natur-Tec

as For products America a subsidiary North in an period third same expanding in result finished domestic as demand fiscal the of NTIC’s the India. strong fiscal of distribution Natur-Tec well quarter, XXXX rates last growth majority-owned were of through $X.X double-digit network Natur-Tec sales sales by over million, XX% continues to significant increase as our achieve higher year.

Looking is dynamics and a up Chinese expanding core just favorable at the beginning. enhancing momentum gas business it record reach the offering for result of business believe of shaping market, our and business. our company Positive our our increasing and fourth oil be market ZERUST quarter the direct in market the a year within products, Natur-Tec share industrial is in is our and beyond, to we fiscal XXXX

net the ago. fiscal we to summarize now achieve results financial share result, than of to me income a per our remain over our and overview, in let this goals call XXXX to for track $XX Matt As fiscal XXXX over million on NTIC diluted sales years more turn quarter. the X to net attributable $X we Wolsfeld in With over that third outlined

Matt Wolsfeld

sales sales $X.X China. includes Fiscal corrosion contribution third XX.X% increased Patrick. sales of ZERUST which sales. drove joint a fiscal product grew quarter Higher also all of XX.X% benefited joint profitability from third quarter by segments. strong Income Thanks, operating a increase and quarter NTIC increase the third of operations fiscal gas inhibiting and venture income. in Natur-Tec result nearly across XXXX ventures higher many XXXX and in in increased XX% oil NTIC’s the corresponding growth double-digit venture to compared as joint NTIC’s sales the net XX% or from XXXX last in sales across sales of industrial XX.X% our for million, a period year.

the during primarily and result but a Our selling, expenses. the and year. a to net expenses percentage XXXX expenses third to The XX.X% quarter, increase research $X.X period last higher increased was sales decreased total G&A million fiscal operating of to operating fiscal XX.X% same in compared development as of XX.X%

However, expenses drove million diluted for for higher to diluted increase net share in sales or million from a point operating $X.XX basis year. same in income the allowed operating third the share per expenses, increased us XXXX Net $X.X $X.XX sales. period which quarter attributable XXX $X.X of NTIC or XX.X% percent of reduction fiscal as to per fiscal to last leverage the a

of $XX.X XXXX. and On $XX.X financial operating of mostly had in XX, will million, and of cash XXXX, $X.X significant continue model to $XX.X or not $X.X As working in in cash as cash cash business available-for-sale equivalents XX, May $XX.X capital. model cash compared produce remaining require XX, May additional in strong expect we and in securities in flows. invested NTIC’s which was the million of our venture, working capital capital investment company million million cash with approximately XXXX, and the does and XX% million including August in million $X.X securities million, joint to million including available-for-sale was equivalents $X.X balance

During XX, share was on XXXX quarter, NTIC’s of to May the on fiscal May XXXX. of second quarterly Directors dividend declared shareholders of XXXX cash per $X.XX X, payable Board common that a record

annual we Turning now ending million our annual million. to $XX.X year NTIC’s the million net between August $XX increasing fiscal $XX XXXX, current XX, fiscal from the sales $XX.X between guidance for year and million and are to expected for

our to increasing our annual NTIC. expectations attributable also income for are net We

to $X.XX tax $X.X share, $X.XX $X We be the of This to which risks in These one-time our net and release. estimates are million forward-looking significant subject previous described those our of charge $X.X disclaimer U.S. reform. statements diluted per including share earnings to to per uncertainties, includes diluted $X.XX $X.XX are or share. expecting guidance to now $X.XX earnings with million range to million the income per million or $X.X compares associated in the in

see, can we encouraged you as results. So strong our continued are by

excited we are to the to growth we We With that are and questions. this, direction sustainable are happy compelling Patrick by and have built take the and drive your I profitable platform headed.

Operator

with [Operator Instructions] Van comes our & Tim from first Clemens Company. Clarkson And question

Your line open. is now

Tim Clarkson

better. even how at quarter I one a last quarter. is this was surprised Outstanding was guys. Hey, good and the very

that’s So really good.

background have deal, have it pipeline, that is the pipeline to it told don’t applications do any inside Just it is or work? of always or guys me pipeline application, two components On this what’s how has pipeline so questions. in the the you with this does new you

Patrick Lynch

not inside further details. right are now, It’s we really discussing And pipeline. the

Tim Clarkson

Obviously, it could big very be though, right?

Patrick Lynch

pipelines, thinking like to think are you we when Well, big.

Tim Clarkson

Yes.

of compostable area – what’s [beat potential Okay, potentially being egg] a could able , that compostable big to make this area the straw? whole to example, another products, for this with the on [ph]

Patrick Lynch

Excellent question.

formulations of application. applications the for of compound specifically our resin or is of more that One one

current we so for Asia demand We manufacturers expect We in are grow with alternatives to the better competitive is that than supply already Southeast nicely. a grow should confident trend that formulation straw makes that we everybody are and that, supplying our various business straw for. asking believe formulation given that that and

Tim Clarkson

everything release go let Yes. on people. news that. to like other is see will Otherwise, Thanks. I would good. to I it

Patrick Lynch

Thanks.

Operator

Billeadeau question Instructions] Thank comes next Partners. you. Our with Walrus Scott from [Operator

now is line open. Your

Scott Billeadeau

as that. it’s just the Matt, not Hi, that’s I thing the update million that net bit that? mentioned the you number maybe are if much of in is you terms just guess sure of and JV not gross been guys. inquire total am JV a sales, income, give as I I that the well, about going on $XX talking but sales. give too a think me little about highest sense is to on pipeline little you ever mentioned, a right the was I second

Matt Wolsfeld

that also sales the highest is Yes, level subsidiaries consolidated. the then combining sales the all of to it’s total highest all that be were and JV level if they of case company-wide

Scott Billeadeau

you sense us if of levels of those it’s are? a investments, little each margin kind income we on need can only are to you they give overview the some running or those little at for [on flowing And a business of do hard have could? those been businesses Yes. get kind you maybe Do make what’s you, all since level, to going net and if sales through – based maybe to optimum they then tell kind can us but picture you of of growth] what’s businesses [ph], give on that a at where just really

Matt Wolsfeld

structure margins would JV From margins North in the that operate with operate we of world, standpoint, America are from that in the American an see with we I Sure. a JVs that here operations around are very JVs are to the middle the the lot a similar consistent probably average the North standpoint. what getting our and with say right margin

of see business we commented, kind that and received our from the ZERUST Natur-Tec have traditional than margins higher gas we ZERUST have from we previously from we have what are the product business. to lower from oil business traditional what slightly the line and be the the than tend As margins

ventures percent favorable purchasing do the in a North us to depending maintain we also margin cost we work gives joint of at margin we But that quarter-to-quarter are price, sales profitability general, in deterioration to so certainly any volatility we the lot of So product little are and haven’t significant of of the bit make-ups make on in America the and from in a of the gross the that a sure different goods. it basis various with able product. the seen

Scott Billeadeau

thanks. Great,

as been to somewhat you classic in do the question, seasonality much tank it last oil know doing have – of forth. [indiscernible], based you and way the business, so on look gas is a have forward, visibility one winter – there I terms you the and Just the or on the

as to but to grow projects, So, times start – it’s some do decent on of you maybe the that be get a projects to kind customer little this visibility you seasonality, or will customers the would I of peak guess have bit up the kind through give you maybe execute? –

Matt Wolsfeld

is seasonality, North you I or think certainly America Canada. there up specifically get when some in into especially

work are had as much when outside and below projects Alberta We that up have it’s in XX have been the zero. obviously area not doing they

adding second impact – we starting quarter and business such not Again, third sales to of oil we just have part seasonality. are lot a from of that and say why to that or quarter to basis. have see are that’s these had weather It’s have we seasonality. seasonality customers fourth what that the reason with in the can from the do doesn’t is in mean, expect a of what I right significantly different we that as in in are we oil where going quarter-by-quarter of to sales sales in are fourth surpass impact happy and However, that down in quarter an adding be I from oil customers the low the Oklahoma in Texas, areas quarter, India dramatically quarter, we gas and don’t our third gas base department in new quarter, and first on a really an it has much I we think gas expected the as higher. see now

So, to continue certainly in higher and obviously is then the and main projects level that a customers we our have to gas do to with we of we are oil focus base think along that. pipeline, for and have that business just the going bring to new

Scott Billeadeau

Great. Appreciate Great guys. it. Thanks, quarter.

Matt Wolsfeld

Yes.

Operator

would Jerry showing time. the question apologize you. call any to Private now Lynch do am Investor. further to a have at turn I back not any this And Thank remarks. we I Patrick further And I from questions a Well, for over like

is now open. line Your

Jerry Well

guys. that about Sorry

diligence work to hard off see. your good and paying all congratulations, So,

from am? and it’s little been also your wanted Just two might and anything has talk you are stock One to but of to dialog anticipating And is I second split have trade forth? you not war closer quick to new opinion going so any question it are you seeing in liquidity more if back questions. all you Do to if the and stock? I what the line formulated any create or tariffs – than opinions, about that relates get the to at there look more see

Patrick Lynch

Jerry. thanks Okay,

me Let then the half. and and question maybe will part answer of take other try Matt your

vast current rather other as prospect the an a business States. United that of stage. There anticipate there the or And at far of not tariffs by are either basis, from customers the guess way other trade we a our on business metal for our parts at this export using regions United Chinese and to much United ZERUST the impact of our customers. of don’t exports many China too not exports – lot war around, business States least the domestic Regarding but than to products are the goes, as from at of of this China the are our States either. Most majority use to I point the from

So the business. that’s ZERUST

happy from tariffs about don’t sold of the products I it goes goods some purchases United by that would respect. Natur-Tec, being XX% impact of impact China that’s August will round our set that of next into effect cost guess States, in our think profitability to? We hurt split, into if Regarding impact business. for certainly imported that for necessarily business for it now time. oil effect a the sales, be Matt right the top will would of our we as will period gas stock line and don’t but on of any the anticipate And for And the

Matt Wolsfeld

Yes, Jerry.

by goes, the meeting any annual far are at to for tabled certainly a it the our time, to but that’s until most be as the going – January plans it’s is but is next that of split to looked we going meeting. split Board any annual after As nothing will of then stock kind shareholders January stock do Directors, being that happen take something the least to reevaluate at place until at and going part, the

Jerry Well

Alright. Thanks, again. Congratulations guys.

Matt Wolsfeld

Yes.

Operator

And Van you. comes & our Thank Charlie next from with Pine question Clemens Company.

Your open. now line is

Charlie Pine

a for some like your you addressed, to for just been for, product circle of back I discussion congratulations, compostable to like Hi, a I Natur-Tec? this this would quarter. formulation the do could viable would be – potentially or fellas, when that really ask when stuff have has the on prototype this great is apparently but a straw for to commercially actually

Patrick Lynch

Okay.

First not to already we our formulations a that, will In it of Natur-Tec straws. be product. are selling supplying all, viable straw is resin itself commercially manufacturers. these

manufacturers we We raw made are the straw straw are with supplying other straws and adopt to in several near only supplying also future. materials Asia have discussions to and we this those Southeast in the are large manufacturers in

Charlie Pine

of along out along to and are does else up basis How it further other what Okay, beverages? you on you something that does your the we formulation, that. as are see of beginning against the far – lines is the lines in straws compostable when clarifying market competitive consuming to as your – how stack out ask thank for a about

Patrick Lynch

understanding speak easily can’t is greater more also the manufacture easy have be entire I by and consumer by to Well, mechanical to and it they to will that they strength, market, that resin straws the manufactured formulation be to use producers. allows our my so easier

Charlie Pine

of Okay. up how then basis compared And a other compostable it that makers to cost stacks lastly – you think you straws? did on and

Patrick Lynch

am I are that we competitive. guessing

Charlie Pine

the last ask storage was maybe quarter, just bottoms? the just just you far be on quarter business getting for And and the so that to oil angle primarily completed Okay. this different tank business another would the that are in thing in was business gas

Patrick Lynch

Yes.

Charlie Pine

to are Alright. be solution going And a talking is is to new that this you that about lot coming going the attributable or pipeline to you to business having of orders QX higher be… it in

Patrick Lynch

also impact bottoms. getting due we orders for be to the continue significant will a tank to be There will storage but pipeline,

Charlie Pine

hard great work much, a thanks Matt, are like was the very thanks really off and it’s year? and of it going quarter it you to Well, and and a to – alright. looks appreciate going finish Pat Okay, fantastic

Patrick Lynch

you. Great. Thank

Operator

And with from Invicta question Capital. you. Thank Greg Weaver comes next our

now line Your is open.

Greg Weaver

Good your don’t the opinion this is two one-shot deal the morning, know want congrats that. gentlemen. Nice in job. or in same I this But of details landing the quarter or for on you kind now? And on pipeline, customer potentially the to following give just most has follow-on is a

Patrick Lynch

continues customer us but to pipelines the first repeat of basis, a regular this return put as expect solutions has a as we not it’s pipelines need all, tank order, somewhat from bought past. place. periodically expand, storage on for necessarily Well, be will in the a in are that And new

Greg Weaver

Okay.

Matt Wolsfeld

last the of on majority in The out, of shipped it’s that three being stages, the larger first gas oil from quarter. standpoint for shipped customers a revenue the with to has lot this shipped – with to in is depending of of majority from product in, it should be been project one-time the quarter tends in little go potential third their bit and out be fourth the been orders. issue volatile The the products

a have are revenues are There have you the this can quarter quarter mentioned where it. then from as certainly significant where and follow-up Patrick you going one customer opportunity. specific and opportunities next pipeline it’s low So, this very to specific with

Greg Weaver

in this Thanks, sizing the And order? helpful. gas, any magnitude have for $X.X million year-to-date here Matt. you of oil that’s Okay, done that to relative sense and any

Matt Wolsfeld

in $XXX,XXX We I and say again $XXX,XXX at in about in want quarter, did. quarter. $XXX,XXX oil we in I second mean, third quarter about gas to about did and looking first about,

like we pipeline to double fruition. quarter. be finally should quarter fourth third projects to is one saw starting that are just that And coming this are there other look beyond are in they as expectations also project, then what Our

to for want oil finally the a the been time, and oil knowing have are time seen the bit. from obviously gas long business possible. certainly in hope a company coming but we of as and it’s have get of of long Greg ahead success it’s and and So ourselves little off we are past to we take that seen the you see that we gas, But don’t we saying a seeing starting

Greg Weaver

incremental the Alright, business, front okay. math, you a on that sequentially trying And but gross that just to margins? obviously help I Yes, adding have sounds bit figure been should little out this good. on there that margin

Matt Wolsfeld

it Yes, would.

Greg Weaver

Good on Thank gas Okay, luck you. thank you. more business. landing oil and

Matt Wolsfeld

Great.

Operator

question Advisors. next Clark from you. And Kevin Heartland Thank with our comes

line Your is open. now

Kevin Clark

Diet good the going a also Yes, ever that to gentlemen. – as stuff? traded about would have there thinking been imagine that you on last am Pepsi to plastic mean in. the to spinning nice Do is and straw spread any Natur-Tec, I you rate quarter. obviously a run-rate quarter, secondly, $XX Natur-Tec thing, Back or I products And bottles growth a for ware, type discussion your you and morning plate soda company? XX% million out has separately going be silverware it Congratulations and bottles this in used ever I consider to Natur-Tec use of

Patrick Lynch

application So all, a terms performance bottle and requirement in soda first of different completely the so. is of

at this So we are point. not that addressing

is So we And thing, in working so present future spinning application the not entity, separate that the opportunities currently that. to soda have completely are one the themselves. we on different straws as company the at a and as regarding look off will bottles is a the

Kevin Clark

alright. Okay, you. Thank

Operator

And like to I remarks. you. further closing any at to over this am not Lynch now call time. questions back the I any Thank for turn Patrick would showing

Patrick Lynch

participating for NTIC. and a Have nice I in today would everyone thank your interest for to like day.

Operator

participating and may Ladies disconnect. all day. today’s thank conference. Everyone wonderful for does in today’s and gentlemen, conclude a program This you have you

Northern Technologies International (NTIC) 12 Jul 182018 Q3 Earnings call transcript