Q1 2021 Northern Technologies International Corp Earnings Call
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Objectives and expectations.
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It is now my pleasure to introduce <unk>, President and CEO Patrick Lynch.
Oh, Thank you good morning.
Hi, Patrick Lynch anti sees the CEO and I'll be and I'm here with Matt Wolsfeld Encase sees the CFO and the need to low and Jay Senior Vice President and director of global market development of our nature Tech product line.
Please note that the financial results for our fiscal 2021 first quarter were included in the press release issued earlier. This morning, a copy of which is available at Npis need dotcom.
Let me begin by wishing everyone all the best for the 2021 new year.
I guess I'd also like to remind everyone of our upcoming annual meeting of stockholders next week on January 15th.
Please consider however, the although the meeting will be held in person due to the COVID-19 pandemic. We are strongly encouraging all stockholders to vote by talks the in advance.
The safety and well being of our stockholders as well as our employees. It is important to us and we believe that we'll be able to better comply with CDC safety guidelines. If attendance is kept to an absolute minimum and the meeting has kept the shortest possible by only reporting the election results not and not making any business presentation. This year.
Now during this call we will review various key aspects of our financial results provide a brief business update and then we'll conclude with the question and answers cash.
How the school Twentytwenty, one first quarter financial and operating results are encouraging honestly.
On a sequential basis overall sales increased 27.4% and we saw strong double digit growth over the past three months across most of our products categories and many of our international markets Freedom.
Furthermore, we experienced the higher sales despite the recent global surges in the new COVID-19 cases, as well as new lock down throughout the several European countries. In fact, our entry I see China sales an aggregate of an aggregate of joint venture sales for fiscal 2021 first quarter are currently above.
The the pre cobot maintain current pull the 19 levels reported during fiscal 2021st quarter.
Nevertheless, substantial uncertainty remains the with respect to not only when the COVID-19 prices will be over but also the pace of subsequent worldwide economic recovery as well as the impact of the annual slowdown across much of age from Asia cost by the Chinese new year holidays.
Consequently.
Our near term outlook remains guarded that said I am still extremely encouraged by the direction, we are headed and JC of compelling position within large growing and global markets.
In addition, our scale experienced management team and market diversification and strong balance sheet provide interest the with the flexibility to pursue opportunities that support our long term growth strategies.
So with this overview, let's examine the drivers for the first quarter.
For the first quarter ended November Thirtyth of Twentytwenty, our total consolidated net sales decreased 12.7% to $12.8 million as compared to the first quarter end of November Thirtyth 2019.
Broken down by business unit. This included a 45.4 per cent decrease in the nature of Tech net sales and its 0.9 per cent decrease in Zerust sales true our joint ventures, partially offset by an 8% increase in zerust oil and gas net sales and the 2.7.
The percent increase in Zerust industrial net sales.
Total net sales by our joint ventures, which we do not consolidate in our financial statements were $26.8 million for the fiscal 2021 first quarter compared to 25.5.
Million dollars for the same period last fiscal year.
It's 5.2% increase in joint venture net sales was primarily due to increased sales to existing customers as the result of higher demand for existing products.
On the is the sequential basis first quarter sales and Chase. These joint ventures were up 44.8% from the fiscal Twentytwenty fourth quarter.
Fiscal Twentytwenty, one first quarter net sales by our wholly owns the owned and Chase the China subsidiary increased 17.7% to a quarterly record of $4.5 million and were up 32.3% from the fiscal Twentytwenty fourth quarter.
Our sales team.
The new and existing customers for both our Zerust and the nature Tech product categories helped drive our growth in China.
The Chinese market represents a significant market opportunity the franchisee and given our recent success, we believe and we believe China will likely become our largest geographic market.
Looking at our Zerust oil and gas fields in more detail net sales were $563000 an increase of 8% over the prior to the school year period.
First quarter oil and gas sales reflect higher sales of oil gas pipeline and storage tank solutions to new and existing customers. We believe we are well positioned for additional opportunities within the oil and gas market in fiscal 2021 and beyond particularly once it's called the 19, the vaccinations become generally available and made.
Your travel restrictions are lifted.
Now with respect to our nature Tech Bioplastics business I'll have the need comment you need.
Thank you Patrick on the.
Fortunately the coal the pandemic continues to have a material impact on the demand for the nature Tech products. Many.
Many of the large users of compostable foodservice products include college campuses stadiums arenas restaurants, and corporate office complexes and these institutions that are expected to be some of the lost business is real.
Many of them have still not announced the opening plan.
Furthermore, production across the apparel industry is also down sharply.
One of their decreasing demand for non nature Tech bio plastic packaging.
I will become an important part of the industries the sustainability initiatives.
As the result, the ASCO 2021 first quarter of nature of Vyxeos, but only $2.6 million.
45.4% decline over the per your prior fiscal year period.
However, please also note that sales increased 36.3% from the fiscal 2024th quarter and the.
Reflect the first sequential improvement in nature Tech sales in three quarters.
Moreover, we are optimistic that several new applications of your uncovered during the pandemic.
Evolve into additional attractive market opportunities for npis in the coming quarters of the world recovers from the COVID-19 pandemic.
Hope to the port on the use more on future calls the dots, let me turn it back to Patrick.
Thank you of any so to conclude while our near term outlook remains guarded as we head towards the fiscal Twentytwenty, one second quarter as well as the annual Chinese new year holidays recent market and sales trends are encouraging as the result, we are cautiously optimistic we will return to year over year.
Sales growth and improving profitability for fiscal 2021.
I'd like to use this opportunity to express our appreciation to all our global employees and joint venture partners on behalf of the entire leadership team. Thank you for your hard work and dedication throughout this crisis.
With that overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal Twentytwenty, one first quarter Matt.
Thanks, Patrick.
Compared to prior year fiscal.
Fiscal year period end share shift consolidated net sales decreased 12.7% in the fiscal 2021 first quarter and increased 27.4% from the fiscal 2024th quarter because of the trends Patrick are viewed in his prepared remarks.
The 5.2% increase in first quarter sales of across our global joint ventures benefited joint venture operating income, which increased 19.2 per cent for the fiscal 2021 first quarter compared to the prior fiscal year period.
We continue to proactively manage expenses total operating expenses were $5.9 million and in line with operating expenses for the same period last fiscal year selling expenses declined 5% over the prior fiscal year period as most travel related activities expenses have been suspended due to the COVID-19 pandemic.
Which partially offset a slight increase in research and development costs.
And share see reported net income of $1.3 million or net income of 13 cents per diluted share for the fiscal 2021 first quarter compared to net income of $1.2 million or 13 cents per share.
For the fiscal 2021st quarter.
As of November Thirtyth 2020, working.
Working capital was $28.2 million, including nearly $7 million in cash and cash equivalents and $6.4 million in available for sale securities compared to $27.1 million, including $6.4 million in cash and cash equivalents and $5.5 million both for sales securities as of August.
The first 2020.
The November Thirtyth 2020 of the company had nearly $25 million and investment in joint ventures of which approximately 56% and where the at $14 million in cash with the remaining balance primarily invested in other working capital.
As you can see despite the COVID-19 crisis, we remain well capitalized and well positioned to execute our long term growth opportunities. As a result remain excited we remain excited about the direction. The we're headed.
But this Patrick Bonnie and I are happy to take your questions.
As a reminder, ladies and gentlemen to ask a question you will need the press star one on your telephone to withdraw your question press the pound key please stand by while the compiled the Q1 day roster.
And our first question comes from the line of Tim Clarkson with Van Clemens.
Hi, guys great quarter, just a few questions here.
Give us a little bit more color on the on what what are the dynamics of driving the growth in China.
Just an overall the Chinese domestic economy is doing exceptionally well.
Their automotive industry is humming.
Humming along and we also expect that low.
With the ban on certain classic news articles that are should.
Sales of the.
Hi Tech will also of the increasing.
Great.
Second question I'm, just looking at the real excellent.
Research report on anti on seeking alpha and in it.
I guess the thing that surprised me was the importance of a plenty.
Let me read the line here Unfortunately, northern tech with the support of ex on other industries Tysons is working with the EPA to certify Xerox in the future regulations could.
Could you just expand on that how that will change the of.
Acceptance on the on the tank business.
Well.
And I'm sorry, you said how is that the the.
Yes, yes, the once the of why is that important.
Well FEMSA controls the pipelines connected to a lot of oil storage tanks, and so the regulations governing the what kind.
Kind of corrosion and protection methods can be used on the storage tanks.
And with this change in the regulations, we expect that's true significantly increase.
Our mark of potential market.
Sure. Okay. One last question just the beneath the just on the on the Compostable business. What would you summarizes the news is what's unique and superior to to the compostable products that northern Tech makes versus most of the competition.
Yes, so I mean, I think what is unique because really got expertise the kind of working with all the different based polymers that you know you are not tied to one baseball the Mercer just the early or yeah.
Raw material agnostic and that allows us the kind of dig different baseball the murders and develop a unique solution that meets.
The the performance requirements of our brand at the price point.
In general our your products of cost competitive what's the what the competition.
Yes, and that is I I mean, that's where we've seen kind of growth you know, obviously, you're talking about better performance easier possibility.
The competitive pricing.
Right, Okay, I've gotten a great quarter guys. Thanks.
Thank you.
Your next question comes from the line of Joe The Beach with Melatonin Mendelson Oracle.
Yeah good morning.
Hi, guys great.
Great Great quarter, it's really nice to see the business bounced back like this.
I was wondering if you could.
California, I don't know when they pass the their recent laws ABT 110, 45 day, maybe paid 76 in the B 199 kind of all of the recycling laws that the past, but I was just wondering if you could comment a little bit about how you know how that might impact your business and if you're at all so.
Okay.
I'm trying to line.
Take advantage of those those laws.
Certainly, yes, so yes, those you know obviously, California is you know the possible.
Also the some of the remote from you separately and the believed that it should.
The growth demand for our products.
We were in one of the with the.
Influencing that the legislation through.
Some of the industry organizations that we are part of the such as the biodegradable products Institute of.
I sort of on the board of the speed.
Organization. So you know obviously it works the other benefit and it will include the med in California.
Some of those kind of legislation the bottom.
As mentioned, we have seen some of the legislation coming up in China, which is driving the that products there. So.
So in general I think that some of the health of playing for us.
Okay great.
I guess from a bigger picture perspective.
Hi, I'm, making the assumption of your business is going to be bouncing back pretty nicely would hopefully within the next year as the pandemic sort of comes to an end.
And you know.
The question comes down to capital deployment.
Because at some point, you're going to start to generate.
I would assume a fairly reasonable amount of capital and in the past you've talked about how you don't Theres you have you don't really have the capex requirement.
Most of the question is to you.
What are you going to do with that capital how do you see it.
It being deployed.
I, you think down the road, maybe it's a little early to talk about it, but obviously no reinstating the dividend or.
Mergers or the anyway. It just your thoughts on that.
I think the negative.
Hey, Patrick.
I was going to say I think all options are on the table and were considering just about everything.
I would expect that we've reported meeting next week, where we will be discussing the you know the the dividend the when to reinstate that.
And as far as capital.
The other capital expenditures, we certainly want to do everything we can to grow the business. The traditionally we've been a little more conservative.
I'd say that we are certainly looking at all the opportunities to make sure that we are taking advantage of.
Any any available opportunities there are out there and so.
The everything from returning returning profits to shareholders to investing in the future of all of the different businesses are what we're what we're doing.
Okay, that's great.
Appreciate the that's that's all I have.
Thank you.
Next question comes from the line of Gus Richard with Northland.
Yes, thanks for taking the question nice nice quarter guys from.
In the past.
I think you've been a little concerned about.
The banning plastic in China due to the use of Oh ex so great. The Bulls and I was just wondering it seems like that tone has changed can you amplify that a little bit.
Certainly you guys.
I think the concerns still remain of it.
Any of these legislation that all of the world and flow.
Most of that is the very key to success of that legislation and force London.
The like China, and India tends to be spotty, but having said that.
If you look at some of the major brands the.
I understand that the have to comply with the requirements of the legislation so.
Given some of the work I know.
The engagement, but some of the right.
We expect that she loves this will.
That that you use of the demand force impossible.
Yes.
Okay.
And when do you expect that to start to show up in <unk> and European now.
Oh, we have seen some increase in demand flow products in China already and do you expect you kind of just seeing the gross.
Over the next few quarters.
Got it got it.
And then.
It's been a little bit of talk recently about the.
The use of Tha sort of compostable plastic and I was just wondering if you compare and contrast that to Peel away are there different applications.
Do you see that as a.
Of competitive competitor and and then finally on that topic, if you talk a little bit about the supply of.
Right.
Yes, So I think the issue is as I mentioned earlier, which is one of many compostable base volume or set of out there in the market.
The Lee PGT PBS.
And he actually has the advantages and disadvantages, obviously the biggest disadvantage as the the types of price compression of Gls Gvhd.
So really when you look at all the different volume are you kind of look at what the advantages and disadvantages art.
You use the unique chemistries to create compatibility led Jack will use the requirements of the.
Pacific packaging applications, the sort of Brad.
Yeah. So our viewpoint is having the leach them into the market or the having tha companies of the market as the additional beats volume or is it the great. We welcome the died and they've actually adds to the credibility off the bio plastics industry and increases the markers of inflows the for all of us.
In terms of the.
Well the listening words, the Sealy, obviously clearly supplies use jive because of the high demand for compostable and biodegradable volume was flows wide with all of you.
Yes, legislations coming into the James Force.
But at the same time, given the jelly supply being price.
She is.
[noise] available at a much lower the price them, but yes.
True. So so those are some of the things that you know Brad.
Brandon.
The waters and users will have the kind of balance as the goalposts.
Got it and then finally from me.
I think you touched on the script, but if you could add a little more color to the impact of the recent.
Lockdowns in Europe and sort of.
The shuttering and shutdowns in the U.S. on on your business.
Both zebra stand on.
Hi Tech that'd be helpful.
So I can talk a little bit about nature second the project can you talk about the reduction.
So in terms of nature. Thanks.
One of the product applications of you looked at is was organic sales.
A diversion of the GW of the.
Initiatives that we're seeing in the amended by schools universities major office campuses.
On the West Coast of Silicon Valley. It was all of those institutions, the inflows that definitely the or demand force.
Compostable foodservice, where.
And that was obviously that's kind of the selected in the you know the results over the past couple of quarters of.
The other impacts the with some of these lockdowns was the because more than retail shelf the close.
For the loading of wind down and as of the does the.
The demand for the other paddled packaging.
The pressure.
The the grain of the country, it's coming out of locked down and you know obviously, we've seen the last more growth in Asia lifts, the India and China kind of.
Coming back pretty strongly we expect that over the next few quarters, we should kind of start seeing some of that the banks come back.
Also with regard to Zerust, earning right now.
Europe.
I have been doing just fine.
For the average in the last items and she has the central businesses I'm expecting them to continue to be supplying their customers.
How much that impacts the is going to be.
Or is there is going to be any significant impact on our sales remains to be seen depending on how long the lockdown slash.
Okay. Okay, and then just the I'm sorry, the last one on new applications for nature Tech.
You alluded to those again in the script and I was just wondering if there's any more color you can provide.
Sure.
One of the new applications of 15 is the close the books above the one that is something that's the new products that flow spread we recently launched in the us pretty excited about.
Market demand for that sort of not just here in North America, but also in Asia.
And then there are several other applications that you are working on the trend of.
Relative to the premature for me to kind of comment on that right now hopefully we'll have more to the stores in the future calls.
Great great. Thanks, so much.
As a reminder, ladies and gentlemen to ask a question you will lead the press star one on your telephone.
Your next question comes from the line of the trial here.
He's a private investor.
Okay.
Hey, guys. Thanks for taking my question.
When I look.
Sort of internationally from the geographic standpoint is there.
Any part of the global do you guys feel you you are locking in a bit of the presence in the right.
I would say the from and from the Industrials perspective.
We are.
Pretty much everywhere around the world, we have major industrial centres.
With oil and gas.
As we are continuing to expand internationally, there's certainly additional countries, where we could.
Build an additional presence where we are for.
For example in the former Stan countries of.
I wanted to make the Stan countries than the former Soviet republics.
And the other geographies like that.
Okay. That's helpful.
When you when we think about the new funds.
Requirements coming in the <unk>.
Does that change the the.
Total what is the addressable market sorry, the the new fans of requirements coming in from the oil and gas yes.
Yeah, and the store sales does that change the addressable market or was that sort of with that.
That that expands the addressable market I mean, so far our oil in our tank sales within the United States have been restricted to those tanks that are not connected to the kinds of pipeline.
So with the sense of regulation changes and once the roll out in the in their entirety of which.
We still expect that theres going to be some follow ups from niece and the I in terms of exactly what the specifications are going to be.
Finalize which we expect the happened within the next day.
During the she did during this calendar year.
Then that would increase our addressable market significantly because from so really.
Has the controls the pipelines can the connecting most of the storage tanks around the country.
Okay. Thank you that's that's helpful turning to.
Nature Tech.
You know the businesses, but.
It's growing quite nicely before Corbett and you've talked a little bit about from new applications.
On the product.
Is there is there any need for additional capital for that business to be.
You know for active not only rebound to pre colgate level it to be.
A larger part of the.
The consolidated.
We actually I mean, we have the are making investments of.
In anticipation of the market growth.
We have added some new manufacturing capability in Asia.
And as you know Matt.
Matt mentioned you know it.
All options are on the table and as we continue to kind of see.
And execute on our on our plans.
We'll make appropriate investments to pay the fund that market growth.
Okay.
And our.
Last question.
Last question from me.
The.
Several years ago in the on the income statement the used to be a line item.
The label joint venture support.
And it it's not the anymore I was trying to get a sense of what is what is the required opex.
From a quarterly basis.
To support the joint venture partners.
Previously, we had that line and that line.
It was relatively small compared to the three line. The so we moved it more into general and administrative expenses, it's difficult to say with looking at our gene. The line on our income statement what portion of that is in support of joint venture is what portion of that is related to North American operations.
If you look at management management spends a lot of time.
Working with the joint ventures.
A lot of time coordinating with them.
We also handle certainly you know.
Obviously, the the R&D the R&D work that we do also goes and flows through the joint venture network. So it's difficult to come in and say you know.
These specific expenses are.
Directly allocated the allocated to the to the joint ventures.
So its very difficult the as far as the direct expenses that we pay that would be a wire transfer to some sort of a service or some sort of the company in Europe or in the Asia to support the joint ventures is relatively small and it's part of the reason why we got rid of that that line item.
Okay. Thank you is it is it safe to say that the the amount of.
Opex required has not grown over.
Over the last several years to support the joint ventures.
Good day relative.
It has stayed relatively a relatively stable.
Okay. All right. Thank you guys. That's it from me.
Thank you and.
I'm showing no further questions. So with that I will turn the call back over to the President and CEO Patrick Lynch for any closing remarks.
I'd like to thank everyone for participating today and for your interest in in Tennessee or have a great day. Thank you.
Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating and you may now disconnect.
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