Q2 2021 Northern Technologies International Corp Earnings Call
Our fiscal 2021 second quarter financial and operating results show record quarterly zeros Industrial Sales as well as robust zero sales growth at ntic China pack across our Global joint ventures.
While the COVID-19 pandemic continues to impact our nature Tech and oil and gas efforts. We see our sales and earnings continuing to benefit as more sectors of the global economy reopen and as industrial demand continues to increase through the rest of this year.
So with this overview, let's examine the drivers for the courtroom for the second quarter ended February 28th, 2021. Our total Consolidated net sales decreased 3.4% to 12.8 million dollars as compared to the second quarter ended February 29th, 2020 broken down by business unit. This included a 40.8% decrease in nature Tex and that sales and a 66.2% decrease in zeros oil and gas net sales, partially offset by a one hundred and 14.5% increase in zero net sales to our joint ventures and a 22% increase in industrial net sales total net sales for the fiscal 2021 second quarter by our joint ventures, which we do not consolidate in our financial statements dead.
429.1 million, which is an increase of 19.6% when compared to the same period last fiscal year and an increase of 8.5% when compared to the first quarter of the current fiscal year.
Fire joint venture internet sales would primarily due to increased sales to existing customers as a result of higher demand for our products fiscal twenty one. Second quarter net sales by our wholly-owned ntic China subsidiary increased 46.9% to a second quarter record of 4.5 million dollars and we're in line with first-quarter seals. Despite February. February is Chinese New Year's holidays strong performance at home China strong performance at ntic China is primarily due to higher sales to new and existing customers for both are zeros and the nature tech product offerings. We continue to believe the Chinese market represents a significant opportunity for ntic and given our recent growth. We expect China will likely become dead.
We are largest Geographic March.
COVID-19 quarantines and travel restrictions cause the number of global oil and gas projects installations to be postponed resulting in zero oil and gas sales of $316,000 for the fiscal 2021 second quarter a decrease of 66.2% over the prior fiscal year. While we expect them to remain volatile over the short-term. We also anticipate significantly stronger sales during the second half of calendar 2021 as COVID-19 restrictions are lifted off and we believe there are substantial opportunities to drive growth in fiscal twenty to twenty $22 and Beyond.
Turning to our nature Plastics business. The COVID-19 has continued to have a material negative impact on the largest existing condition of compostable Plastics in the United States in addition production across the global apparel industry remains a fraction of what it was in fiscal 2019, correct decreasing demand for our nature Texas compostable bio plastic bags, which had become an important part of numerous sustainability initiatives within that industry.
As a result second quarter of fiscal 2021 sales were two point five million dollars a 40.8% decline over the prior year.
We believe that nature textiles are stabilizing and that we are starting to see signs of increased activity as more large users of compostable Plastics begins to reopen back as COVID-19 restrictions are lifted with these strong support of the major bioplastic base. Resin suppliers nature Tech continues to develop and expand a marketing a series of innovative and certified compostable resin compounds that are engineered to increase the mechanical mechanical performance of Base. Resin Blends while reducing costs and it's not easy processing by converters producing finished products using conventional plastic manufacturing processes and Equipment furthermore, the finished products manufactured with these compounds are targeted to meet or exceed they mechanical performance properties of conventional conventional Plastic single-use Products while remaining fully compact.
So we'll in accordance with all major International standards as more and more people around the world re-emerged from COVID-19 isolation. We look forward to updating our investors on our return to double-digit sales growth in the coming quarters. So to conclude my prepared remarks recent Market Market and sales Trends are encouraging furthermore. Our performance demonstrates the strength of our leading zeros Industrial Products as well as the benefits of our Geographic and product diversification strategies as a result. We currently expect to return to your on overeating year-over-year sales growth and improving profitability for the remainder of fiscal 2021.
on behalf of the entire ntic
Your leadership team. I'd also like to use this opportunity to thank all of our Global employees and joint venture partners for their continued hard work and dedication with this overview. Let me turn the call over to Matt Wolfe felt to summarize our financial results for the fiscal 2021 second quarter.
Thanks, Patrick. Ntic is Consolidated net sales for the fiscal 2021. Second quarter decreased 3.4% When compared to the prior fiscal year. But we're in line with fiscal 2021 first quarter sales as a result of the trends Patrick reviewed is prepared remarks second quarter sales across our Global joint ventures increased 19.6% over the whole prior year. Significantly benefiting joint-venture operating income which increased 29.3% for the fiscal 2021. Second quarter compared to the prior fiscal year. Total operating expenses for only five point nine million dollars, which we proactively manage to reduce expenses by 9.2% compared to the same period last fiscal year you came in slightly below total operating expenses in the first quarter selling expenses declined nearly 9% over the prior fiscal year. Primarily due to COVID-19 travel received.
Which were partially offset by slight increase in research and development expenses. Ntic reported. Net income of 1.3 million dollars or net income of $0.13 per diluted share for the June 2021. Second quarter compared to a net income of $180,000 or $0.02 per diluted share for the fiscal 20 20 second quarter as of February 28th, 2021 working capital was twenty nine point five million dollars including 6.8 million dollars in cash and cash equivalents and 5.9 million dollars and available-for-sale securities compared to twenty seven point $1,000 including six point four million dollars in cash and cash equivalents be five point five million dollars and available-for-sale securities as of August 31st, 2020 on February 28th, 2012, or the company had twenty four point nine million dollars in investments in joint venture of which approximately 53.3% or more than thirteen point three million dollars was in college.
The remaining balance primarily invested in other working capital during fiscal 2021 second quarter ntic is board of directors reinstituted the company's quarterly cash dividend of 6.56 per common share that was payable on February 17th 2021 to shareholders of record on February 3rd, 2021 to conclude our prepared remarks second-quarter results demonstrated impact Global Trends with our core 0s industrial business, and we continue to believe the oil and gas and nature Tech sales are well-positioned for long-term growth as more sectors of the global economy reopen in addition our product and Geographic diversity continue to benefit our overall results. We remain well capitalized and well positioned to execute our long-term goal growth opportunities, and we're excited about the direction which we're headed with this overview Patrick and I are happy to take your questions.
Thank you.
As a reminder to ask a question. You don't need the press star one on your telephone. It would draw your question, press the pound key. Please stand by while we comply with you and a roster.
And our first question comes from Greg Hillman a private investor your line is now open.
Yeah, hi. Could you talk about the possible Market a little bit about you know how the trend in government regulations, you know on a Statewide basis on a on a national basis and also an international basis.
As you know, the the regulations in the United States are primarily on the on the coast and are slowly moving more towards the center. We had had any I think significant increases in compost for regulations since depending started. So the market is kind of has has been stable for the last twelve months off International basis. Um, as you might be well aware of various countries are implementing further band on various uses of conventional Plastic Products. China is one of those countries and we certainly expect to see an increase in demand for our products because of that in that country. India also has a partial band on Plastics and we expect our sales to increase in a country as well and things are shifting slowly in various countries in Europe as well.
Okay, so could you call me about your thoughts for the overall strategy of the company going forward? For example, if she is not there just a position become more of a you know, a diversified in you know, special specialty Chemical Company and also off what are you doing in terms of Technologies with alliances with other universities to further your impossible technology?
I'm sorry. I couldn't quite hear the first part of your question.
It was about strategy. Okay, and I was wondering whether number one whether you would do a non synergistic acquisition and and and also whether you know, I guess what you're doing to improve your technology in terms of alliances with other universities or offering additional technology property.
Okay, first of all, we have no current plans for any Acquisitions and certainly I don't expect us to look into any non just a business. We're not going to buy anything just for the sake of buying something and with respect to Bringing on new technologies. Um, we continue to work with certain universities ought to provide us with new technology. Um, and we will certainly we always keep our eyes open for new opportunities in that in that respect.
Okay.
And then finally your next nature Tech division. What would you say the total? Addressable Market is at this point.
The total addressable Market on a worldwide basis for bioplastics. Is that is that the question?
I I don't have a figure for you on the off the top of my head.
Okay.
Okay. Thanks. Yeah, sorry.
Thank you. My next question comes from Gus Richard with Northland. Your line is now open. Yes. Thanks for taking my question. Just real quick. Gross margins were a little bit slower. I was thinking can you just talk about that? It was a a stronger mix in the quarter and and just wondering why they were a little little light.
Sure. I can I can take that obviously when you're looking at it across the product line. It's you know as we talked about before or you've got typically oil and gas margins are higher than the industrial zero margins which are then higher than the nature Tech margins. So it's kind of a a question of a mix between the a mix between the country. I was very, you know, very low contributions from oil and gas specifically during second quarter and that eight into the the margins a little bit. We also, you know are starting to see an uptick in resin prices for the 0s industrial, you know polyethylene polyethylene resin that we use the base material for the 0s market wage, you know, obviously commodity prices of raw materials worldwide has gone up we certainly have the goal of you know, and and objective to pass as much of that price increase on to customers as we can log.
Um, you know, but at that time there's there's there's certainly our products that we have already, you know agreed to supply to certain price that you know may have may have accounted for a couple of percent in the 0s industrial Market to bring bring charges down slightly.
Got it. Got it. And then is zero soil and gas you were thinking in second-half. Do you see a recovery is that just a function of you know, there's a conflicting from COVID-19 or you know, use zero oil and gas and and you know sort of be adopted by the industry standards bodies and and it's use becomes more prolific. Well, we are certainly expecting the standards to be adopted by the industry in the in the near in the near-term. We don't have an exact figure on that right now our expectations for the second half of the year is that it's simply going to be a factor of the current endemic, uh restrictions being listed off that will increase our our opportunities to install project. That's customer site and we have not really baked in anything yet for birth.
changes in regulations or or standards
Got it. And then finally just any commentary on if you have a large Cutlery customer, how are they doing in terms of adoption? And is that really going to use his when we reopen college campuses and large venues is that when that that really should be to take off?
The relationship is already in place. And in in that they've placed several orders with us, but their demand has slowed down a little bit due to the pandemic thumb, but we expect that to rise again. Once the restrictions are lifted and people are going back to school and going back to sporting events et cetera.
No, that's it for me. Thank you.
Thank you. Next question comes from 10:00 noon with Ben Clemens is not open. Hey guys, another outstanding quarter. I expect nothing but that from you guys when you guys seem to always do a good job just a couple of questions. Yeah a couple of questions on China just kind of on a historical basis. I guess I was looking back at when you had this, you know big split up with your joint venture guy and you had to take over the deal because of there is non-compliance. I would go back to what 2016 something like that is that one went all that working? Okay. So so we're are we finally to a point where we're for sure. We get more sales in China than we did then and and do we have more profits or is or is that something you haven't thought about?
Matthew have the numbers from back then. Yeah. I know from a from a from a from a sales standpoint. We've eclipse the sales numbers. We've obviously Clips the the quantity of of products sold and with the kind of growth that we're expecting to continue to see over the over the next, you know, the rest of this fiscal year in the coming two or three years, you know it obviously played very well from the standpoint that it's going to be a significant financial contributor to us from a total operating profit contribution of what we were receiving in two thousand. You know, let's check our our fiscal fourteen, which is the last full fiscal year coming in from China. We're still slightly below the the contribution that we were that we were getting just because the the month that time we're so high, you know, and then the country that we were that we were getting so we're still slightly below from a profit standpoint, but I would certainly expect that will be eclipsing that very month.
Shortly, okay, and and what percentage of your business in China is compostable now?
If I look back at I'm just pulling up some some numbers for the for the first six months of a 2021 we had about eight million in Revenue in China 407 industrial and a little over a million in revenue for for nature Tech. So you're dead. Now, you're you're sitting at roughly twelve thirteen percent of the business and I think overall the expectations are that, you know over the coming years that's going to start taking up a significantly larger portion of the total the total sales, you know, I would hope that the that the nature Tech sales are going to get up closer to the to the fifteen twenty percent in the coming here to okay. I am more basic question. You know, you guys spend a lot of money in R&D. Have you ever really looked at? What kind of return you get on that? I mean, how does it
How does it work? I mean?
You spend money, you know, you're one and you get a return your V or you know, it's a you make per cent from nothing nothing's ever guaranteed. So I mean you have to invest and and with with targeted project hoping that you're going to see that returned, but certainly we don't bat a thousand on on every one of our projects. So we get into them right but on a retrospective basis, you can look back ten years and say well on balance, you know, we've made a lot of money from the ones that have worked I assumed right? Well, I think I think I can do is you know, take take nature tech for an example, you know, we started spending on nature Tech, you know, ten fifteen years ago. If you look at the total amount that we have spent, you know, I'm not take over that time. Obviously. We are not back to you know back back to break even on total amount invested vs. Total amount that has been paid back, but if you look at Birth
How people value ntic as a company they obviously see nature Tech has a huge future contributor as far as where it's a the portion of the, you know, a portion of the market cap, you know, if you will and so off from that standpoint, you know with with how much they nature Tech value is baked into the market cap. You know, I'd say I would say the total contribution that we have made and invested in are indeed is less than what is shown, you know portion of that market cap. So it's kind of a different way of looking at it. You know, I certainly see that over the over the next five to ten years. You're going to have a point where the nature of contribution is going to you know, go from the amount that we've invested it over the past ten years to to being in the black and you know, most likely going to make up a significant portion of the value of the company and I'm similarly we've done the same thing with with oil and gas, you know, we've seen less success in on gas than what nature Tech is still the the addressable market and the opportunity is one that has it starts to pay bath.
Kids going to make a significant contribution to the shareholders and you know in in likely future earnings potential that should impact the increase in stock. Right? So, you know, that's kind of how we that's, we look at it and write so similarly with the with the zeros markets, you know with coming out with you know, with any new patterns and new applications and New Opportunities, you know, those are the kind of things that we need to keep building on to maintain kind of a strong leadership, you know in the market. So, you know, we're going to continue to invest in R&D because at the future of the future of the company are there are there are there any any new projects that you're working on right now that you're particularly excited about there's there's new projects in in each of the three different groups that were you know, the were excited about I mean we've run into issues in the past that introducing things, you know too soon. We're then people start to ask over and over again what's going on with it? But you know, I think we're at a position where you know, the company is very bright future wage.
The existing Technologies, we've already introduced yet.
You know new technologies that we who bring it in Market in the coming, you know, two or three years, right? Okay. I'm done. Thanks guys.
Thank you. And next question comes from Jerry Wyle with Alpha your line is now open.
Good morning, guys, congratulations and invest you a long time is you know and appreciate your hard work and diligence. So considering run through the last year 3000. So you said one question related to the there's been this discussion in the past about regulation relating to pipelines in the us and whether or not that might have an impact on on your business, you know in certain regulations and maybe standards within the engineering community so many updating give us a map.
The various regulations only one one set of regulations specifically regarding pipelines is already in place where they aren't officially already recognizing I guess the corrosion Inhibitors as a as in dog recognize means for protecting pipelines. The only thing is that so far is not regulating or or authors that compliance with those regulations yet to postpone that for a period of time. Um, so uh, that's pending um, and the API Nace guidelines on page, uh, tank storage tank bottoms. Uh, the draft the documents are basically all done as far as I heard that the uh from the API they've gone through the Dodge.
And and made there was only one technical comment that would still need to be clarified. But other than that the document is pretty much ready to be voted up or down with a meeting which we expect to happen this year.
You see it that it has much potential upside for the company.
That the regulations change and get implemented that way. Yeah. Absolutely. I mean that will definitely have a significant impact on the market the addressable off in the oil and gas industry because then you're you're you're talking about fundamentally changing regulations across the industry in terms of what they need to do for Corrosion Protection in certain in these specific applications.
Okay. All right. Well, thanks guys. Congratulations again. Thanks for all your hard efforts. I'm done.
Thank you. And next question comes from Jovovich with Manalapan Oracle. Capital Management is now open. Yes. Good morning guys. Congratulations on the corner and walk, you know, thanks for letting me ask a question here. I was just wondering, you know, I'm sure you guys are familiar with the company danimer and which just recently bought a public to expect I guess and I was just wondering if you could talk about how your your products either compete or don't compete with errors and I'm just a little bit about you know, the bigger Market out there and what how you guys sit in?
Well, first of all.
We are not a direct competitor of demos as I mentioned earlier during my prepared remarks. We use the resin systems that are produced by various large companies like BASF and nature works and even denemark could at some point in the future be a supplier to us. We are not currently I mean we have not had uh a chance to look at their materials to see if they would be a good fit for us. But with the we would have to evaluate danimer independently. So I I can't really comment on the technology at this point. But uh, we could use them have them be a potential supplier to us in the future if that's cuz I address your question or did I miss something here? Yeah, I guess answers. My question is oh, so they're basically wage.
Supplier to what you're basically saying is their supplier to of their resin to like I mean, they have a deal with I believe Pepsi or some of the cpg companies and and just kind of I think as far as I know or my understanding is they they are being they are being evaluated by various large organizations right now, but I I I can't really speak to whether they have a commercial of commercially viable projects at this point certainly am right now as it stands the the cost of denim are present to us is a bit high and we we're not sure of how their their characteristics would work within our existing residence systems so that but we certainly expect that if they do well in the market there for the price will come down and cetera and then Thursday.
Oil change those those various factors, but I think it's still too early to say for us example. For example, if Dan Amar can be a useful material for us to use in the future.
Okay, great. Great that that that helps a lot. I I appreciate that. That's all I have. Thanks very much.
Thank you. And next question comes from Greg Gilman a private investor. Your line is now open.
Yeah, Matt a couple questions about human relations number one. Did you ever hire a Chief Financial Officer? And and could you just talk about anything important, you know changes in positions, you know company wise that you consider to be significant. Are you a question for me not to have to have I mean he is the chief financial wage. I I I was planning on keeping him for right now. I mean I'm saying that facetiously.
Are you talking are you talking about in North America for ntic are you talking to one of the subsidiaries? I guess North America. You were talking about hiring a Chief Financial Officer two years ago. I don't remember talking about that. I mean I have to say about the state on the line right now off Matt's great. I mean working with a company for twenty years and I give them a my wholehearted endorsement so there.
Well, then just well, maybe you could just talk a few things about human resources in general whether you know what you're doing to improve, you know, retention training and you know National development overall in the company.
Matthew
Sure. I mean if you look at the upper management of the company it mainly comprised of about five or six individuals that have a very long tenure you're talking about an individual that rubber has run the nature Tech group for a significant period of time, you know, everybody in upper management has I want to say it's been there at least twelve years. So, you know, each of those individuals has his past with you know, the training the the employee retention the you know, really the overall strategic plan of their units. We really haven't had any issues. You know, I'm in the short term of the long-term with you know, employee retention or employee training or anything from that standpoint. We've been very lucky that we have some wage some Pathways that we've we've typically gone to to hire different R&D and different lab people that have come from various universities through context that we have where we feel like we've been able to um,
You know, we've been able to bring in some significant Talent that's helped us to push a lot of the Technologies forward, you know would be like we treat employees very well and we look out for our employees, you know in every way that wage and you know, we have very little turnover from that standpoint from from from a training standpoint. It's you know, pretty standard as far as you know, how we train different levels, you know, people do obviously continuing continuing education and and you know, each of them are associated with different industry groups different ways where they can make sure that they are, you know, constantly improving their skills and bringing their talents to to the company. So, you know, we've we've never really had an issue with any kind of turnover either at the upper levels or lower levels of the company and I don't anticipate that being an issue in the in the future.
Thanks, Matt.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Patrick Lynch for closing remarks. I'd like to thank everyone for participating today and for your interest in them. Have a great rest of the week. Thank you.
This concludes today's conference call. Thank you for participating. You may not disconnect.