NTIC - Earnings call transcript Q1 2022 | Northern Technologies International Corporation

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Operator

Good day and thank you for standing by. Welcome to the NTIC Conference Call and Webcast. [Operator Instructions] 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 to 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 your like conference I hand host to now Lynch. today, would Patrick to over the ahead. go Please

Patrick Lynch

am ntic.com. Good morning. I regarding that Matt this Patrick was Lynch, our note and first NTIC’s Please available press XXXX morning here financial issued and CFO. results NTIC’s Wolsfeld, a with CEO am I at release quarter is fiscal earlier

healthy with we safety a presentation our and XXXX me advance. itself to believe to stockholders of minimum. of are begin meeting everyone Let held meeting able person is to well to proxy not note, of and by only wishing I’d our stockholders And vote possible will reporting short Year. and everyone Stockholders Please in we like well-being strongly the due upcoming prosperous encouraging safety an as also kept year. that XX. by business The comply in and by New we CDC making our Meeting employees election important this is the as although will the kept to be if extremely all attendance results however, the is be any pandemic, on the remind January Annual and that absolute as as better guidelines state COVID-XX

XXXX global will demand to quarter aspects a as review the is with update, strong many provide during key Overall, then encouraging. our business which we off for a very we XXXX of this across session. financial various and call, question-and-answer are start first results, brief our first Now, experienced fiscal a markets, remainder of record fiscal of quarter sales conclude

that the are and ZERUST The as first as venture in ZERUST therefore, for now excited we acquired our are entire consolidated XX% first results India, September in interest XXXX. fiscal effective of our India financial of in financial the our to X, ZERUST we remaining India. joint ownership Harita-NTI, statements quarter announcement which quarter We also about refer included of

of XXXX demand consolidated venture India. resulted in year-over-year sales consolidated As are of pandemic joint remarks. and net demand This ZERUST company’s a primarily our transaction operating through no in India Matt income compared the several and the quarterly detail contribution as during as a quarter first sales the income. record million. to and accounted to accounting prepared increase longer within one-time due financial total strong of recovery for his will ZERUST to November also result, a the higher in statement our that global in adjustments as review XX.X% $XX.X A we increase experienced to charges The more all growth across XX, led from from well a consolidated quarter from categories in sales COVID-XX result first ended product was sales are

expenses. still For of cost first net our labor with items has incremental our India experienced from ZERUST NTIC raw has which sales affected Unfortunately, global and of as one-time strong immune Even several XXXX, lagged not and our associated due sales. first of pandemic. labor significant materials friction India profitability ZERUST well contributed transaction higher as we as raw in intense and quarter impact material, growth. quarter excluding the COVID-XX inflationary pressures, the across the well said, the $X,XXX,XXX consolidated India, continuing supply the to freight to fiscal the being sales to That as chain organic ZERUST during been NTIC’s

we to our measures second taking fiscal XXXX. inflationary half these certain anticipate address measures pressures, implement of the to these effect plan we While during

drivers for overview, So, begin this more examine the detail. let’s first in to with the quarter

market, ZERUST opportunity, our expected existing and Broken China. our demonstrating sales. XXXX, ventures, fiscal this to economic continue in and decline XX, of for the by XX, a facility net our our weaker first we November an quarterly XXXX. ended increased – to support R&D quarter and both first and efforts in will subsidiary in by to gas China in due November likely and business soon in primarily financial geographic to increase new as our To million the record in the increase we open statements China million last years. over global Total consolidate China first quarter year products our the net were XX.X% sales, industrial wholly total compared and China $XX.X this This within the ended training fiscal near-term to Natur-Tec not to period volatility million. do increase first a support NTIC believe sales by year-over-year quarter was same compared the increase owned Shanghai, sales when sales, the net down net a XX.X% demand COVID-XX X% significant net continued customers. Despite of coming our become new throughout quarter production, first and conditions market strength region. net our in largest sales consolidated fiscal ZERUST oil marketing, to lockdowns the XXXX sales XXXX of is the XXXX. XX.X% and from quarter new joint NTIC a units, existing both for $XX.X is the which We XX.X% For decreased for included in Fiscal XX.X% this related in believe sales and $X.X

oil I progress large continued market. compelling making are gas and am our we product Moving on within the group, by this and encouraged to ZERUST

oil and sales year gas fiscal First over XX.X% XXXX fiscal ZERUST prior quarter the increased period.

growth above casings include to oil our tanks oil protect see We to gas solutions, and from continue storage which market and across higher globally applications interest ground and pipeline corrosion.

the sales remainder fiscal of fiscal expect to XXXX and throughout track gas XXXX. We oil above

the million, over the XXXX sales to Natur-Tec years were Natur-Tec COVID-XX business, prior – Turning began X $X.X since XX.X% period. NTI increase year fiscal pandemic of level highest fiscal is bioplastics the our quarterly sales This a first quarter ago. Natur-Tec quarterly

will we quarterly compostable in However, cycle COVID-XX remain out continues pandemic of lockdowns. the and and over plastics the expect as large of near-term users volatility

We are capacities. limited at operating

plastics exciting. worldwide prospects Our the long-term market compostable are within

continue about We large compostable focus developing compelling for within our efforts elsewhere. on this needs to strong custom product we available solutions optimistic aren’t position market. and that plastics customer remain specific And Natur-Tec’s

our are we conclude by my quarter we remarks, during growth are improve the to the and So, prepared experienced to sales record profitability. working diligently first encouraged

product benefit management geographic by diversification team growth sheet, robust is experienced quarter sales our to which from asset-light balance business Our supported model. first continued and our strategies, market end and

While profitability for financial believe NTIC this for considerable of fiscal the is year growth summarize me quarter. global Wolsfeld and fiscal results on uncertainty let overview, to track now With sales Matt the XXXX our XXXX. in first strong call turn to remains, we over another

Matt Wolsfeld

the cash The million. ownership revolving We XXXX was a increased borrowings which combination the of venture, in of under on line Thanks, we $X.XX million. and connection price as ended hand also completed transaction remaining purchase interest represents credit, with with in India our acquisition our ZERUST since funded the for Indian $X to to XX, Patrick. the quarter quarter joint XX% November of the first we which refer

of As reflected the X, now statements XXXX. quarter financial a in effective beginning our financial September our consolidated result of the are first acquisition of ZERUST fiscal results India’s

acquisition the item during equity we acquisition a statement XXXX method In of remeasurement the for million is accounted on operations. addition, during the fiscal gain quarter and gain of first line this quarter, on on $X.XX consolidated in investee our the reflected of

more compared trends remarks year sales Patrick first the in a our to reviewed NTIC’s his period, in fiscal the detail, record, to because quarterly at fiscal XXXX in consolidated positive results increased consolidated India. XX.X% prior from incremental net ZERUST of sales prepared and Looking the quarter

operating last quarter to $X.X The period with and expenses as fiscal as expenses we positive increase the ventures. XXXX increase sales selling higher associated well While throughout million. increased due first continued to short-term result we COVID-XX X% its primarily these a and XXXX, expect some wages, XX.X% variants. over prior in quarter anticipate percentage joint continue company’s Despite first the our a the were global period in trends This lower year during year. of travel incremental were softness XX% consolidated a primarily decrease pandemic of fiscal the joint India fiscal to as primarily acquisition sales year XX% fiscal across due ventures, to was first investments. the R&D the XX.X%, joint expense higher the attributable same sales expenses fiscal the period. at the quarter net declined and India XX.X% ZERUST Operating sales operating compared was our prior compared expenses of the venture ZERUST to profitability Total remaining of to income and acquisition

consolidated labor ZERUST fiscal our year As effects operating same since result our illustrated on results in increased a acquisition during income net goods and our India, will fiscal sold XX, compared price same from that ended net sales results, equity months materials in costs. case of a which has decreased continue of quarter XX% increased each ZERUST during the we XXXX. period our to in raw to percentage the now year, our the last as as financial last Cost and have financial increases the period the November increased transaction, and to with and and sales results on ventures first these primarily the XX% joint fiscal XXXX during X the expenses, of anticipate to India remainder compared it of

actions Although take as Patrick to certain intend address pressures. we said, inflationary to

the per of diluted for actions to XXXX of quarter don’t per or XXXX. for NTIC $X.X $X.XX persist fiscal into We the quarter. $X.X fiscal realize expect million the second half reported first at the expect million net to compared or second fiscal to XXXX least these XXXX fiscal from $X.XX first share the income benefits these share pressures quarter inflationary of until and

the $X.XX $X.X one-time income adjusted or diluted that $XXX,XXX for morning. Excluding XX% India per reconciliation quarter press remaining million led million quarter and of non-GAAP measures interest $X.X NTIC’s diluted adjustments, financial fiscal acquisition to in per A first to or related our ZERUST earnings ownership in same this gain issued to non-GAAP release the for share the was GAAP compared $X.XX is last quarter year. of the first available net other was share of the XXXX

of XXXX, million invested primarily balance nearly was in XXXX. in ventures, which On investments including $XX in equivalents of was million, including available-for-sale XXXX, in to and available-for-sale November cash $XX.X million, securities cash $X,XXX and XX cash working and as $XX.X cash million August approximately the working nearly million in the other XX%, $X.X had in $X,XXX remaining equivalents of company million or in $XX.X joint As and in November compared $X with XX, capital XX, securities cash capital.

fiscal of the first November by cash X, share During of dividend payable on XXXX. on November regular quarterly increased record Board X.X% NTIC’s our to XXXX was $X.XX quarter, XX, to per Directors that shareholders XXXX

we to material conclude our focused navigate our making chain business adjustments remarks, So, are the the prepared on and challenges. to supply near-term expense, raw to necessary

invest support opportunities. global our In operations addition, to across continue to long-term significant growth we our

While good profitability year for have overall variants, in recently, questions. happy up this any believe I and near-term the will With take picked appears fiscal sales especially to of and NTIC. COVID another we uncertainty XXXX for overview, to Patrick are light be

Operator

Clarkson do have a [Operator line the Van question of Thank Clemens. we Tim And you. from Instructions] with

open. Your line go ahead. Please is

Tim Clarkson

Hey, guys. Great quarter.

you profits, I it’s you saying non-GAAP the to look when to that Just were into I on so GAAP, a added they were that confusing an much they me, little what – results lower. accounting higher, do ask, the operational but were one-time expenses the the are are like it because or occurred profitability at gain? with what the wanted that did looks mean, How are was basis? one-time

Matt Wolsfeld

out one-time we we Well, of in in the that that’s calculation release. included for the – that transaction in the the the press are the non-GAAP back expenses had broke

There transaction. amortization about as is there the a talked some we of to items that expenses with have new tax we balance associated quarter our the impact far as had back. So, from are the on the the new is that There sheet. intangibles is in add amortization expense

So, our those looking – the items are to are statement. you operating the to are in get expenses our non-GAAP that if income numbers are at included in normal included that

Tim Clarkson

Right.

these more it you you it quarter mean, numbers than from you just are all last looks earnings? at GAAP So, had non-GAAP solidly this quarter, back like reflecting and I afar, and profitable intrinsic profitability but bouncing get looking

Matt Wolsfeld

transaction the to months ZERUST because that Yes, switching took of it’s of mean, also equity it’s income statement I transaction from and of the to reconcile, consolidation – consolidation prior the the XXXX full the the sometimes comparing ZERUST quarter difficult ended India because X you place – the India. and years, fiscal are because in of

expense that So, you adding to that of to line $XXX,XXX are we plus expenses are India. related are the operating essentially have –

the income operating out to line adding cost the there consolidation. of have line. of previously pulling you goods are top the are and joint Then You sales what venture from sold ultimately, to would related the been

So, was a and because of fourth the – quarter. the going gas income the sales this But and sales the it’s from oil were issue significant comparing fourth sales were overall, little our adjustments. the up and income sales in difficult had quarter-to-quarter we year, to solid, quarter main quarter last pretty is from

that revenue margins are obviously, a there we a is of there that. with quarter And gross different recognized. so falloff And associated to the that first is with bit

the the we that cost main seeing this kind the go the and first second main product, of through months the first across resins, of in was it that, industrial months fiscal year. raw during the gross materials, the and the X last the pretty the ZERUST last increase materials are the quarter year is into market, margins throughout of Beyond of what in volatile quarter our X with that

So, adjustments going increase and our that time flow making pushed bit get to point at to through that kind for and we we it’s for out. of a account but to to profitability, inventory little are a our take of are where

have better gross to we to are or of increase and be products increased through the now So, then expectations gross going our throughout we that margins able going to on kind that the from the margins expectations also industrial February the margins the are the to more gas we of than XXXX oil gross second fiscal and oil did business. business on obviously, the gas related the And what stronger the sales and year. are in last similar and industrial half to

profitability some back bring as well. should that So

with first our So, there I in going a that material the raw is dealing margin expect would second of expect chain But would gross to supply year. that of because call material and to lot pressures out quarters, that some, be the and pricing. because raw half are be second of we of it, issues, issues we ironed

out a a sales the ZERUST So, we standpoint. sales revenue you across still strong profitability the X first going have of year, the are of to Certainly we that even we during India the months from think standpoint, from standpoint. a if very from a pull still contributed increases $X.X million year, saw significant board

that And so, pretty that’s were excited about. something we

from quarter and going down look Specifically, to quarter fourth quarter, first going to first the fourth to quarter first up in quarter The to if you This sales were Natur-Tec is were comparing XX%, first Similarly, sales sorry, from first Natur-Tec at quarter, first quarter. fourth the first up total quarter, those They quarter misspoke. all close first to comparing the up from XX% to oil comparing to not fourth XX%. and comparing quarter. were are I quarter first XX% first gas quarter quarter sales almost quarter. to revenue

going So, forward we pretty and given kind rest that of for optimistic the we sales year. the are are pretty of we with we given of in but are how some deal place confident profitability the headed to are where issues, kind put with of the measures

Tim Clarkson

Sure.

what business, Natur-Tec’s when I Costco say is are would products? that I noticed the else. they packaging, to switch differentiator So, using to for on somebody starting compostable the they are you think compostable I was in compostable I mean,

Patrick Lynch

we products not of weaker have by are themselves just resin properties major process on had available produced and those very market finished the do tend are also easy certain them systems take some always in differentiator companies, they compostable to manufacture to key the by themselves. when that is we use but the mechanical resins that or and And if chemical be that make have they the used

we finished easier after the And we greater applications. make also to and all the of to take the cost don’t that’s we our also go the systems, have increasing therefore and products add differentiate while it, resin strength commodity which and in reduce ourselves chemistries mechanical So, them how quality market. their the process we

to our seeking always get else applications, certain really differentiates are technology from – differentiates specialty us to the we find nobody competition, We can produce where that ourselves can. because products

Tim Clarkson

Sure, sure.

ongoing that you far Okay, fine. on the know some I that just then that using on and progress anything are gas, goes, kind developed with further one And as last or an of question on just specifically pipelines. as thing? is Has oil that technology making

Patrick Lynch

That’s – that have nothing developed an ongoing that. we is recently is augments no thing. There there

Tim Clarkson

Okay. will let somebody was questions. good good, you. ask Well, quarter that Alright. some and Thank I

Operator

Billeadeau Thank you. Walrus from question our Partners. comes of Scott And the line next with

is open. go Please Your line ahead.

Scott Billeadeau

A above guys. kind of go asked, or basis, on India forward or based couple Was Thanks. several versus ventures else as in kind know, in just when of plan at the doing as what everything profits line? on difference as it moves of are, the other but whatever India there? what Hi, so know joint deal, the kind deals with scale line were others you of is any there such – questions you you my on you with operating a

Patrick Lynch

would I lot some – the that with our joint ventures resin. issues say of the experienced price Well, in general, similar similar a of some

dealing from when to cost to others at enabled look of ventures the that, just had not, joint materials in customers, about Some had the to raw and JV year about of that’s have XXX% enable $XXX,XXX. from about and in comments, year, from India specifically on your was with India income the standpoint. contribution. we – you contribution, the the have That first done push $XXX,XXX. And was better the with pull those XX% This back last and zero quarter address contribution

India less this the kind year, some again, first same year everybody quarter was So, of in than profitable is issues that ZERUST dealing at looking that, were of with kind last with. the slightly dealing they of

Scott Billeadeau

any that outlook all? little I spread, little for just And bottom? gas but breakdown Great. know, got you I much guess is guys there – us Good. oil pipeline Do at And give that tank visibility, the a on is on? there you any versus view a and is can side, pipeline newer, the something

Patrick Lynch

year. our and between the I forward, of kind Yes. if that tank I which are fiscal obviously, have say that, is rebounded eight there the kind projects XX we I second I year, have calendar beyond contribution think in pretty on, and of gas, split things is next of months would to into to remainder pipeline at and year, came from technical And what and that, business. excited last the opportunities even opportunities – kind kind bottom that’s we going look the what significant the have how gas it’s good. in are was looking working for we the we European opportunities going with of the pretty happening going the the oil that are standpoint the and I next report that XX through to half some a of of the pipeline after that, interest say, over interest the about months. saw of out the of a from with API, of year be seen we this kind things mean the was oil is the opportunity like that And would projects visibility lot that next and I say fiscal the we months really in that a

Scott Billeadeau

Appreciate guys. it. Thanks, Great.

Patrick Lynch

Sure.

Operator

Gus with from [Operator our comes Richard Instructions] next And of the Northland. line question

Please Your go line is open. ahead.

Gus Richard

unclear, is the Is that taking from for the India going Thanks just question. Yes. some the Matt, you incremental expect OpEx in what what quarter? first forward?

Matt Wolsfeld

would quarters. about hit The flat, that line, at And I three to pretty expenses our want be to Yes. that expense the expect I incremental operating operating $XXX,XXX. least next for say

Gus Richard

add auto it then notable is comp, on the in is that supply And little it? bit tough Got and China, that color chain a weakness the issues, in industry of was weakness a can region? having you the that

Patrick Lynch

That’s right.

pandemic soft market facing so Now – the problems in we China. with exemplary and their as we be of in Chinese COVID and the are we having the temporary it expect recovers. But to markets, basically that misses that’s are that’s other ongoing what

Gus Richard

were in That that and impacted noted weak then Europe, that? were car JVs sense. your makes And and I if I there there the sales rather was Okay. wondering by operations

Patrick Lynch

can quarter we will kind certainly by if had XX%. – have can the income that Q this be I I and speak in compared [ph], dominates [ph] at looking main, are that is about Well, contribution Germany in XCORE well, speak sale as that you Europe, But our last which that first of to decreased out say XCORE the to that, what can X%. increases in is quarter about sales to their overall I first

So opportunities similar again, out some we seeing issues we there. are the seeing are where

a a supply – We the going after it’s are the constraints, to we of matter seeing and of pressure. margin opportunities, of some are expenses in increase operating the just both for with gross that lot also account the even how the

Gus Richard

then passing to place, on on help your in year the got of plan last to the reduction in gross Got customers? cost efforts costs And in part margins incremental is is you some also one have increase it.

Patrick Lynch

Yes.

over control right gross going we issues to are product, there of to out gross uncertainties middle to that of – comprehensive to be the in at products the that give in given we products the our from costs a do are in-sourcing And to to market. to can increase from some to We things that’s Similar us include for margins. potentially able analysis internal of margin paying are what going especially kind we certain doing look more labor standpoint. are we more a shipping everything of certainly prices do

are it’s lead or things that certain kind – of time be What have new to has ingredient, big that changes price you when Some of of the small may you our outsourcing have increased. is difficult not has subcontractors. small volatile, component with goes the some the seen, been that ingredient typically you really one once we get it’s utilizing component one that product, or is things, but main in been

a side emphasis make standpoint our to process, purchase been so on procurement it the sure just they and you to manner the more has to or around and And have lot from a need able there it on procurement customers. placed timely is to be the that everything in turn deliver cycle

we And past so spent that we compared anything would and months to – previously six to I have say so much dealing have more the had time over supply issues do. with

yes, so aware can. addressing we And certainly it very on aspect are standpoint much going margins every and we of that from different what’s gross of a

Gus Richard

makes Got sense. it. That lot of a

So, a more forward sure carry don’t be assume inventory to with bit would fair you little are to make get you it to going disruptions? going hit that to have just these

Patrick Lynch

as a seeing up similar In with what can. sales we look we as lot And you I it’s can, are at products, as quick being time. we when for building certain But as it quick as at in can are we this replenishing certain in point they you certain yes. mean places, where to we quick car are, are yes, as

coming in. fast So, going bring certain it’s trying inventory, we are as out in door where are the as but there products to it’s

Gus Richard

Okay. Got Thanks Very much. it. so good.

Operator

from our Jim of you. question Thank the And Jefferies. Dowling line next comes with

Your open. ahead. line is go Please

Jim Dowling

three the on second give last reported? in to obtained us can you Natur-Tec, the any months new sales the a geographically increase is, question six to customers sales from months? Is that that in of Two have And of strength Natur-Tec? sense questions the you related Yes.

Patrick Lynch

– that wouldn’t during yes I sales acquiring I well. customers. You new certain constantly but are dropped certain pandemic, are reflects But also at, our customers. applications customers of looking COVID had we increase obviously significantly have we the as new recovery acquired new say mean significant that off

In China. right are Pakistan, in geographic particularly North terms and business geographic some increasing Lanka, now, markets and America Bangladesh of locations, Sri India, primary Southeast with Asia, our

as bit also a slower to be regulation, Although are China Europe to right customers their tends gaining particularly had hasn’t little – now, in well. not fast we because in to we as towards compostable But expected as as happened push originally. is regards now

So, geographically, I respect. mean we in and are that diversifying growing across

Jim Dowling

What world? revenues is between of in American rest North the breakdown the the

Patrick Lynch

going to handle Matt, are you it?

Matt Wolsfeld

in In the we were just and little Natur-Tec Sales India were plus. million about sales China America of finished of Yes. $XXX,XXX first quarter over $X.X Natur-Tec which XXXX, sales $X about North a million. at were in

So, you are at total total for of $X.X looking – revenue Natur-Tec million.

Jim Dowling

you. Thank

Operator

Thank And from the follow-up line we have Partners. Walrus Billeadeau a Scott with you. question of

line open. Your Please ahead. is go

Scott Billeadeau

JV you does hey, – you for is that some process Thanks. just play there by does there or kind of cutting JV, have across try as there to that give take, cost do to as you either wondering across chemicals all, common a was how is JV I go common little JV. on that buy maybe is us sourcing, by JVs? out a do the sense Do for you or what

Patrick Lynch

It’s raw on manufacturer. mostly and also locally majority done our the JV-by-JV sourced materials of because are basis, best

a ship business lot world. empty is packaging. of Our primary And doesn’t make packaging around the sense it to

to customer try and the So, as close manufacture possible. user as that’s we why to

Scott Billeadeau

it. Got

assume decision? is local can practices very and there you But share. some So I much best it a is

Patrick Lynch

Yes.

Scott Billeadeau

Thanks. Great.

Operator

you. this I Patrick showing no to Thank I And time. remarks. further like conference am over closing or any the at Lynch back for questions And further to would turn

Patrick Lynch

to want thank Have to you a I quarter. next just for interest look I seeing great participating – to today forward in again everyone want NTIC. your Just day and and

Operator

you call. conference today’s for concludes participating. This Thank

disconnect. now may You

Northern Technologies International (NTIC) 6 Jan 222022 Q1 Earnings call transcript