Q4 2021 Northern Technologies International Corp Earnings Call
Okay.
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 of.
Objectives and expectation please be advised that this forward looking statements are covered under the safe Harbor provision of the private Securities Litigation Reform Act of 1995 and that NTIC desires to avail itself of the protection of the Safe Harbor for these statements.
Please 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 N V. I see <unk>. Most recent annual report on Form 10-K, subsequent quarterly reports on form 10.
Thank you and recent press releases.
Please read these reports and other future filings that NTIC will make with the S E T.
N D I C disclaims any duty to update or revise its forward looking statements. The day and thank you for standing by welcome to the fourth quarter.
Thousands like the one earnings conference call and webcast.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on your telephone keypad, if you ever go for it.
And no further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Mr. Patrick Lynch. Please go ahead.
Good morning, I'm, Patrick Lynch, Ntic's, CEO, and I'm here with Matt Wolsfeld Ntic's CFO.
Please note that the financial results.
Our fourth quarter and full year fiscal 2021 were included in our press release issued earlier. This morning and is also available at NTIC Dot com.
During this call we will review various key aspects of our fiscal 2021 and fourth quarter financial results provide a brief business update.
And then conclude with a question and answer session.
I am pleased to report that we ended fiscal 2021 with a robust operating performance.
<unk> quarterly and annual sales and strong profitability. In addition favorable demand trends across most of our global markets combined with our strategy.
So these two diversifies sales across our product categories and markets and geographies drove fourth quarter sales to a new quarterly record.
The year consolidated sales increased 18, 6% over the prior fiscal year and were up 54.7% during the fourth.
Strategy compared to fourth quarter of the prior fiscal year.
In addition fiscal 2021 sales App Ntic's joint ventures increased 39.0% from the prior fiscal year and were up to 79, 3% during the fourth quarter 2021 compared to the fourth quarter of fiscal.
2020.
Looking at annual and fourth quarter sales growth on a two year basis is especially encouraging as this shows strong underlying demand. Despite last year's COVID-19, the pandemic related challenges, notably comparing fourth quarter of fiscal 2021% to fourth quarter of fiscal 2019 results.
Quarter consolidated sales are up 15, 4%.
Zero industrial net sales are up 42.0%, 42.0% Wow.
Net income increased 131, 5%.
As you can see where they had the COVID-19 pandemic in a stronger competitive position.
And with a higher level of profitability.
I believe this can be attributed to the strong value, we provide our global customer base, our asset light business model and our focus on managing our cost structure.
In addition throughout the COVID-19 pandemic, we improved our operations increased staffing levels.
<unk> and service to our customers, while pursuing new product developments, making strategic investments across our businesses and targeting new sales opportunities. As a result, we have continued to benefit from the significant resurgence.
Currently underway in industrial production and we believe the demand trends will remain.
And on into fiscal 2022, as more sectors of the global economy, reopen and industrial production continues to improve.
More recently I am proud of our team's efforts alongside our customers suppliers and vendors to work through global supply chain challenges, including the availability of raw materials labor and inflation.
Inflation well.
While many of these challenges are expected to remain throughout our fiscal 2022, I believe ntic's asset light business model and global presence and over 65 countries provides the company with an advantage navigating these macro related headwinds.
So with this overview, let's examine the drivers for the fourth.
Fourth quarter in more detail.
In the fourth quarter ended August 31st 2021, our total consolidated net sales increased 54, 7% to a quarterly record of $15 $5 million as compared to the fourth quarter ended August 31st 2020.
<unk> down by business unit. This included a 139, 6% increase in oil and gas net sales a 51, 4% increase in nature take net sales and a 47.0% increase in <unk> industrial net sales.
Total.
Well that was for the fiscal 2021 and fourth quarter by our joint ventures, which we do not consolidate in our financial statements were $33.2 million. This is an increase of 79.3% when compared to the same period last fiscal year and an increase of nearly four.
Let's say when compared to the third quarter of fiscal year 2021.
In addition, when compared to the fourth quarter of fiscal year 2019, net sales from our joint ventures increased 15, 8% demonstrating strong global demand for our products from both existing and new customers.
[noise] percent fiscal 2021 fourth quarter.
Net sales by our wholly owned NTIC, China subsidiary increased 25, 7% to $4.3 million over fourth quarter of fiscal 2020.
Strong performance at NTIC, China is primarily due to higher sales to new.
Existing customers for both our <unk> and <unk> product categories. We continue to believe the Chinese market represents a significant opportunity for MGIC and given our recent growth, we expect China will likely become our largest geographic market in the coming years.
As we announced.
New in the last conference call during the fourth quarter.
Invested $6 $2 million to buy a new facility in China, which reflects our commitment to the Chinese market and supports our expected growth within this geography.
The new facility will support our R&D production sales marketing.
And training efforts in China, we.
We closed the transaction on July six 2021, and we expect to move into that facility in February of 'twenty to 'twenty two.
In addition on September 20 <unk>.
2021, we announced that NTIC acquired the remaining 50%.
Honest.
<unk> ownership interest in our Indian joint venture how data NTIA limited also known as <unk>, India.
Four $6 million to $5 million in cash.
We funded this purchase mostly with cash on hand, and some borrowings under our revolving line of credit which was increasing.
Interesting with the transaction two $5.0 million.
Cirrus, India is now a wholly owned subsidiary of NTIC and will be fully consolidated on NTIC. Its financial statements beginning in fiscal year 2022 <unk>.
As a result U S. India is expected to contribute.
Approximately $10 million and net sales along with over $2 $2 million and net income during fiscal year 2022 amounting to an expected additional 10 cents per diluted share.
Many of our multinational customers either have their own operations in India or.
And connect suppliers based there, making it one of our strongest international markets.
As a result, we are excited to be further enhancing our presence in India.
Moving on to our <unk> oil and gas product group and concurrent by the progress we are making within this large and compelling market.
Fourth quarter fiscal.
<unk> 2021 zero oil and gas sales increased 139, 6% over the prior fiscal year period and for the first time in our history. We have had two consecutive quarters of oil and gas revenues over $1 million.
We are getting noticed globally for our growing base of success.
Successful installations on oil and gas assets.
In addition, COVID-19, quarantines and travel restrictions have continued to ease allowing.
To enter more job sites each month finally, we remain optimistic that the recent American petroleum Institute's Technical report validating our tech our technology.
It will help NTIC is long term sales efforts.
Within the oil and gas market.
As a result, we believe there are substantial opportunities to drive growth throughout fiscal 2022 and beyond.
Turning to our nature take Bioplastics business.
2021 fourth quarter nature Tech sales.
Analogy to $2 $8 million.
51, 4% increase over the prior fiscal year period.
While major tech sales continued to recover on a year over year basis, we expect quarterly volatility will remain over the near term as it takes time for large users of comm postal plastics to reopen their.
<unk> after a prolonged COVID-19 shutdowns.
However, we remain optimistic about our long term prospects and strong market position within this large and compelling global market.
So to conclude my prepared remarks, I am proud of the progress we made throughout fiscal 2021 and unexpected.
Whereas at this momentum to continue into the new fiscal year. This includes the recently announced expansion of our Chinese operations and the purchase of the remaining 50% ownership interest of our Indian joint venture.
In addition, we continue investing in our nature Tech and <unk> oil and gas business units you can take.
Supply of long term trends within these markets.
As a result, we expect fiscal 'twenty two to be another strong year of sales growth and higher profitability.
On behalf of the entire NTIC leadership team I would 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 now turn the call over to Matt Wolsfeld to summarize our financial results for the fourth quarter and full fiscal year 2021.
Thanks, Patrick.
Compared to the prior fiscal year period, NTIC consolidated net sales increased 18, 6% in fiscal 2021 to an annual.
Record and grew 54, 7% in the fiscal 2021 fourth quarter because of the positive trends Patrick.
Reviewed in his prepared remarks.
A 79, 3% increase in fourth quarter sales across our global joint ventures drove a 69, 4% increase in fourth quarter joint venture operating.
Compared to the prior fiscal year period.
For fiscal 2021 sales across our global joint ventures increased 39% contributing a 51, 2% increase in joint venture operating income compared to the prior fiscal year.
Total fourth quarter fiscal 2021 operating expenses were $6 6 million.
And in 24, 1% increase over the prior fiscal year period, due primarily to an increase in selling expenses associated with the 54, 7% increase year over year that we experienced in our fourth quarter consolidated sales demonstrating the operating leverage of Ntic's business model operating expenses as a percentage.
<unk> net sales were 42, 5% compared to 53.0% for the same period last fiscal year, we remain focused on proactively controlling expenses and total operating expenses increased by only five 8% in fiscal 2021% compared to the prior fiscal year.
NTIC reported.
Net income of $1 7 million or <unk> 17 per diluted share for the fiscal 2021 fourth quarter compared to a net loss of nearly $1 8 million or.
Our loss of <unk> 19 per diluted share for the fiscal 2024th quarter for the full year NTIC reported net income of $6 3 million or <unk> 60.
<unk> four per diluted share compared to last year's net loss of $1 3 million.
Our loss of <unk> 15 per diluted share.
Net income attributable to NTIC for the 2024th quarter and fiscal year included a one time $1 6 million noncash adjustment to the company's U S deferred tax asset which was required to remove.
Move the U S deferred tax assets from NTIC is balance sheet.
As of August 31, 2021, working capital was $25 2 million, including $7 9 million in cash and cash equivalents and $5000 in available for sale securities compared to $27 1 million <unk>.
Including.
$4 million in cash and cash equivalents and $5 5 million in available for sale Securities as of August 31, 2020.
Our cash position was impacted by the $6 $2 million investment.
We made during the fiscal 2021 fourth quarter to buy a new facility in China as Patrick mentioned this reflects.
Six of them into the Chinese market and supports our expected growth within this geography.
On August 31, 2021, the company had.
$27 $6 million and investment in joint ventures of which approximately 57, 6% or nearly $15 $9 million was in cash with the remaining balance primarily invested in other working capital.
During the fiscal 2021 fourth quarter Ntic's Board of directors declared a quarterly cash dividend six five.
Per common share that was payable on August 18, 2021 to shareholders of record on August four 2021, and on October 22021, NTIC Board of directors increased our regular quarterly cash.
By seven 7% to seven per share.
So to conclude our fiscal 2021 Sysco results demonstrated do we have thus far successfully navigated the COVID-19 pandemic. In addition, which continue investing across our businesses to support the meaningful growth opportunities that we have globally.
<unk> remains strong across.
Dividend product categories during the fourth quarter, which led to record consolidated sales and strong fourth quarter profitability. We're.
We're excited about the direction in which we're headed and look forward to other another strong year of year over year sales and earnings growth.
With this overview, Patrick and I are happy to take your questions.
Thank you Ann participants that's a reminder to ask a question.
I'll need to press star one on your telephone keypad agenda Star then the number one on your telephone keypad.
Draw your question please press the pound.
Your first question comes from the line of Ian Blackson from Van Clemens. Your line is now open.
Hey, guys.
Great numbers guys always.
Too good.
Really good.
I have five questions for easy one for one little more challenging but doubled.
So the challenge one last.
Warning you so first easy question.
Why is China doing so well.
China is doing well for a variety of reasons I mean, obviously.
There is still.
Both net we've got both domestic.
And and international demand and certainly that's the domestic demand increases.
Carrying things, where even if you have a slight drop in export Chinese exports are sales are going to continue.
Uh Huh yeah.
I know a few of my investors are concerned about investing in China, it's because it's such a.
Different kind of a place what's your philosophy on the on China in terms of the safety of investing there.
Well.
I'm sure you recall, our past experience with our previous joint venture partner, which are kind of didn't go so well in 2014.
So we are working with an abundance of caution in China.
Being very careful.
Obviously with who we work with and.
Always, especially very cautious.
In our approach to the market and in everything we do in our business there.
Sure.
In terms of.
India, you mentioned that it's about 10 million, how fast has that been growing.
I'm not sure of the exact figures on the growth in India.
We've seen pretty significant year over year growth in India.
And he was actually one of our one of our newest joint ventures that we started I wanted to say a 19 $99 has seen some pretty significant growth where it's gone from obviously when it started.
Wireless joint venture too.
This past year.
It was our second most profitable joint venture that we have and so they have seen significant growth.
If I look back over the past 10 years, some pretty significant growth to get up to.
$9 million to $10 million of.
Weighted revenue.
So when we look at it the Andean markets a sizeable market that we think could.
Still a significant room for growth and expansion not just in the industrial business, but also in the in the oil and gas space.
So we have the opportunity to purchase the remaining 50% ownership in it.
So we were excited to move ahead with that with that opportunity. The other benefit that we have in India that.
The Indian joint venture was being run.
With somewhat of a passive.
Other investors on the 50% so when we were able to purchase is ownership in it.
We have an existing management team that has been in place for years, so the continuity of existing business and relationships.
Was it an easier transition.
Great great.
General question, what's new on the Compostable space.
In terms of.
Well, what what new opportunities or how are things developing in terms of.
Anything new that's happening there.
We are.
Certainly getting some new orders for some new applications, which I'm not going to talk about.
We think today.
I mean, the demand continues to be there.
In the compostable space.
The biggest problem.
So as I've mentioned before is waiting for certain facilities to reopen.
For the very large users of compostable plastics, including corporate campuses.
And.
Open instead of sports facilities to come back and pull.
The full usage.
And there is also.
A bit of.
Uh huh.
A problem with our long supply chain we.
We have an exceptionally long supply chain globally in that.
Sickly.
The current.
Shipping issues are certainly.
Acting or slowing down our ability to deliver product to our customers.
Sure sure. Okay. One last question. This is a little more challenging but I know you don't like to talk about what Youre doing currently in R&D, but can you talk a little bit about historically, how your R&D.
R&D investments have.
Developed valuable new products for <unk>.
Northern technology at least historically as if the whole thing is kind of mysterious to me.
And maybe you can enlighten us say as to some of the success that <unk> had previously that are publicly known already.
Oh well.
Certainly all of the nature take developments are a result of our R&D.
And continue to be because we are continuing to develop custom solutions.
For a specific product per customer needs.
So these are a resin compounds.
Or simply Hasnt been available anywhere else and.
I would say customers, who have challenging needs with bioplastics come to us first.
Same thing we can say about the investments we've made in terms of R&D for the oil and gas applications.
We keep on telling you.
You bet.
It's a very large potential market.
Has it means that it can be met best buy the products.
Alex we've been developing.
So there is another.
The reason for heavy investment in that sector.
And in terms of what we're doing just in the U S industrial space.
We've developed a number of products over the last few years, particularly in our user satisfaction and then our liquids that are growing.
Sales quite handsomely at this point, they're not.
It's going to take a while for them to grow up to the film sales level, but they are certainly doing very well on their own and contributing significantly to our bottom line.
Alright, one last comment I actually saw Xeros sticker on my kids.
Fishing tackle so that was kind of cool yeah.
<unk> did he buy in and tackle box or Oh, yeah, Yeah, we bought the box I I didn't even know what it was there until I.
Noticed that a couple of weeks later, so yeah, no its really kind of a cool cool application. So well. Thanks, thanks, everyone great quarter obviously.
Thanks, Tim.
Your next.
Churn comes from the line of Charles Bellows from White Pine Capital. Your line is now open.
Hey, guys, a nice nice numbers.
Two quick questions one did I.
Did I understand you are now.
<unk> in the year included the API.
Guidelines.
Yes, Okay, what what does that mean for timing and as you look at it to get the next.
Really big one which is from.
Hazardous materials.
Ministration of ph MSA.
Uh huh.
Yeah.
Our magnum product lines.
You want to talk about that one.
Sure.
Charlie.
What was approved during the last fiscal year, and what took place with the with the Sky was the.
The technical report that was issued.
Which basically validates the tank technology.
Using the <unk> storage bottom.
Storage bottom protection and the expectations from a timeline standpoint is that.
That technical report was that was written will at some point in time transition to recommended usage, which will then.
Management too.
Guidelines being issued at some point as far as being able to utilize the technology, which is a significant step given that.
How widely followed the API.
Guidelines are and so that's something that we certainly expect to move forward.
From a FEMSA standby.
Sandpoint FEMSA is the.
Government body that base.
They regulate a lot of the how the how the oil flows and how the oil is required to be stored.
Any tanks are pipelines that are used in the U S infrastructure.
They also review the API guidelines and now that that's been move forward.
We can move forward with certain.
Certain FEMSA requirements.
Whether they will be evaluated using the technology that at some point in time. We're also looking for FEMSA approval in FEMSA wording that.
It validates and encourages people to use the technology, we've got certain.
Situations, where some customers have applied to FEMSA to be able to utilize our technology.
And so we're seeing.
Really a nice acceptance of the technology knowledge of the technology. All these things are really starting to.
Take off which is which is great news for the oil and gas division.
But are we really looking.
At some time in the next its really probably 12 to 18 months out before all the pieces come together and it's.
Road.
Yes.
Again, theres a lot of different moving pieces when it comes to the API in FEMSA in their guidelines and things like that.
It's something that.
That's going to be a continuing discussion for years and years for all the different guidelines and applications they have for their for their infrastructure.
What I can say is that expectations as far as how long it would take from a technical report to become a recommended practice would be somewhere between like you said <unk> 12.
Year to 18 months, depending on timelines there is other items that we're working on inside of the API for for other uses and things like that so.
It's not just one application that one approval there is many different things that we're working on as far as.
As far as changing the specs okay.
Okay, great and the other question.
It came from my comments that struck me from that Patrick just made about the long supply chain and then opening scene demand when the big facilities open up for the composed of all pieces.
What is that do you have the materials and ability to meet.
A surge in demand and what is it going to do to your pricing and can you pass it on.
We haven't seen that I mean, we've seen some increase in pricing.
From some of our base raw materials that we use inside of nature Tech.
But not significant amounts and we have been able to.
Yes.
Adjust pricing somewhat accordingly.
Issue that we have with <unk> is that there is.
With everything is pointing out from a supply a supply standpoint, we obviously move the nature Tech with Athene component, either India and China.
<unk> shipped to other places to be manufactured in shipping back here to potentially if.
It's we're running into certain backlog situations.
The benefit that we have is we're running them to backlog situations because now we're starting to see.
The revenue and demand for nature tack to get back up to normal levels spur.
Specifically going from fourth quarter to now first quarter, we've seen.
So if we can ramp up with I'd say, if you look at our first quarter that is September October November with colleges going back.
K through 12 schools going back sports stadiums, a lot you know obviously a lot of them coming back to full capacity, we're seeing a lot of that growth continue on getting back to solid numbers.
We saw this.
Coming we started placing orders to ramp up the manufacturing of the product and we expect to have this.
Inventory catch up to the demand quickly.
Quickly so that our expectations are that we will be certainly back to pre COVID-19 demand levels.
Sometime in the middle of fiscal 2022 from.
A <unk> standpoint.
If we do that you are looking at a significant growth.
From fiscal 2021 to fiscal 2022 total nature type sales I was just going to be a.
<unk> <unk>.
Increase in improvement and total sales.
<unk>.
We're experienced some of the same.
And Asia pressure points that all companies are experiencing with the containers that are sitting on the water and it taking.
Months rather than.
Months to get product across the ocean rather than than.
We used to get product costs, the ocean that other people are experiencing.
But we are the benefit.
Same is that we are seeing that the demand is coming back.
And you feel you can meet the demand given.
Timing you've got on those products.
Yes, we do and I think that will be reflected in sales that youll see in 2022, okay.
Well they are protected there.
Benefit is a possibility that the demand continues to increase and we continue to have a large backlog and things like that as we get caught up.
But I certainly think that the amount of inventory that we have on order of the amount of products that were that were bringing in and the ability to meet the customers' demand will you'll certainly be able to see.
That in increased sales in nature Tech during the current fiscal year.
Okay, great. Thanks, and good luck this next year.
Thanks, Charlie.
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Again Thats Star then.
And there is one.
Your next question comes from the line of Gus Richard from Northland. Your line is now open.
Yes, thanks for taking the questions.
Great quarter.
Just on the.
Zero oil and gas I was wondering if.
Can you just talk a little bit about the pipeline.
We expect the revenue level.
Sure.
Going forward I know the business is lumpy just any color there would be helpful.
Your question is what do we expect the pipeline for oil and gas to be or you are asking about actual pipelines and oil and.
Yes.
I'm asking what your sales pipeline looks like it got it.
Alright.
Pipeline looks forward can we expect the revenue to stay above a $1 million.
Shortly that business has been lumpy.
I think it's going to continue to be lumpy.
I can tell you looking at.
We have pretty good visibility going forward because of the the timeline of the of the sales opportunities. So we have a pretty good visibility into what we will see over the next our full fiscal 2022.
Year, so from our expectations, we expect sales to <unk>.
Certainly.
Grow up to levels of nor the entire division is profitable, but I can tell you just from looking at Reg.
Revenues that we have from September September October of this year.
Compared to what we had in fourth quarter.
Obviously, what we did in fourth quarter. This year just in North America.
We had.
Revenues of $1 5 million, just in North America, which was significant.
I can tell you the team worked very hard to meet that fourth quarter number and hit there.
Objectives for the for the year.
I would expect first quarter like you said.
A little bit down and expect second quarter, and third quarter fourth quarter to bounce back, but total revenues I would expect to see some some nice growth comparing fiscal 2021 to fiscal 2022.
Yes.
Got it very helpful and then in the quarter gross margins were quite strong.
I imagine that was due primarily to a favorable mix, but what I did want to talk about or get some color on the <unk>.
Input costs, particularly with higher petroleum prices on the zebra oil and gas I'm, sorry, It does see rust industrial.
Are you seeing any.
There's pressure there.
And how might that impact gross margins over the next couple of quarters.
Well, we saw very favorable gross margins across the across.
Gross gross margin was very strong obviously that was driven by significant oil and gas revenues that we saw in fourth quarter, which.
Obviously, there are significant raw raw material price increases that we're seeing if you just follow the LDP index for the Virgin polyethylene resin, which is the main raw material that goes into the zero products.
It's up significantly if you look at over the over the past.
10, eight to 10 months, you can see that it's up significantly.
Been able to pass a lot of that cost increase onto onto customers given that we can show them. The commodity index pricing of the main component that goes into their products. However, we do have some stock pricing and some other items contract.
Blanket agreements what have you where the margins on those sales were lower than they historically have been and so if you look at just the industrial products. The gross margin as a weighted average of what we're selling is down.
Compared to where it was let's say in.
<unk> first and second quarter of the past fiscal year, our expectations that were talking to resin suppliers are.
The resin suppliers and also our suppliers that are.
Manufacturing of our products the expectation is that the price of LDP is going to come down in the coming months.
That's what the indications are that that theyre, giving us based on talking to the large LDP manufacturers, that's where they are starting to see when they are buying train load capacities of our resin for their inventory.
But if we don't see that index, if we don't see that price come down we're going to.
And we'll take a hard look at our stock pricing levels.
Get back up to the kind of margins that we previously had been.
Are you able to achieve.
Got it very helpful and then.
Last one for me.
Pulled in.
C Ross India.
Hum.
What sort of <unk>.
Impactful that have on Opex.
And gross margins.
<unk>.
Just a little bit of color on the numbers going forward.
The gross margins in India are going to be are going to be.
Pretty consistent with what we.
Across the other industrial.
Industrial.
Subsidiaries that we consolidate.
They.
The overall bottom line.
Profitability of the Indian entity, because they generate basically close to 20%.
<unk> after tax profit so previously off of the <unk>.
$9 million to $10 million of revenue last year expectations are that they should do somewhat close to that this year. The expectation is that that entity will generate close to $2 million of income for fiscal 2022.
Previously, we would have received through equity income and royalties and things like that $1 million of that $2 million of profit now that we purchased the entity or the expectations are that we should take in.
Probably close to 2 million, depending on how the year goes for them close to $2 million of.
Overall income after tax income from that entity. So the incremental gain that we would see is about $1 million or income of close to <unk> 10 per share.
Got it alright, that's it for me thanks, so much.
Thanks Scott.
And participants if you would like to ask a question you May Press Star then the number one on your telephone keypad. That's star then the number one on your telephone.
Please standby will recur.
<unk> roster.
And speakers, we don't have any questions. So please.
Please continue.
Okay.
Thank everyone for participating today and for your interest in NTIC.
Have a nice day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now.
I will disconnect.
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