NTIC - Earnings call transcript Q2 2020 | Northern Technologies International Corporation

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Operator

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. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements.

you XXXX by Earnings thank the welcome gentlemen, Quarter Second Conference and for and standing to Ladies Call. At in this a are listen-only mode. time, all participants After question-and-answer be there the a speakers’ presentation, session. will Instructions] [Operator

hand I would today, Lynch, Thank CEO. conference sir. to Please ahead, your Patrick go the you. now speaker over to like

Patrick Lynch

and the NTIC’s that quarter note for is Natur-Tec I CFO Vineet results as as a Lynch, I Director for Global here release Development second Please business. CEO President ntic.com. this which Market XXXX of fiscal financial copy morning. Good were press Patrick with am our our well available Dalal, and am at of Matt NTI’s Vice in included morning, issued earlier Wolsfeld, a

aspects financial then second fiscal During this of session. a call, our results, update, and a we quarter brief conclude business with question-and-answer key XXXX will provide various review

withdrawing suspending COVID-XX evolving, year XXXX fiscal running global or anticipate currently quarter be during capacity prior the crisis installed specific quarter and the Our last in fiscal quarter altogether, quarter. economic of XXXX, business impact the customers we the for full our down fiscal bioplastics America, products were either our since to of XXXX industrial a second our remain second by considerably pandemic. slowed their North and ZERUST to oil were second ZERUST compostable to year are as compared fiscal significantly many sales the sales influenced significantly first projects first With and year compared or the of is COVID-XX financial the fiscal results for When delayed continues venture gas fiscal down we increased substantially Natur-Tec and comparable the network. third our China joint from several and quarter fraction Demand locked Furthermore, demand quarter year guidance. and for quarter. to however across prior regular quarter at of

been of and our the Board Directors of behalf pandemic. affected of the are entire On the COVID-XX leadership has team by thoughts NTIC, who anyone with

our have While intact. we our near-term opportunities and priorities, strategies had to long-term remain adjust growth market

of current uninterrupted employees. this strength the as we excellent asset-light order service highly and customers, providing the currently experienced of ensuring joint customer Overall, uncertainty team while capital and safety have to securities. a and and over structure. equivalents result We business from period our in million of are intent profitable Our our $XX fulfillment ventures position of and leadership is cash available-for-sale continue and entering cash model,

availability Act the associated of signed support government the law evaluating are March with we CARES XXXX. into programs Additionally, on that XX, was

for this quarter. second overview, let’s drivers examine with So the the

ZERUST decreased and February and oil For Broken this the ZERUST Natur-Tec net compared in and already the our pandemic. X.X% quarter softening of ventures. to ZERUST its many XX.X% the by to in net decline financial sales and net industrial then do increase of XX.X% from NTIC for year. sales the worldwide XXXX second net a units, sales XX, decrease joint second fiscal XXXX. markets million This serve not joint demand sales ventures first million were quarter to compounded statements $XX.X a a consolidated in in consolidate decrease $XX.X we a $XX.X by our included the across we second the for as fiscal venture period net the which net by joint XX, compared was COVID-XX X.X% in last sales the at February of result industrial the was gas XXXX, effects later X.X% same in Total sales business total quarter offset quarter ended ended sales increase by down XXX.X% to million in

optimistic the levels XXXX COVID-XX intend fiscal that Year optimistic return second to imposed the increased economy subsidiary restarted restrictions we to China the New Chinese for month higher previously last the will NTIC of of China of impact XXX% are by to XX% of prior the level same pre-pandemic the spread they China sales, lifted last as fiscal the as of wholly-owned remain year. has the the in mitigate our market. by third from in our China compared sales and pandemic. quarter and had Overall, sales we business within potential recently this prior end NTIC NTIC to growing million presence of benefited earlier to cautiously its about second large further the Net quarter X.X% to period COVID-XX. and sales returned China the expand to long-term we sales quarter and $X

and ZERUST several result having oil our expected, quarter sales significantly a increased As second as customers during gas shipments the quarter. product first delayed of from

sales orders latter and and remained and war our challenging oil on the price to travel Russia-Saudi gas primarily solutions. impact sale impacting timing COVID-XX with install prices have volatile the of our pandemic oil customer and The deliveries. to to had However, long significant and market ability conditions the cycles, oil due a Arabia to overall site

oil the and protection. and customers replace time will other solutions of be we We gas expect the will for gas and of and our oil successful be committed that and duration as the market oil COVID-XX impacted We over to adopt crisis. forms sales remain believe materially more gas corrosion

our bioplastics turn me more over in Vineet review detail. Natur-Tec the let business Now, call to to

Vineet Dalal

XX team to I for Natur-Tec. the focused you, more join for member time call am I on a my years most our detail. Natur-Tec to Patrick. I Thank and have company, NTIC’s at have been in today’s business of nearly happy review of leadership

Products and I sit the a Board promotes also on the of the to Natur-Tec Institute, addition based In that Biodegradable use U.S. plastics. organization compostable my responsibilities, of adoption

conventional a single of that and a use those plastics become Natur-Tec and alternatives in plastics our price characteristics comparable affordable has competitive. XXX% of at creates bioplastics leader technologies. as a the Natur-Tec performance proprietary patented industry result to compostable is with

also developed with suppliers brands partnerships years, feedstock and and important key the relationships we globe. formed strong key with Over converters the around have

environment environmental to market for which waste in believe sustainable the of bio-based industry have and demand We the and Over as place solutions. single compelling few created criticism and product for is for state interest countries political concerns municipalities local dynamics has compostable plastics initiatives. alternatives, as and sustainable bioplastics and the a past putting Natur-Tec’s significant driven use years, disposal well in more waste due global societal management as conventional are

second New last the Year facing during impact associated and the Asia Natur-Tec South and the million the $X.X Natur-Tec were line and in Chinese in net pandemic tariffs, shutdown despite on COVID-XX Chinese sales the quarter. fiscal For year sales headwinds XXXX sales with had quarter, the were China with

will of impact bags, Furthermore, apparel For across next decreasing world, closed packaging Natur-Tec become for continue industry. soft of impact part within the Natur-Tec sales, compostable the for demand important pandemic large in the few apparel to declined college initiatives stay-at-home mandates countries result expect stadiums, production this the have an corporate arenas, other be COVID-XX have around the least we Due bioplastic stay-at-home the crisis various industry because plastics. a near-term, and anticipate mandate we sustainability users office which campuses, the the of business quarters. the as at to the sharply to COVID-XX has complexes of

customers proprietary continue to-date, see began existing and strong foodservice largest our quarter compounds world’s the supplying and the cutlery to new demand from resin one manufacturers within during to we of the However of industry.

applications. We and foodservice sustain business grow from demand crisis for the compostable expect to COVID-XX be this strong considerations as hygiene

well can you supported we technologies and as see, As a favorable is have bio-plastics strong dynamics business built compelling regulatory environmental and as that industry our priorities. patented by

We to calls. updates our are industry in future the within success excited I leader look extremely a to forward on be providing and

will I back Patrick. call turn the Now, to over

Patrick Lynch

for that due prepared we Vineet you, additional COVID-XX Thank on to the To the insights of uncertainty conclude pandemic. Natur-Tec. there impacts know is the all remarks, my significant

However, we Since NTIC’s leadership crises, has product recession of longstanding greatly great then and course, market our XXXX. geographic prior have of successfully expanded including navigated in number XXXX team diversity. of and end the

business increased. our size scale the addition, has In and of

of all opportunity of employees strength and behalf of uncertainty. partners. sheet Finally, with I’d leadership model you us our and help balance thank like resources throughout benefits of team, to business for use and asset-light economic of significant us business flexibility thank time this the this our crisis. our provide global On and the your to dedication and joint venture entire to this work hard navigate

me second quarter. overview, With the summarize the let now Wolsfeld this our XXXX Matt over results to financial to fiscal turn for call

Matt Wolsfeld

second many than impacted Patrick. fiscal income, Patrick trends the in as fiscal sales net joint less year. XX% XXXX his remarks. Lower which joint quarter a XXXX operating compared result decreased of quarter decreased prepared the second sales the for our X% in Thanks, to NTIC’s of reviewed ventures prior venture across fiscal

call, compared to primarily to second in during incurred period to quarter. million during As operating increase expenses $X.X for the year-over-year the XX.X% quarter alluded the earnings G&A same year. quarter The of million was timing increased total the expenses due $X.X higher and last first totaled the

increased proactively to year-to-date which control continued expectations. total We line budget both is with expenses and X.X%, expenses operating in our and

fiscal expect XXXX we in year-over-year addition, operating to quarter. In decline third the expenses

tax level received income our second a ventures XXXX foreign paid the dividends we higher taxes increased result quarter. $XXX,XXX and of from fiscal expense Our distributions to XX.X% joint quarter during as of on

of $XXX,XXX and greatly the quarter. fiscal expect $X.X NTIC $X.XX or per for for reduce XXXX fiscal diluted second in We third fourth effective million the quarter diluted rate XXXX quarters. income our per share net $X.XX compared to reported second share to

August million, working cash was securities equivalents of million, $X.X $X.X cash million in and $X.X in As XXXX, $XX.X compared of February securities cash $X.X in XX, available-for-sale XXXX. including capital equivalents and as million million $XX.X to including million in and and cash XX, available-for-sale

we the that opportunities afforded signed the note Act was law, a March to XX, us As by CARES currently XXXX. are into evaluating

loans utilities, for support time, is extent investments other based this set at employees. of is form retain primarily of in uncertain CARES or that $XX.X which million XX, On measures invested healthcare capital. the the million relief XXXX, February the in the $XX.X benefits joint sweeping approved remaining of venture, cash to made and balance $XX.X guaranteed of forgiven with be in While efforts had includes on federally financial company the in payroll in Act payments can the working

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

overview, this current year are we Patrick this circumstances, take I guidance. With fiscal questions. suspending are commented As full in earlier your given Patrick, to Vineet and call happy

Operator

the Capital. Our comes Tim of Instructions] from question from Clarkson line first Van [Operator Clemens

is line now Your open.

Tim Clarkson

Hi, Hi, guys. Hi, Pat. Matt.

you Can a we I between questions more little with the understanding business of part know explain compostable biodegradable some products think difference bit some the that the that Just critical and products? are to on I this. are just questions putting emphasis basic compostable

Vineet Dalal

This is take Yes, will Vineet. Tim. Hi, I that.

in are products biodegradable general spurious very which So lot and conventional add use There in will – term. is it is they plastics additives and to they the a these will and a market, California them products of of state call mislabeled Unfortunately products degradable. such there are marketing prohibit considered kind are places the oxo of like the not products. which biodegradable, of especially rules

or consumed environment that Our to the is as the by and are and gets water COX, source a to food means disposal that converted – gets the XXX% Natur-Tec in product of environment, microorganisms products that is what biomass. converted products compositing sells certified in a And the compostable.

third-party certified by are labs. independent compostable these So

Tim Clarkson

Great.

to superior are make products what compostable characteristics Now the competitions? the that Natur-Tec’s

Vineet Dalal

products our them. The stronger. main is really We advantage are formulate

We of process formulate processing stronger, these products equipment. behind that have that we and chemistry to use conventional cheaper understanding good are to and on understanding plastics easier materials extremely the

Tim Clarkson

Right.

know how opportunity new can you how mentioned you that the this for cutlery, that explain into, factored getting company you significant that that you explain makes you I dynamic Now, can have contract? played

Vineet Dalal

this had us came of resin raw or situation. actually in is one materials which cutlery been in the polylactic sell we cutlery over U.S. They is have would the that acid large a actually a They a for to this market. X success. They any brand. didn’t and lot PLA years of or a working with solution compound have disposable they So and single-use work

requirements work well solution the that for we performance So, of tolerances this with specific that the allowed the partners a develop the create brand. chemistry our us Asia a understanding in solution And of and as closely for it’s met to that processing rigorous performance as one this unique conversion brand. met

Tim Clarkson

products competitions the the will machines? heard I clogged in that get

Vineet Dalal

get the Well, warped resistance Yes. the would as they didn’t have the competitions strength well. or wouldn’t they product, application. the They required perform for or heat

Tim Clarkson

Right.

system? a – cafeteria to compostable into organic close waste the system having that that you food fast this in commonly work how or a concept would explain a Okay, can of divert trashed and

Vineet Dalal

So streams, municipal prohibit the much actually dangerous regulations, typically, that about or what organic paper. waste, industrial of in collected to composting and is which reason is as have These landfill waste, gas is yard if organic a COX. into this compared a XX%, of have lot pretty in sent waste waste This municipal states city be called municipalities organic at you the separately any food solid to XXx generate and methane and for these dumping is this is greenhouse stream landfills. compostable waste facilities. And waste the would state solid more look methane XX% as waste. [ph] And a [fast] to of

They you collection collect landfills this at to bags. will the composting. assist large and away our will all waste campuses, of kitchen office They in food they and compostable will if waste So organic and from or or universities our well cafeterias our divert districts the they school compostable of that what use onsite use And is vegetable other waste products they will look cutlery. organic compostable as the back they the as waste. peels do of have

the zero called loop systems is what really help products come and and that’s where so implementation compostable initiatives. that’s systems, enable And waste closed in these of closed-loop our

Tim Clarkson

And places too? work would in food that fast

Vineet Dalal

to saying with the A the out fast QSR in West or Yes, comply look it’s Coast, are starting they restaurants to. food have if organic in specially compostable implement the now at chains looking McDonalds options the you lot cities, cities implement looking large QSR of those diversions to in restaurant are the are like eat mandates so in now they products. to that

Tim Clarkson

consideration question, hogging. be money Pat. quit the And may and last a I to off spinning Natur-Tec One and ever is Sure. there raising mean the, of to this is Matt separately? guess, division I'll some I

Vineet Dalal

place any We time. have plans specific that in at that talked about for but don’t we have this

Tim Clarkson

just I advantages would that you the do of if what mean that? potentially doing did theoretically some be of

Matt Woldfeld

be I that. would set, from than as the oil differently environment a think a more nice that and able we and the with order be drive, investing higher would little it so current as it advantage would potentially waiting potentially now serves clear different – to a potentially drive in be it a traditional very to be a not bit Northern but the that significantly Technologies as market I think industrial gas potentially would higher as with ultimately think opportunities entity certainly think environmental applications, probably applications are little necessarily I Natur-Tec where the could standalone stand-alone green would technologies do investor a revenues see we they valued and to like grow clear investment, I than but far are

Tim Clarkson

right now Right. And like I publicly the product a compostable packaging think this? traded Northern company only that Tech is has

Patrick Lynch

Correct.

Tim Clarkson

Correct.

lot a questions. asked I Okay, of

some putting division. focus you really on I appreciate really So additional Natur-Tec thanks. this

am you. I Thank done. So

Vineet Dalal

Tim. Thanks,

Operator

Thank you.

Meros comes Tim next from question Our Chatard Investments. from

now is open. line Your

Tim Chatard

morning. Good

expenses in little for might quarter. the a absolute higher this was like dollars maybe year the Can what you help it expenses? on with bit look Just in

Patrick Lynch

Sure.

I the growth take look mid – single-digits. one is things do the expense As to not has operating company but total it, strived years certainly in is of over at have the always the past always

operating about to where total has with for That’s expense the much X.X%. in be year. pretty line number, So I look full expected at when year-to-date grown the by we

expenses. on to at would four for or our dramatic see home, with in COVID-XX travel, months probably a I least we now are working anticipate that no going what’s decrease operating going the given However, the next people right from three

I far down full down anticipate the as $XX probably low as growth going maybe would the to in the that so low single-digits for million something growth, going operating year, X% number. year-over-year X% the So or

Tim Chatard

Thank fine. Okay, you.

Patrick Lynch

Yes.

Operator

you. Thank

Our of from next Richard question comes the Gus line from Northland.

is line Your now open.

Gus Richard

taking Yes. for my Thanks questions.

try move use a are for could bit on since eliminate about what plastic, talk seeing there Just ban little this real year or early a as to of opportunity quick single its has they changed is there, to lot announced use? you you compostable an kind you then,

Vineet Dalal

was are New Chinese still figure still development so The view, is the right, had about have this ban that COVID-XX enforcement positive is going You they before critical. and kind to to of very be but in our be – right proof then out because in, critical. China, to going exact is announced talking is yes, shutdown pudding crisis, it’s the the details say Year there you in the to as to implementation be a of going the

be uncertainty, that seen team China yes, us. it to all remains that’s is out, still for pan this in opportunity so how as but at to potential our with looking And going a

Gus Richard

And Thanks. like? And about it. into restrictions that that travel can Got like? adopt place went as seen look Europe, you And in to then have the the these that you what to it’s etcetera contrast to now what as compare China, trajectory then talk a far little COIVD-XX? of and what regions bit out, that coming you U.S look trajectory so then have reality and can the shifted

Matt Wolsfeld

surprising including Sure. during we what the setting remarks. are prepared to and that we January we achieve December XX half strong are to what China had shutdown we first months at out us. to through we rebound basically we much the flat talked end January the X saw relatively had of strong of the with on basically had entire is about bit of China having it’s months some second pretty that. first this starting the be quarter are through coming is and able to to a in When first basically It’s starting flat really – China quarter, be strong looking we see a year-over-year the quarter in given everything we as with into little was to Obviously, what sales of

So March, basically the coming things the month are entire shutdown, back of up. out of to ramp starting

half of – finished March China finished it close marked significantly run-rate second March stronger of March where half the XX% The pre-January ultimately was. they operating first our was what numbers from call XX and than the at to were

rest we and up expect with above of the product the April throughout their that of with rest discussions that so back looking quarter be and run-rate pre-pandemic, team the and with leadership to anticipated run-rare at And had shipments they of to kind staring the what of that the and then basically the they be year, was expect the of above operating May. April XXX% end have

So, we the Chinese of are market quick of seeing rebound the shutdown. out kind a pretty coming in

say As things China seen is number kind behind the the spread. as to of that Similar the that kind in very through if and would and kind our Europe, the dramatically of the various us China that United we was January still I behind, on couple on out and that North point is see what’s to like things trajectory back States follows are talking going kind how at have of America are February be far X of at where guess of the look looking weeks but same least X being days shutting in exactly to and to if then shutdown anticipate States of basically X that May we a coming obviously we it seems at of then partners April we if is that Europe times the to And weeks hopefully that you let’s obviously United of basically probably and potentially two time sales going almost you kind so take XX rebound. can if X drop sales capable charts, to as Europe in XX slowed don’t going to are going rest slow until behind. things or on same I path, end about as start was you during know of down weeks months looks, days. that, is China seeing it. the period would everything to of what’s and it going at it it’s to time, of as that the be from world, with and in weeks

– sales. as customers, and in have our far bit on our world are what would so we our of what do I of lot working to I internally up we of into of as the in what say things kind see March. other know was through ability are that’s that especially North on little how the visibility least So we how hold, we going parts are modeling America I because saw of at in place the we a keeping most think a stacking take customers have

even had, were business we to things from getting slide were that except they were for people though stronger March would cautious, going to working bit or February some anticipated certainly that NTIC the everybody though plants shutting in teams even and people than bit – stocking was restart a were there shipping team the opportunities for operations up like be a home basically little made where So when staring that. and we and as little things down was March not at what

United from of will quickly – that. keeping kind are able really of we that’s how that out come on would to is of bottom come and the rebound eye start to out our kind what will of States when when we So be we out then

Gus Richard

point peak look what one that to was not in China, tightly shut versus and did so or And off or XXX%, just the follow-up, in trough that much? XX% in like? at U.S. it U.S. whatever China this quite trough and the Has to Europe peak as Europe, was

Patrick Lynch

not shut we far in people work, America in a when North are production shutdown during industrial there to still shift. what seeing and think delivered was I going taking homes, that – as was leave was products, did did in as – that is they shipping I what I China hasn’t place mean, period. car don’t certainly from people it anybody. is just everything their standpoint are I we people happened still literally people it’s still things mean, they Europe, and like not are quarter place. just And still are mean, are it an nothing what was off. shutdown Well, one XX-day everything seeing

Now, the that but any we North have other auto China place that week the of, America. big three in different in in know put dramatically to Europe companies since in X have we than shutdown seen in they what saw was are X a middle responses that we or

Gus Richard

Got helpful. you. Very it. Thank

Patrick Lynch

Okay.

Operator

Thank I showing further like remarks. you. time, back At turn to for no to this closing Lynch I am questions. call would Patrick over the

Patrick Lynch

thank NTIC. interest like today your everybody participating a for would I hope you great and Thank have for week. I you. to in

Operator

this call. you for today’s Thank Ladies and conference concludes gentlemen, participating.

now may disconnect. You

Northern Technologies International (NTIC) 7 Apr 202020 Q2 Earnings call transcript