Q2 2024 Northern Technologies International Corp Earnings Call

Okay.

Unknown Executive: 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 its business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and that NTIC desires to avail itself of the protection of the safe harbor from the state.

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.

NTIC desires.

Avail itself of the protection of the Safe Harbor from these statements. Please also be advised that the actual results could differ materially from those stated or implied by the forward looking statements due to certain risks and uncertainties, including those described in Ntic's. Most recent annual report on Form 10-K subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these.

Unknown Executive: Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in NTIC's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements.

And other future filings that NTIC will make with the SEC NTIC disclaims any duty to update or revise its forward looking statements I will now turn the call over to NTIC management.

Patrick Lynch: I will now turn the call over to NTIC management. Good morning, I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that a press release regarding our fiscal 2024 second quarter financial results was issued earlier this morning and is available at NTSC.com. During today's call, we will review various key aspects of our fiscal 2024 second quarter financial results, provide a brief business update, and then conclude with a question and answer session. When we discuss year-over-year performance, we are referring to our fiscal 2024 second quarter as compared to our fiscal 2023 second quarter. NTSC set a series of new records in the second quarter, driven by robust demand across many parts of our business.

Good morning, I'm, Patrick Lynch, Ntic's, CEO, and I'm here with Matt Wolsfeld Ntic's CFO.

Patrick Lynch: Please note that our press release regarding our fiscal 'twenty 'twenty four second quarter financial results was issued earlier this morning.

Patrick Lynch: And is available at NTIC Dot com.

Patrick Lynch: During today's call, we will review various key aspects of our fiscal 2024 second quarter financial results.

Patrick Lynch: A brief business update and then conclude with a question and answer session.

Patrick Lynch: When we discuss year over year performance, we are referring to our fiscal 2024 second quarter as compared to our fiscal 2023 second quarter.

N T S. He set a series of new records in the second quarter, driven by robust demand across many parts of our business.

Patrick Lynch: Most notable among these were record second-quarter zero oil and gas sales and record quarterly NatureTech sales. I'm also particularly encouraged by the continued year-over-year improvement in our gross margin, demonstrating that our broad initiatives aimed at improving profitability are working as intended. We anticipate that profitability will continue to improve and that we will continue to generate positive operating cash flow throughout the second half of fiscal 2024. Year-over-year cash from operating activities improved by nearly 156% to $5.6 million, primarily due to higher net income and positive changes in working capital.

Patrick Lynch: Most notable among these were record second quarter U S oil and gas sales and record quarterly in nature Tech sales.

Patrick Lynch: I'm also particularly encouraged by the continued year over year improvement in our gross margin demonstrating.

Patrick Lynch: Demonstrating that our broad initiatives aimed at improving profitability are working as intended.

Patrick Lynch: We.

Patrick Lynch: This is paid at profitability will continue to improve.

Patrick Lynch: And that we will continue to generate positive operating cash flow throughout the second half of fiscal 2024.

Patrick Lynch: Year over year cash from operating activities improved by nearly 156% to $5.6 million, primarily due to higher net income and positive changes in working capital.

Patrick Lynch: We intend to continue to allocate capital to support our growth initiatives and quarterly dividend payment while using excess cash flow to pay down the balance on our existing line of credit. As we look to the remainder of fiscal 2024, we believe we are well positioned for top-line growth across our zeroes industrial, zeroes oil and gas, and NatureTech product categories. We also remain focused on the performance and profitability of our joint ventures across Europe and Asia.

Patrick Lynch: We intend to continue to allocate capital to support our growth initiatives and quarterly dividend payment by.

Using excess cash flow to pay down the balance on our existing line of credit.

Patrick Lynch: As we look to the remainder of fiscal 2024, we believe we are well positioned for top line growth across our zero industrial see rest of oil and gas and <unk> product categories. We have.

Patrick Lynch: Also remain focused on the performance and profitability of our joint ventures across Europe and Asia.

Patrick Lynch: As our team continues to navigate a fluid global economic environment, I am pleased with NJC's improving performance and believe fiscal 2024 will be another good year of growth and profitability. So with this overview, let's examine the drivers for the second quarter ended February 29th, 2024 in more detail. For the quarter, our total consolidated net sales increased 14.1% to a second quarter record of $20.8 million, as compared to the second quarter ended February 28th, 2023. Broken down by business unit, this included a 47.5% increase in NatureTech net sales. A 20.1% increase in zeroth oil and gas net sales and a 3.1% increase in zeroth industrial net sales. However, total net sales for the second quarter by our joint ventures, which we do not consolidate in our financial statements, decreased year over year by 7.9% to $23.5 million. Escort Germany, our largest joint venture, experienced a 5.6% decrease in net sales compared to the prior fiscal year period, due primarily to a previously disclosed loss of a customer and softer demand within the region related to higher energy prices and other externalities linked to the ongoing war between Ukraine and Russia.

As our team continues to navigate a fluid global economic environment I am pleased with Ntic's, improving performance and believe fiscal 'twenty 'twenty four will be another good year of growth and profitability.

Patrick Lynch: So with this overview, let's examine the drivers for the second quarter ended February 29th 'twenty, 'twenty, four and more detail.

Patrick Lynch: For the quarter, our total consolidated net sales increased 14.1% to a second quarter record of $28 million as compared to the second quarter ended February 28 2023.

Patrick Lynch: Broken down by business unit. This included a 47, 5% increase in nature Tech net sales.

Patrick Lynch: A 21% increase in zero to oil and gas net sales and a three 1% increase in U S industrial net sales.

Patrick Lynch: Total net sales for the second quarter by our joint ventures, which we do not consolidate in our financial statements.

Patrick Lynch: Decreased year over year by seven 9% to $23 $5 million.

Patrick Lynch: Export, Germany, our largest joint venture experienced a five 6% and decrease in net sales compared to the prior fiscal year period.

Patrick Lynch: Due primarily to a previously disclosed loss of a customer and softer demand within the region related to higher energy prices and other externalities linked to the ongoing war between Ukraine and Russia.

Patrick Lynch: Fiscal 2024 second quarter net sales by our wholly owned NTSC China subsidiary increased on a year over year basis by 20.3% to $3.5 million. Most notably, this was the first year over year increase in quarterly sales in over two years as sales during this period have been impacted by prolonged COVID-related lockdowns and overall weakness in the Chinese economy. We remain cautiously optimistic that demand in China will continue to improve throughout the second half of fiscal 2024, helping to support higher incremental sales and profitability in this market. However, while near-term economic conditions in China remain uncertain. We are committed to the long-term opportunities the Chinese market provides for our industrial and bioplastic segments, and we continue to take steps to enhance our operations in this geography. As a result, we continue to believe China will likely become a significant geographic market for us in the future. Now, moving on to zero-coiling gas.

Fiscal 2024 second quarter net sales by our wholly owned NTIC, China subsidiary increased on a year over year basis by 23% to $3 $5 million most.

Patrick Lynch: Most notably this was the first year over year increase in quarterly sales in over two years has sales. During this period have been impacted by prolonged COVID-19 related lockdowns and overall weakness in the Chinese economy.

Patrick Lynch: We remain cautiously optimistic that demand in China will continue to improve throughout the second half of fiscal 2024.

Patrick Lynch: Helping to support higher incremental sales and profitability in this market.

Patrick Lynch: While near term economic conditions in China remain uncertain.

Patrick Lynch: We're committed to the long term opportunities the Chinese market provides our industrial and Bioplastics segments, and we continue to take steps to enhance our operations in this geography.

Patrick Lynch: As a result, we continue to believe China will likely become a significant geographic market for us in the future.

Patrick Lynch: Now moving on to zero to oil and gas.

Patrick Lynch: The second quarter of fiscal 2024 was the eighth consecutive quarter of zeroes to oil and gas sales over $1.5 million, reflecting the positive momentum within our oil and gas business. For the fiscal 2024 second quarter, Zerest's oil and gas sales were $2.2 million, compared to $1.8 million for the same period last year. The 20.1% year-over-year increase in zero-waste oil and gas sales was primarily due to the shift of certain oil and gas projects from the first quarter to the second quarter and positive overall demand for our oil and gas solutions. Our zero-waste oil and gas solutions are still focused primarily on protecting above-ground oil storage tanks and pipeline casings from corrosion.

Patrick Lynch: The second quarter of fiscal 2024, it was the eighth consecutive quarter of zeros to oil and gas sales over $1.5 million.

Patrick Lynch: Reflecting the positive momentum within our oil and gas business.

Patrick Lynch: For the fiscal 2020 for second quarter.

Patrick Lynch: Oil and gas sales were $2.2 million compared to $1.8 million for the same period last year.

Patrick Lynch: The 21% year over year increase in oil and gas sales was primarily due to the shift of certain oil and gas projects from the first quarter to the second quarter and positive overall demand for our oil and gas solutions.

Patrick Lynch: Our zero oil and gas solutions are so focused primarily on protecting above ground oil storage tanks and pipeline casings from corrosion.

Patrick Lynch: As a result, we believe fiscal 2024 will be another good year of growth for Zero Waste Oil and Gas as this business further scales and continues to contribute to our overall profitability. Returning to our Nature Tech Bioplastics business, Nature Tech Seals were strong during the second quarter and increased. 47.5% year-over-year to a quarterly record of $5.6 million. Maycheck's growth during the second quarter was a result of recent new customer wins in North America and India. We expect NatureTech sales growth to continue throughout the second half of fiscal 2024. Globally, we continue to see robust market demand for new applications of certified compostable plastic products and resin compounds, as well as increased interest in commercial and municipal programs that use certified compostable plastics as alternatives to conventional plastics.

Patrick Lynch: As a result, we believe fiscal 'twenty 'twenty four will be another good year of growth for the rest of oil and gas has this business further scales and continues to contribute to our overall profitability.

Patrick Lynch: Turning to our nature take Bioplastics business.

Patrick Lynch: Nature Tech sales were strong during the second quarter and increased 47, 5% year over year to a quarterly record of $5.6 million.

<unk> growth during the second quarter was a result of recent new customer wins in North America and India.

Patrick Lynch: We expect niche tech sales growth will continue.

Patrick Lynch: The second half of fiscal 2024.

Patrick Lynch: Globally, we continue to see robust market demand for new applications of certified compostable plastic products and resin compounds.

Patrick Lynch: As well as increased interest in commercial and municipal programs that use certified compostable plastics as alternatives to conventional plastics.

Patrick Lynch: As a result, we believe we are well positioned for long-term sustainable growth within our NatureTech Bioplastics business. As you can see, our fiscal 2024 second quarter financial results reflect the progress we are making towards growing our business and improving profitability. We believe fiscal 2024 will be a strong year of sales growth and improved profitability. We are excited by the positive momentum underway and the direction NTIC is heading. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2024 second quarter. Thanks, Patrick.

Patrick Lynch: As a result, we believe we are well positioned for long term sustainable growth within our niche Tec Bioplastics business.

As you can see our fiscal 'twenty 'twenty four second quarter financial results reflect the progress we are making towards growing our business and improving profitability.

Patrick Lynch: We believe fiscal 'twenty 'twenty four will be a strong year of sales growth and improve profitability. We are excited by the positive momentum underway and the direction NTIC is heading.

Patrick Lynch: With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 'twenty 'twenty four second quarter.

Matthew C. Wolsfeld: Thanks, Patrick compared to the prior fiscal year period MTS. He's consolidated net sales increased 14.1% for fiscal 'twenty 'twenty four second quarter to a second quarter record because of the trends Patrick reviewed in his prepared remarks.

Matthew C. Wolsfeld: Compared to the prior fiscal year period, NTIC's consolidated net sales increased 14.1% for the fiscal 2024 second quarter to a second quarter record because of the trends Patrick reviewed in his prepared remarks. While sales across our global joint ventures declined 7.9% in the fiscal 2024 second quarter, joint venture operating income increased 4.2% compared to the prior fiscal year period. The year-over-year increase in joint venture operating income was primarily due to the efforts underway to enhance profitability at the company's joint ventures, partially offset by lower joint venture sales. Total operating expenses for fiscal 2024's second quarter increased 9.4% to $8.6 million compared to $7.9 million for the same period last fiscal year. Higher operating expenses were primarily due to increased personnel costs.

Matthew C. Wolsfeld: While sales across our global joint ventures declined seven 9% in the fiscal 'twenty 'twenty four second quarter joint venture operating income increased four 2% compared to the prior fiscal year period.

Matthew C. Wolsfeld: The year over year increase in joint venture operating income was primarily due to the efforts underway to enhance profitability at the company's joint ventures, partially offset by lower joint venture sales.

Matthew C. Wolsfeld: Total operating expenses for fiscal 'twenty, 'twenty, four second quarter increased 9.4% to $8.6 million compared to $7 $9 million. The same period last fiscal year.

Matthew C. Wolsfeld: Operating expenses were primarily due to increased personnel costs.

Matthew C. Wolsfeld: As a percentage of net sales, operating expenses were 41.3% for the fiscal 2024 second quarter, compared to 43.1% for the prior fiscal year period. Gross profit as a percentage of net sales was 40% during the three months ended February 29, 2024, compared to 34.5% during the prior fiscal year period. The 551 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures and insourcing of various production. Net income attributable to NTSC was $1.7 million, or $0.17 per diluted share, for the fiscal 2024 second quarter, compared to $411,000, or $0.04 per diluted share, for the fiscal 2023 second quarter.

Matthew C. Wolsfeld: As a percentage of net sales operating expenses were 41.3% for fiscal 'twenty 'twenty, four second quarter compared to 43.1% for the prior fiscal year period.

Matthew C. Wolsfeld: Gross profit as a percentage of net sales was 40% during the three months ended February 29, 2024 compared to 34.5% during the prior fiscal year period.

The 551 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures and insourcing of various production.

Matthew C. Wolsfeld: Net income attributable to NTIC was $1.7 million or 17 cents per diluted share for the fiscal 'twenty 'twenty, four second quarter compared to $411000 or four cents per diluted share for the fiscal 2023 second quarter.

Matthew C. Wolsfeld: As of February 29, 2024, working capital was $24 million, including $4.8 million in cash and cash equivalents, compared to $23 million, including $5.4 million in cash and cash equivalents as of August 31, 2023. As of February 29, 2024, we had outstanding debt of $4 million. This included $1.2 million in borrowings under our existing revolving line of credit compared to $3.6 million as of August 31, 2023. We generated $5.6 million in operating cash flows for the six months ended February 29th. 2024, earned $2.2 million for the six months ended February 28, 2023.

Matthew C. Wolsfeld: As of February 29, 2024, working capital was $24 million, including $4.8 million in cash and cash equivalents compared to $23 million, including $5 $4 million in cash and cash equivalents as of August 31st 2023.

Matthew C. Wolsfeld: As of February 29, 2024, we had outstanding debt of $4 million. This included $1.2 million in borrowings under our existing revolving line of credit compared to $3 $6 billion as of August 31st 2023.

Matthew C. Wolsfeld: We generated $5 $6 million in operating cash flows for the six months ended February 29, 2024, compared to $2 $2 million for the six months ended February 28, 20 twenty-three.

Matthew C. Wolsfeld: The 156% year-over-year improvement in operating cash flow was driven primarily by higher net income and positive changes in working capital. Throughout the second half of fiscal 2024, we expect to generate continued operating cash flows, which we plan to invest in the growth of our business, support our quarterly cash dividend, and pay down the remaining balance on our existing revolving line of credit. On February 29, 2024, the company had $23.5 million of investments in joint ventures, of which 55.7% or $13.1 million was in cash. With the remaining balance, it primarily invests in other working capital. During the fiscal 2024 second quarter, NTSC's Board of Directors declared a quarterly cash dividend of $0.07 per share that was payable on February 14, 2024 to stockholders of record on January 31, 2024.

Matthew C. Wolsfeld: 156% year over year improvement in operating cash flow was driven primarily by higher net income and positive changes in working capital.

Matthew C. Wolsfeld: Throughout the second half of fiscal 'twenty 'twenty four we expect it to Jen to generate continued operating cash flows, which we plan to invest.

Matthew C. Wolsfeld: In the growth of our business support our quarterly cash dividend and pay down the remaining balance on our existing revolving line of credit.

Matthew C. Wolsfeld: On February 29, 2024, the company had $23.5 million of investments in joint ventures of which 55.7% or $13.1 million because in cash.

With the remaining balance primarily invest in other working capital.

During the fiscal 'twenty 'twenty four second quarter Ntic's Board of directors declared a quarterly cash dividend of seven cents per share that was payable on February 14th 2024 to stockholders of record on January 31, 'twenty 'twenty four.

Unknown Executive: To conclude our prepared remarks, our second quarter financial results reflect the progress we are making navigating a fluid business environment while successfully pursuing our product and market and geographical diversification strategies. We see stable North American demand trends and robust growth across our global oil and gas and bioplastics markets. And we expect these trends to continue throughout the remainder of our fiscal year. As a result, we believe fiscal 2024 will be another good year of sales and higher profitability for NTIC, and we're excited by our long-term prospects. With this overview, Patrick and I are happy to take your questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question hasn't been answered, or you wish to move yourself from the queue, please press star 11 again.

Matthew C. Wolsfeld: To conclude our prepared remarks, our second quarter financial results reflect the progress, we're making navigating a fluid business environment are successfully pursuing our product end market and geographical diversification strategies.

Matthew C. Wolsfeld: Worth seeing.

Matthew C. Wolsfeld: Seen stable North American demand trends had robust growth across our global oil and gas and bioplastic markets can.

Can we expect these trends to continue throughout the remainder of our fiscal year. As a result, we believe our fiscal 'twenty 'twenty four will be another good year of sales and higher profitability for NTIC and we're excited about our long term prospects.

With this overview, Patrick and I are happy to take your questions.

Patrick Lynch: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.

Auguste Philip Richard: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Gus Richard with Northland. Your line is open. Yes, thanks for taking my questions and congratulations on the strong results. I was just wondering if you'd talk a little bit about the pipeline for ZRust and NatureTech. You know, you had the pull-in in the quarter for oil and gas, wondering if that growth is sustainable sequentially and just sort of your outlook on those two product lines moving forward. I guess my question, Gus, is just kind of asking a question back. So your question is about what is the pipeline for Z-Rest's industrial business and the growth that we expect to see there? Coal and gas.

Patrick Lynch: Our first question comes from Gus Richard with Northland. Your line is open.

Auguste Philip Richard: Yes, thanks for taking my questions and congratulations on the strong results I was just wondering if you could talk a little bit about.

Auguste Philip Richard: The pipeline for <unk>.

Auguste Philip Richard: Zero in nature attack.

Auguste Philip Richard: You had to pull in in the quarter for <unk>.

Auguste Philip Richard: Oil and gas wondering if that growth is sustainable sequentially and just sort of your outlook on those two product lines moving forward.

Auguste Philip Richard:

Speaker Change: I guess my question got speak just kind of asking a question back. So your question is about what is the pipeline for Xerox for industrial business and the growth that we expect to see there or oil.

Unknown Executive: Yeah, oil and gas. I think oil and gas was pretty strong, you know, had a relatively strong Q2. I think expectations are that we're going to see Q3 and Q4, and they're going to surpass Q1 and Q2 expectations.

Speaker Change: Oil and gas and oil and gas.

Speaker Change: Oil and gas.

Speaker Change: I think oil and gas with a pretty strong had a relatively strong Q2, I think expectations are that we're going to see Q3, and Q4 theyre going to surpass Q.

Speaker Change: Q1, and Q2 expectations. There's just a lot of projects that are that we've been working on for some time that are coming are coming online it should likely be coming to fruition, where we expect to see it in the current fiscal year and hopefully that's going to build a base level of oil and gas.

Unknown Executive: There's just a lot of projects that we've been working on for some time that are coming online and should likely be coming to fruition where we expect to see them in the current fiscal year. And hopefully, you know, that's going to build a base level of oil and gas revenue on a quarterly basis that we can see as a stepping stone. You know, during the call, I know Patrick talked about the number of times we've exceeded $1.5 million in revenue.

Speaker Change: Revenue on a quarterly basis, we can see as being kind of stepping stone.

Speaker Change: During the call I know Patrick talked about.

Number of times, we have exceeded one $5 million in revenue.

Unknown Executive: You know, my expectations and my hopes are that we're raising that number and saying, you know, the number of times we've been over $2 million and then the number of times over $2.5 million. We see it as more of a step function in growth. And what's exciting for us is the repeat business that we're getting with existing customers; it's really showing that the products are working. And then we're starting to see penetration into the market. So we're certainly working to continue the investment in bringing new people on, both from a technical service and a technical support position to help with installations and also from a sales standpoint to drive more top-line oil and gas business around the world. I got it.

Speaker Change: My expectation and my hopes are that we're raising that number in Spain. The number of times, we've been over $2 million and then a number of times over two and a half million dollars do we see it as more of a step function in growth.

Speaker Change: And what's exciting for US is the repeat business that we're getting exist.

Speaker Change: Existing customers, that's really showing that the.

Speaker Change: The products are working and then we're starting to see the penetration into the into the market.

Speaker Change: And so we're we're certainly working to continue the investment in bringing new people onboard from a practical service center.

Speaker Change: Service position to help with installation and also from a sales standpoint too.

Speaker Change: Drive more bit more topline oil and gas.

Round the world.

Speaker Change: Yeah.

Unknown Executive: Thanks. And then, sort of the same question for NatureTech. You know, a very strong quarter. Is that new, you know, OEMs starting new projects? Or is it, you know, resin sales? Can you, put some arms and legs around what's going on in terms of the growth trajectory of NatureTech? Yeah, it was obviously a strong second quarter, certainly when you're comparing Q2 to Q2. Part of that is because our second quarter last year was not as strong. I mean, if you look at the quarterly numbers last year, the second quarter was certainly off a little bit compared to the other three quarters. However, it still was, you know, $5.6 million in revenue, which is, you know, significantly above any previous quarters that we've had.

Speaker Change: Got it thanks, and then sort of the same question for Patriot Tech.

Speaker Change: Very strong quarter.

Speaker Change: Is that new Oems, starting new projects or is it.

Resin sales.

Speaker Change: Yep.

Speaker Change: Put some arms and legs around what's going on in terms of the growth trajectory.

Speaker Change: Net protect.

Speaker Change: It was obviously a strong second quarter, certainly when youre comparing Q2 to Q2, a part of that is because our second quarter last year was not as strong I mean, if you look at the.

Speaker Change: Quarterly numbers last year part of it certainly off a little bit compared to the other three quarters. However, it still was $5 $6 million in revenue, which is significantly above any previous quarters that we've had.

Unknown Executive: There are new opportunities selling bin liners and cutlery, some traditional opportunities that we have been selling to for many years that are continuing to expand in North America. As far as the opportunities that we have, there are also new projects coming online as far as increasing the amount of resins that we're selling as well. You know, at any time, there are a lot of projects in the pipeline from a NatureTech standpoint that we're working on, and those are starting to kind of come to fruition as well.

Speaker Change: There are new new opportunities selling.

<unk> bin liners, and cutlery, a traditional opportunities that we have been selling to for many years and are continuing to expand.

Speaker Change: In North America.

Speaker Change: As far as the opportunity that we have there is also new projects coming online as far as increasing the amount of revenues that we are that we're selling as well.

Speaker Change: At any time, there's been a lot of projects in the pipeline from a nature tax standpoint that we're working on.

Speaker Change: And.

Speaker Change: Those are starting to kind of come to fruition as well similar to similar to the stuff that we're working on from an oil and gas standpoint.

Unknown Executive: Similar to the stuff that we've been working on from an oil and gas standpoint, there are a lot of projects we're working on in Nature Tech that are going to set themselves up as recurring monthly, recurring quarterly revenues that are gonna continue to build on the total Nature Tech sales. And so, from what I look at as far as the kind of base level of business, the base level of Nature Tech's business is simply growing on a month-to-month basis. And, you know, we're starting to see those results.

Speaker Change: Lot of projects, we're working on in nature tax that are.

I'm going to set themselves up as recurring monthly recurring quarterly revenue.

Speaker Change: To continue to build on.

The nature of total nature Tech sale.

And so I expect from what I look at as far as kind of a base level of business.

Speaker Change: The base level of nature type businesses simply growing on a month to month basis.

Speaker Change: And we're starting to see those results. So my expectations are that.

Unknown Executive: So, you know, my expectations are that, you know, Nature Tech's gonna have a very strong second half to the year. I expect oil and gas to have a strong second half to the year, and typically, our industrial business has a much stronger Q3 and Q4 than Q1 and Q2. So we're pretty excited by the projects right now.

Speaker Change: Nature tax is going to have.

Speaker Change: Very strong second half of the year I expect oil and gas have a strong second half of the year and.

Speaker Change: Typically our industrial business has a much stronger Q3 and Q4 then.

Speaker Change: In Q1 and Q2.

Speaker Change: So we're pretty excited by the prospects right now.

Speaker Change: Yeah.

Speaker Change: Got it and then just.

Unknown Executive: And then just, do you have a target for, you know, gross margins going forward? It's significantly above, You know, the run rate over the last five or six years, you know, is 40 some sort of long-term target? Or, you know, do you think, you know, how much higher do you think those can go as your revenue ramps and given the expected mix? Well, I certainly think that we've achieved some economies of scale as far as being able to harvest more of the gross margin dollars. And, you know, obviously, our goal is to keep our fixed expenses as stable as possible. And if, you know, the

Speaker Change: Do you have a target for gross margins going forward.

Speaker Change: Significantly above.

Speaker Change: The run rate over the last five or six years.

Speaker Change: Is 40 sort of a long term target or do you think how much higher do you think those can go.

Speaker Change: As your revenue ramps and gear and given the expected mix well I certainly think that there we've achieved some economies of scale.

Speaker Change: As far as being able to harvest more of the gross margin dollars and.

Speaker Change: Obviously that's.

Speaker Change: Our goal is to keep our fixed expenses as stable as possible.

Unknown Executive: The variable cost component, the cost of goods sold, you know, is going to go up based on a function of revenues. And so, You know, I think the growth margin that we achieved in the quarter was obviously very good. It certainly is a target.

Speaker Change: The variable cost components of cost of goods sold there is going to go up based on a function of revenues and so.

I think the gross margin that we achieved in the quarter with obviously very good. It certainly is a target I don't know if it's.

Unknown Executive: I don't know if it's completely sustainable that I would target that number or a higher number going forward. But I can say that one of the objectives that we have as a company is to continue to work on improving gross margin for all the product lines. And that's one of the reasons why we invested in the building that we have right next door to our Circle Pines facility that basically came online a few months ago where we've been able to insource certain production and certain, you know, the manufacturing of certain small light manufacturing items that we were previously outsourcing. Additionally, there are gonna be some investments that we're gonna be making in Nature Tech where we can do some of the manufacturing of the resins and blending of the resins on our own. And, you know, these are things that we're strategically doing to specifically work on improving gross margins. And so, you know, the increase in gross margin we've seen over the past two quarters is exciting for us. You know, I think 40% is a good target.

Speaker Change: Completely that sustainable that I would target that number or a higher number going forward, but I can say that one of the objectives that we have as a company is to continue to work on improving gross margin.

Speaker Change: For all the product lines and that that's one of the reasons why we invested in the building that we have right next door to our certified facility that basically came online a few months ago, where we've been able to in source.

Speaker Change: Certain production at certain manufacturing certainly small light manufacturing items that were previously outsourcing.

Speaker Change: Additionally, there is going to be some investments that we're going to be making in nature, where we can do some of the manufacturing of the RASM is lending to the resident on our own and do the things that we're strategically doing to specifically work on improving gross margin.

And so.

Speaker Change: The increase in gross margin that we've seen over the past two quarters.

Speaker Change: Is exciting for us.

Speaker Change: I think 40% is a good target, we actually think thats sustainable for the next few quarters, but obviously there is a lot going on from a global standpoint energy prices things like that that could have an impact on.

Unknown Executive: I certainly think that's sustainable for the next few quarters. But obviously, there's a lot going on from a global standpoint, energy prices, things like that, that could have an impact on some of the base materials and the cost of the base materials that we have. That makes sense. Yeah, that does. And then last one for me, and I'll turn it over.

Speaker Change: And some of the base materials and cost unit based materials that we have.

Speaker Change: That makes sense.

Speaker Change: Yes.

Speaker Change: It does and then last one for me and I'll turn it over.

Unknown Executive: You know, China was strong, up for the first time in a very long time. Could you provide a little bit of color on, you know, the automotive sector in China, internal and bus congenions, is it industrial? What, you know, sort of what is leading to the improvement in your China operation? I think there's some new opportunities and new markets that we've been going after. I think there has been a slight improvement, you know, at least compared to what we're seeing.

Speaker Change: China was strong.

Speaker Change: For the first time in a very long time.

Speaker Change: Could you.

Speaker Change: Providing a little bit of color on is that the automotive sector in China internal in Boston genuine industrial what.

Speaker Change: What is leading to the improvement in your China operations.

Speaker Change: I think there is some new opportunities in new markets that we've been we've been going after.

Speaker Change: I think there has been a slightly less.

Speaker Change: At least compared to what we're what we're seeing.

Unknown Executive: We're starting to see some of the signs of a, you know, I don't want to say a recovery because obviously, not all macro environmental factors are pointing that way. But certainly, with the customers that we're going after, we're seeing some rebound in the volumes that they're ordering from us. And so, you know, there's been some positive signals that we've seen, specifically in our second quarter, that give us a little bit more hope that the third and fourth quarters will continue to see some improvement. Additionally, we've made some cost-cutting efforts in China to increase their profitability. So there will be a contribution coming from China this year, from our subsidiary in China this year, compared to the contribution that we saw last year, which was basically break-even, so almost no contribution.

Speaker Change: We're starting to see some of the signs of a.

Speaker Change: I don't want to say recovery, because obviously not all mass.

Speaker Change: Macro environmental factors are pointing that way, but certainly the customers that we're going after we're seeing some rebound.

Speaker Change: The volumes that they're ordering from us.

And so there have been some positive signals that we've seen specifically in our second quarter that give us a little bit more hope that third and fourth quarter will continue to see some improvements.

Speaker Change: Additionally, we've made some.

Speaker Change: Great.

Speaker Change: Cutting we've made some cost cutting efforts in China to increase their profitability. So there'll be a contribution coming from China. This year from our subsidiary in China. This year compared to the contribution that we saw last year, which was basically breakeven no contributions.

Speaker Change: So I think as that economy recovers more and as we see some of the opportunities we're going after come to fruition.

Unknown Executive: And so I think as that economy recovers more, and as we see some of the opportunities we're going after come to fruition, I think we're going to see a recovery in China. I don't know when we'll get back to the kind of growth rates that we were expecting several years ago, or if we will, but certainly the market there, we continue to see a lot of opportunity there, both from the auto sector and from other new markets that we're entering. All right. That's enough for me. Thanks so much.

Speaker Change: I think we're going to see.

Speaker Change: A recovery in China.

Speaker Change: Don't know when you get back to kind of growth rates that we are expecting several years ago, we're starting to or if we do that purely the market. There. We continue to see a lot of opportunity opportunity there both from an auto sector and from other new markets that we are going to happen.

Speaker Change: Got it alright.

Speaker Change: Enough for me. Thanks, so much yes, thanks, guys one of them for next question.

Timothy Clarkson: Yep. Thanks. One moment for our next question. Our next question comes from Tim Clarkson with Van Clements & Co. Your line is open.

Speaker Change: Okay.

Speaker Change: Our next question comes from Tim Clarkson with Van Clemens <unk> co. Your line is open.

Timothy Clarkson: Hey, guys. So obviously a great quarter just.

Unknown Executive: Hey guys, obviously, a great quarter. Just a couple of questions on the stuff that's working here. What percentage of the oil and gas business, at this point, would you say is repeatable? So you did what, 2.2 million? What percentage of that was kind of repeat stuff?

Just a couple of questions on the stuff that's working here.

Timothy Clarkson: What percentage of the oil and gas business at this point would you say is repeatable.

Timothy Clarkson: You did what $2 2 million what percentage of that was kind of repeat stuff.

Unknown Executive: Um, well, it's kind of, Technically, it's all repeatable. It's all business with customers that have larger opportunities. There are certainly no markets in oil and gas that we're in that are saturated.

Speaker Change: Well, it's kind of.

Speaker Change: I mean technically it's all repeatable, it's all business with customers that have larger opportunities.

Speaker Change: There is certainly no markets in oil and gas that were in that are.

Unknown Executive: You know, we're still at a point where the customers that we're dealing with are making up very small portions of their, you know, typically their repair and maintenance budgets that are utilizing VCI technology to protect their infrastructure. So the expectations are that, you know, on a specific kind of tank bottom, there's certainly recurring revenue after a period of time when you need to recharge the tank bottom. But typically, the fields and, you know, where these installations are taking place, there are usually hundreds of tanks, and we have, you know, single digit numbers of tanks in different facilities.

That are saturated.

Speaker Change: At a point, where the customers that we're dealing with we are making a very small portion of their typically their repair and maintenance budgets that are utilizing <unk> technology to protect their infrastructure. So.

Speaker Change: So the expectations are that on a specific kind of tank bottom theres certainly recurring revenue after a period of time when you need to recharge the tank bottom, but typically the fields.

Speaker Change: These installations are taking place.

Speaker Change: There is usually 100 the tanks and we have.

Speaker Change: Single digit number of tanks in different facilities. So we feel that as the technology becomes more mainstream as it becomes more accepted as further.

Unknown Executive: So we feel that as the technology becomes more mainstream, as it becomes more accepted, as further, you know, standards are passed in dealing with, you know, the API and other, and other regulatory bodies, that it still continues to be a very, very big market opportunity. Right. So obviously, you guys have only exploited a small percentage of that market, like less than 2%, or something like that. Oh, I'd say to, you know, two tenths of a percent. I mean, it's right.

Speaker Change: Standards are passed in dealing with.

Speaker Change: The API and other.

Speaker Change: And other regulatory bodies that it still continues to be a very very big market.

Speaker Change: Opportunity for us.

Speaker Change: Right. So obviously you guys have.

Speaker Change: Only explained it a small percentage of that market like less than 2% or something like that all I would say.

Speaker Change: Two tenths of a percent.

Unknown Executive: It's a very big market compared to the revenue. Let me ask you this. I mean, I mean, do these guys ever get excited about the fact they can take a tank and make it last 30 years versus having to replace it in 10 years? To me, that would be pretty exciting. I mean, just you know, as a technological feat. I mean, it's really breakthrough technology. I mean, is there any kind of like, gee whiz, this is wonderful stuff?

Speaker Change: Right, it's a very big market compared to the revenue as well.

Speaker Change: Let me ask you this I mean.

I mean do these guys have get excited about the fact that you can take a tank and make it last.

Speaker Change: 30 years versus having to replace it tenures to me that would be.

Speaker Change: Pretty exciting I mean, just.

Speaker Change: As a as a technological feat.

Speaker Change: You know really breakthrough technology, I mean is there any kind of like Gee Whiz. This is wonderful stuff.

Unknown Executive: Well, I mean, in general, people are really excited about Rust in general, Tim. No, I get your point. It's the kind of thing where when our salespeople are in the field, and they're meeting with people that are protecting the infrastructure and in charge of protecting the infrastructure, I think the wheels are starting to turn in people's heads about, you know, potentially the cost savings that they would see on a long-term basis from using our products to protect the infrastructure. And you can see that with the people that we're dealing with, you can see that as you go up the chain of command inside of the companies that we deal with, people are starting to understand the value added component to using these products. And you know, the oil and gas market is, industry in general, known for being relatively slow when it comes to embracing new technologies. But, you know, we're blocking and tackling and going after business and, you know, moving ahead as quickly as we can.

Speaker Change: Well I mean in general people are really excited about rest in general.

Speaker Change: [laughter].

Speaker Change: I get your point.

Speaker Change: It's the kind of thing where when when our salespeople are in the field and they're meeting with people that are protecting the restructuring charge of protecting the infrastructure.

Speaker Change: I think the wheels are starting to turn in People's heads about.

Speaker Change: Actually the cost savings that they would see on a long term basis from.

Speaker Change: These.

Speaker Change: The us using our products to protect the infrastructure and you can see that with the people that we're dealing with you can see that as you go up the chain of command inside of the companies that we're dealing with that people are starting to understand.

Speaker Change: The value added component to using these products.

Speaker Change: <unk>.

Speaker Change: The oil and gas market.

Speaker Change: Industry in general is known for being relatively slow when it comes to embracing new technologies, but.

Speaker Change: We are blocking and tackling and going after business and moving.

Speaker Change: Moving ahead as quickly as we can I mean, I can Brian we are starting to see.

Unknown Executive: I mean, I can say that we are starting to see things accelerate a little bit. And part of the reason why we are, you know, looking to hire, as I mentioned before, looking to hire and looking to make investments in this business, because we are starting to see some of the, you know, milestones and some of the things happen where, you know, we're now comfortable with how the growth is going. And we want to make sure that as that business increases, we're able to support it and able to take advantage of it, right? Okay, let's switch to the compostable a little bit now.

Speaker Change: Things accelerate a little bit and then as part of the reason why we are looking to hire as I mentioned before looking to hire and looking to make investments in this business because we are starting to see.

Speaker Change: Some of the.

Speaker Change: The milestones and some of the things happen where.

Speaker Change: We are now comfortable with how the growth is going and we want to make sure that as that business increases, we're able to able to support it and able to take advantage of a take.

Speaker Change: Take advantage of it.

Speaker Change: Right, Okay, let's switch to the compulsory are all a little bit now.

Speaker Change: Yeah.

Speaker Change: Does that product really differentiate itself against the competition I mean can you.

Unknown Executive: Does that product really differentiate itself against the competition? I mean, can you find specific applications where somebody says, yeah, we want to do business with this Nature Tech stuff rather than the competition because of A, B, and C? I mean, does that show up, or is it just noise?

Speaker Change: Find specific applications, where somebody says, yes, we want to do business with this nature tech stuff rather than the competition because of a b and C. I mean does that show up or is it just another another compostable.

Unknown Executive: Another compostable product? No, that definitely shows up. I mean, we certainly sell commodity products that are, some of the NatureTech products certainly are commodity products as far as selling, you know, certain bin liners and things like that. But, you know, the majority of our business and some of the larger projects that we've rolled out, we've developed proprietary resins for these companies to be able to manufacture, you know, successfully manufacture the products that they want to be compostable on their own manufacturing equipment. And that's something when they've tried either competitors or tried just base resins or tried to develop something internally, they haven't been able to do. And so, you know, really the value add and the benefit that the NatureTech group is providing is the ability to tailor something specifically to a customer that ultimately leaves us in a position where we're able to supply them with a product and develop a longer-term partnership with companies where they want to make compostable products.

Speaker Change: Product.

Speaker Change: That definitely shows up I mean, we certainly sell commodity products that are some of the niche type products certainly are commodity products as far as selling.

Speaker Change: <unk> bin liners, and things like that but.

Speaker Change: The majority of our business and some of the larger projects that we've rolled out we've developed proprietary resins for these companies to be able to manufacture.

Speaker Change: Successfully manufacture the products that they want to be composed of all on their own manufacturing.

Speaker Change: Manufacturing equipment, and that's something when they've tried either competitors or tried just base resins were trying to develop something internally they haven't been able to do so.

Speaker Change: Really the value add in the benefit that the nature of Tech group is providing us the ability to tailor something specifically to a customer that ultimately leaves us in a position, where we're able to supply them with our product and develop a longer term partnership with companies, where they want to make them postal products.

Speaker Change: And so I think the growth that we're going to see in the coming 12 months 24 months is going to be are going to be these opportunities were.

Unknown Executive: And so I think a lot of growth that we're going to see in the coming 12 months, 24 months is going to be these opportunities where the product that we're selling is not replaceable by other compostable resins. It's going to be, you know, it's specifically developed by us in partnership with some of these main players. Right. Super.

Speaker Change: The product that we're selling is not replaceable by other compostable resin is going to be specifically developed by us in partnership with.

Speaker Change: Some of these main suppliers.

Speaker Change: Alright Super.

Speaker Change: Would you say at this point nature check is profitable on a standalone basis.

Super: Nature talking is definitely profitable on a standalone basis, that's kind of the one of the most exciting things for us over the past.

Unknown Executive: Would you say at this point that NatureTech is profitable on a standalone basis? Nature Tech is definitely profitable on a standalone basis. That's been one of the most exciting things for us over the past six quarters really seeing the growth and the profitability of Nature Tech and the contributions that we're seeing from the overall Nature Tech business to the bottom line profitability. Certainly one of the, you know, one of the key things that I think people that really follow the company have a difficult time understanding is, you know, the, Over the past four or five quarters, we've seen the joint venture And we talked a little bit about how, you know, the big joint venture that we have in Germany, the amount of income coming from that joint venture has gone down significantly over the past two or three years because of some of the difficulties with the overall German economy.

Speaker Change: Six quarters really is seeing the growth and the profitability of nature tack on the contributions that we're seeing from the overall nature of that business to the Bottomline profitability certainly one of the one of the key things that I think people that really follow the company.

Speaker Change: Have a difficult time understanding is.

Speaker Change: The <unk>.

Speaker Change: Over the past four or five quarters, we have seen the joint venture contribution.

Speaker Change: You would be relatively flat or even downtown and we talked a little bit about how the big joint venture that we have in Germany.

Speaker Change: The amount of income coming if not joint venture has gone down significantly over the past two or three years because of some of the difficulties with the overall German economy.

Speaker Change: Right.

Speaker Change: Growth that we've seen from a profitability standpoint has been as a total company has been where the nature Tech is making a significant contribution oil and gas is profitable and making a contribution so certainly my.

Speaker Change: Certainly what I hoped for and what is that as we see a.

Unknown Executive: And the growth that we've seen from a profitability standpoint has been, you know, as a total company where the nature tech is making a significant contribution, oil and gas is profitable making a contribution. So certainly, what I hope for and what I'm hoping for is that as we see the tailwinds as far as what's going on with some of the joint ventures, hopefully, if that turns around a little bit, we get back to the point where we're seeing growth at the joint venture level, that that's going to, you know, be an additional tailwind where you really will see earnings acceleration. Right, right.

Speaker Change: The tailwind as far as what's going on with some of the joint ventures, hopefully if that turns around a little bit and we get back to the point, where we're seeing the growth of the joint venture level that thats going to.

Speaker Change: Be an additional tailwind where you really realize the earnings acceleration.

Speaker Change: Right right.

Speaker Change: Well, great I mean, I'm pleased obviously pleased with how things are going and I expect things to continue in <unk>.

One thing I'll make I don't know why im saying this but I mean, it's just unbelievable how long it takes.

Speaker Change: People to be convinced of technology, so everybody thinks.

Speaker Change: People want to change to do innovative stuff, but.

Speaker Change: The experience at Northern technologies historically, just shows that it takes 10 years, sometimes for people to see the obvious end and start to change their behaviors. So.

Unknown Executive: Well, great. I mean, I'm pleased, obviously pleased with how things are going, and I expect things to continue. And I mean, one thing I'll make. I don't know why I'm saying this, but it's just unbelievable how long it takes people to be convinced of technologies. Everybody thinks people want to change and do innovative stuff.

Speaker Change: I'm glad you guys are hanging in there or everything Youre doing is clearly not only making money, but it's also helping the environment, even the tank technology, obviously, great quarter. Thanks, Matt Hey, great. Thanks, one moment for our next question.

Unknown Executive: But, you know, the experience at Northern Technologies historically just shows that it takes 10 years sometimes for people to see the obvious and start to change their behaviors. So, you know, I'm glad you guys are hanging in there. Everything you're doing is clearly not only making money, but it's also helping the environment, even the tank technology, obviously. So, great quarter. Thanks. Bye.

Speaker Change: Yes.

Speaker Change: Our next question comes from John Bair, with ascend wealth Advisors. Your line is open.

Thank you.

John Bair: Thank you for taking my questions.

John Bair: And looking at your slide deck.

John Bair: The slide with your joint venture operating income has been relatively steady in that 10% to 11% range over.

Unknown Executive: Thanks. One moment for our next question. Our next question comes from John Baer with Ascend Wealth Advisors. Your line is open. Thank you. Excuse me.

John Bair: Over the past few years. So I'm wondering if there is opportunities there to expand that segment of your business.

John Bair: I know you just referenced hopefully means that overall things might increase.

John Baer: Thank you for taking my questions. In looking at your slide deck, the slide with your joint venture operating income's been relatively steady in that 10 to 11 percent range over the past few years. So I'm wondering if there are opportunities there to expand that segment of your business. And they just referenced, hopefully, that overall things might increase would prevent or provide a good tailwind. You did, in your prepared remarks, mention that China has shown some improvement. You didn't really mention anything about India, and I'm just kind of wondering what you're seeing there.

John Bair: Prevent or provide a good tailwind.

John Bair: You did in your prepared remarks mentioned the China has shown some improvement didn't really mentioned anything about India and I'm just kind of wondering.

John Bair: What youre seeing there.

John Bair: Sure.

John Bair: As far as far as what we're seeing in <unk> in India.

John Bair: The investment that we made to acquire the additional 50%.

John Bair: <unk>, which we can cause the rest India.

John Bair: Was made at the end of 2001, so the impact started coming in in 2002, we saw a pretty dramatic drop off in our.

Unknown Executive: Sure. As far as far as what we're seeing in India, the investment that we made to acquire the additional 50% of HNTI, which we can call Z-Rest India, was made at the end of 2001. So the impact started coming in in 2002. We saw a pretty dramatic drop off in our 2000, you know, as, After the acquisition, we saw a drop off in the expected contribution.

John Bair: 2000.

John Bair: Yes.

John Bair: After the acquisition, we saw a drop off in the expected contribution they were contributing about $1 $2 million to our total profit and fiscal 2023 contributed about $1 5 million and this year, we expect them to contribute close to $2 million.

John Bair: Total operating bottom line net income contribution.

Unknown Executive: They were contributing about $1.2 million to our total profit. And in fiscal 2023, they contributed about $1.5 million. And this year, we expect them to contribute close to $2 million of total operating bottom line net income contribution. So, the Indian business has been strong. We're seeing their growth in sales, and growth in overall profitability. And so, it's been very positive.

John Bair: The Indian business has been strong there we're seeing there.

Both in sales growth and overall profitability.

John Bair: And so it's been very positive for the investment that we made.

John Bair: Right away for me the investment we saw little bit of a decline, but we are certainly at a point now where the $2 million of operating profit there were taking and is making a contribution in the Indian market in general is a strong market for us.

John Bair: Both in nature tax and four <unk>.

John Bair: And for the nearest industrial.

John Bair: Specifically, if I talk about the nature of that business, which isn't included any of the numbers that I just mentioned about the $2 million contribution nature Tech business that we have there is a separate company.

Unknown Executive: The investment that we made, right away after we made the investment, we saw a little bit of a decline, but we're certainly at a point now where the $2 million of operating profit that we're taking in is making a contribution. And the Indian market, in general, is a strong market for us, both in NatureTech and for Xeris Industrial. Specifically, if I talk about the NatureTech business, which isn't included in any of the numbers that I just mentioned about the $2 million contribution, the NatureTech business that we have here is a separate company.

John Bair: They too have been seen significant.

John Bair: Significant growth contribution that's similar to the growth rates, we've been seeing in nature tack in in North America.

John Bair: So that continues to be a big market just because of all of the opportunities that they have there.

John Bair: And supply and various compostable materials. We're also seen as I as I kind of alluded to they need to make an investment in China, because we now have the opportunity to do some production of nature Tech resin at the facility or at what will be a new facility in India for the for the major Tech group that should continue to increase.

Unknown Executive: They, too, have been seeing significant growth and significant contributions that's similar to the growth rates we've been seeing in NatureTech in North America. And so, that continues to be a big market just because of all of the opportunities that they have there for supplying various compostable materials. We're also seeing, as I kind of alluded to, the need to make an investment in China because we now have the opportunity to do some production of NatureTech resins at the facility or at what will be a new facility in India for the NatureTech group that should continue to or help us increase the gross margins that we're achieving across all of NatureTech. So, you know, we look at India as a very key contributor to us, both from a natural tech and from a zero-est industrial standpoint.

John Bair: US increase the gross margins that we receive we're achieving across all of nature Tac. So we look at India is a very key contributor to us both from a nature Tac and from <unk> industrial standpoint.

John Bair: <unk> on the other your other question about the joint venture contribution.

John Bair: The joint venture percentage contribution that you mentioned and referenced the slide deck I.

John Bair: I have about 10% to 11% of <unk>.

John Bair: Top line revenue going to our Bottomline income has been pretty consistent for for a while it's gone up a little bit down a little bit back to you.

Unknown Executive: Touching on the other, your other question about the joint venture contributions, the joint venture percentage contribution that you mentioned in reference to the slide deck of about 10 to 11% of top-line revenue going to our bottom-line income has been pretty consistent for a while. It's gone up a little bit, down a little bit by a few tenths of a percent, but it's been pretty consistent.

John Bair: A few tenths of a percent, but it's been pretty consistent.

John Bair: I don't think that we have a.

John Bair: Typically the joint ventures and subsidiaries that we have around the world are servicing all the industrial markets that are out there I don't anticipate any new joint ventures from the standpoint of.

John Bair: A new geographic region, we would go after that isn't currently serviced by one of the entities that we have.

Unknown Executive: So I don't think that we have a new joint venture. Typically, the joint ventures and subsidiaries that we have around the world are servicing all the industrial markets that are out there. I don't anticipate any new joint ventures from the standpoint of a new geographic region that we would go after that isn't currently serviced by one of the entities that we have. You know, I know that the joint ventures certainly work together and see what's working for each joint venture, and hopefully, they can have various meetings, various technical meetings to understand what's working and how they can further develop and further push products out through that distribution network that we have. Patrick right now is calling in from Europe at a joint venture partners meeting where they come together and basically talk about what's going well, what's not going well, what changes do That's a normal function; that's something that takes place on a very consistent basis.

Speaker Change: I know that.

Speaker Change: The joint ventures, certainly work together and.

Speaker Change: See what's working for each joint venture and hopefully they can.

Speaker Change: Have various meetings various technical medians to understand what's what's working on how they can further develop and further push products out through that distribution network that we have.

Speaker Change: Patrick right now is calling in from from Europe, and a joint venture partner's meeting, where they come together and basically talk about whats going well, what's not going well, what what different what changes we need to make how can we what business do we need to go after and how can we accelerate revenue.

Speaker Change: That's a normal function and that's something that takes place.

Speaker Change: A very consistent basis, so I would expect that as we kind of go forward into <unk>.

Speaker Change: Q3, and Q4, and then into our fiscal 2025 that we're going to see a rebound and see the joint venture contributions and joint venture sales increase.

Unknown Executive: So I would expect that as we kind of go forward into Q3 and Q4 and then into our fiscal 2025 that we're going to see a rebound and see the joint venture contributions and joint, on their own, given the efforts that they're doing right now. Okay. Is there much opportunity for acquiring 100% of some of these JVs like you did with the India operation? And is that something that you kind of look at as...

Speaker Change: On their own given the efforts that they are doing right now.

Speaker Change: Okay.

Speaker Change: Is there is there much opportunity in.

Speaker Change: Acquiring 100% of some of these JV is like you did with the India operation.

Speaker Change: And is that something that you kind of look at as.

Speaker Change: I know those are kind of a more long term relationship kind of things and it's a great situation occurs as it did with with your with your India operation.

Unknown Executive: I know those are kind of more long-term relationship kind of things, and the right situation occurs as it did with your India operation, but what's the backdrop, I guess, in that situation? Are there many similarities to other ones that are kind of similar to that situation specifically? I would say that we deal with that more on a case-by-case basis, you know, there are roughly 10 or 11 European joint ventures in that region and four or five in Asia. We kind of handle it on a case-by-case basis as far as how transitions occur, and what regions make the most sense for us to potentially acquire an ownership interest if that's something that becomes available. We're not actively going out and looking to buy out partners or push partners out, but if the opportunity comes up and it's a region that we feel we could effectively control or own more of, then certainly we look at taking advantage of that opportunity. Yeah, that's kind of where I was, what I was looking to hear whether it's an active pursuit or whether, you know, if the operator ends up saying, Okay, I'm, I'm willing to give up my ownership or whatever. Certainly, the ownership percentage that the other shareholders have.

Whats kind of the.

Speaker Change: So backdrop I guess in that situation are there are many similarities are there other ones that are kind of similar to that situation specifically.

Speaker Change: I would say that we deal with that more on a case by case basis.

Speaker Change: There are.

Roughly.

Speaker Change: 10, or 11 European European Joint ventures are in that region and four five in Asia.

Speaker Change: And are handled on a case by case basis as far as how transitions how transactions occur what regions make the most sense for us to potentially.

Speaker Change: Acquired ownership interest if that's something that becomes available we're not actively going out and looking to.

Speaker Change: <unk> partners or pushed partners out, but if the opportunity comes up and it's a region that we feel we could.

Speaker Change: Effectively control our own Maura that certainly we look at taking over that we look at taking advantage of that opportunity.

Speaker Change: Yes, that's kind of where I was what I was looking for.

Speaker Change: Looking to two here, whether it's an active pursuit or weather.

Speaker Change: If the operator ends up saying, okay Im sorry.

Speaker Change: Linda.

Speaker Change: Give up my ownership or whatever.

Speaker Change: Certainly the certainly the ownership percentage that the other shareholders have.

Unknown Executive: As part of the succession planning of the joint ventures, what are our opportunities for acquiring that? Or does it make more sense to look for a different strategic partner that we think could add more value than if NTIC were to just purchase it? And so our joint ventures are partnerships that we've had for a long period of time, where we've developed very long, trusting relationships with the individuals. And so there's a lot more to it than just what it looks like on a balance sheet or what it looks like from an Operating Income Contribution standpoint. And so we're certainly aware of that, and we certainly appreciate our joint venture partners and want to work to make sure that we're, you know, doing the right thing and working together to do what's going to be in the best interest of all the joint ventures and, you know, kind of the entire NTIC Federation. One last question. You did indicate that you felt the third and fourth quarter should be stronger with the Z-rush and oil and gas.

Speaker Change: We view as part of the succession planning of the joint ventures.

Speaker Change: Our opportunities for acquiring that or does it make more sense to look for a different strategic partner that we think could add more value than of NTIC were to just.

Speaker Change: Purchases.

So it's.

Speaker Change: Our joint ventures or partnerships that we've had for a long period of time, where we've developed very long trusting relationships with the individuals and so there's a lot more to it than just the what it looks like on the balance sheet or what it looks like from us.

Speaker Change: From an.

Speaker Change: Operating income contribution standpoint, and so we're certainly aware of that and we certainly appreciate our joint venture partners.

Speaker Change: Want to work to make sure that we're doing the right thing and working together that is going to be in the best interest of all the joint ventures in kind of the entire NTIC Federation.

Speaker Change: One last question.

Speaker Change: You did indicate.

Speaker Change: So the third and fourth quarter should be stronger with a Z rush in the oil and gas is do you still feel that thats.

Unknown Executive: Do you feel that that's as much a function of the higher oil prices that we're seeing right now? Or is it a combination of that plus a greater adoption of your technology? to be used in their infrastructure, you know, volatility, there certainly is a correlation between oil prices and what I'd say are repair and maintenance budgets for some of the companies that we're working with. But, you know, typically, these companies that we're working with have been trying things for a period of time; they've been gathering data for a period of time.

Speaker Change: As much a function of the higher oil prices that we're seeing right now or is it a combination of that plus a.

Speaker Change: Greater adoption of your technology.

Speaker Change: To be used in their infrastructure I think it has more to do with the adoption of the technology than the oil price.

Speaker Change: Volatility there certainly is a correlation between oil prices and.

Speaker Change: But it's their repair and maintenance budgets to some of the companies that we're working with.

Speaker Change: But typically these companies that we're working with have been trialing things for a period of time, they've been gathering data for a period of time.

Unknown Executive: And, you know, as we're able to show that we're able to protect the infrastructure, you know, that's what we use to kind of roll out and try to expand a program inside of a company. And so I would like to think the increases that we're going to, you know, hopefully see and likely see in oil and gas for the next, even if I look out, you know, three to five years are going to be based on the adoption of the technology, not the volatility of oil. And does that have application to other infrastructure outside of the tank? holding tanks Yeah, there are applications dealing with pipeline casings.

Speaker Change: Yes.

Speaker Change: As we're able to show that we are able to protect the infrastructure.

That's what we used to kind of rollout and try to expand the program inside of inside of our company and so I would like to thank the increases that we're going to.

Speaker Change: Hopefully see likely see in oil and gas for the next I.

Speaker Change: Hopefully see likely see in oil and gas for the next I.

Speaker Change: Look out three to five years theyre going to be based off of the adoption of the technology not the volatility of the oil prices.

Speaker Change: And does that have application to other infrastructure outside of.

Speaker Change: The tank.

Speaker Change: Holding tanks.

Speaker Change: Yeah, there are applications dealing with.

Unknown Executive: There are applications dealing with just protecting infrastructure with some of our existing industrial products. So there's certainly lots of other applications that we're looking at other than just the tank bottom, you know, reducing, say, emissions and so forth along pipelines or pipeline repair, perhaps? Yeah, exactly. You know, we're looking to protect an infrastructure to make it, you know, safer and less likely to have leaks or, you know, anything else that would potentially be hazardous from an environmental standpoint.

Speaker Change: Pipeline casing.

Speaker Change: The commission is dealing with.

Speaker Change: Just protecting infrastructure with some of our existing industrial products.

Speaker Change: So there is certainly other there certainly are lots of other applications that we're looking at other than just the tank bottom solutions.

Speaker Change: Reducing emissions.

Speaker Change: Emissions and so forth long pipelines or pipeline repair, perhaps yes exactly.

Speaker Change: <unk> you are looking to protect their infrastructure to make it safer and less likely to have leaks or.

Speaker Change: Or anything.

Speaker Change: Anything else that would potentially be hazardous from an environmental standpoint.

Unknown Executive: Would that have application in water infrastructure as well? Um, that's possible, but it's not an area that we're targeting right now. I mean, I think the potential risk and the amount that people are willing to look at from a water standpoint, I just don't think it's comparable to what we've seen from oil and gas. Very good. I appreciate your taking my questions and taking the time. Yeah, thank you. I had good results. Thank you. Please take a moment for our next question. Our next question comes from Walter Ramsley with Walrus. Your line is open.

Speaker Change: Would that have application in water infrastructure as well.

Speaker Change: That's.

Speaker Change: Possibly but it's not an area that we're targeting.

Speaker Change: Targeting right now I mean, I think that the potential risk and the amount that people are willing to look at from a water standpoint.

Speaker Change: I don't think it's comparable to what we've seen from an oil and gas standpoint, yes, okay very good I appreciate.

Speaker Change: Great Your taking my questions taken con yep. Thank you.

Speaker Change: Our results. Thank you one.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Walter Ramsey with Walrus. Your line is open.

Walter Christopher Ramsley: Thank you. Congratulations. A really good quarter. A couple of follow-ups. I guess Patrick is in Europe.

Walter Christopher Ramsley: Thank you congratulations a really good quarter a couple of follow ups.

Unknown Executive: Can you give us an idea of that? Has the economy over there begun to improve, or is it still kind of flatlining or getting worse? I mean, what's the story in Europe?

I guess patrik is in Europe.

Walter Christopher Ramsley: Can you give us.

Walter Christopher Ramsley: Idea of that.

The economy over there has begun to improve or is it still kind of flatlining or getting worse I mean, what's the story in Europe Nowadays.

Unknown Executive: According to what I've been hearing the last couple of days, it's just holding steady. Okay, and in the United States, can you give us an update on how the automobile part of the business is doing and, maybe, overall, the U.S.

Speaker Change: According to what I've been hearing the last couple of days, it's just holding steady.

Speaker Change: Okay.

Speaker Change: And in the United States can you give us an update on how the automobile.

Speaker Change: Part of the business is doing and maybe just overall U S zero industrial in general.

Unknown Executive: Zero Waste Industrial in general is doing okay, but there isn't, I don't have anything big to report in terms of any significant growth we're expecting in the near future. All right, and then I guess there's one other thing, you know, the last couple days there's been Economic Reports about inflation increasing again. Has that begun to affect your company? Nothing I'm aware of. Okay. Sounds good.

Speaker Change: U S industrial in general is doing okay.

Speaker Change: But.

Speaker Change: There isn't.

Speaker Change: I don't have anything big to report in terms of.

Speaker Change: And the growth we're expecting in the near term.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Alright, and then I guess just one other thing.

Speaker Change: The last couple of days there has been.

Economic reports about inflation.

Speaker Change: Increasing again.

Speaker Change: <unk>.

Speaker Change: <unk> begun to affect your company.

Speaker Change: Not that I'm aware of.

Okay.

Unknown Executive: Congratulations! Thanks for answering the question. And I'm not showing any further questions, Tom. I'd like to turn the call back over to Matt and Patrick for any closing remarks. I'd like to thank everybody for participating and to enjoy the rest of the day. Thanks. Ladies and gentlemen, I've concluded today's presentation. You may now disconnect and have a wonderful day. Thanks for watching!

Speaker Change: Sounds good congratulations thanks for answering the question.

Speaker Change: And I'm not showing any further question at this time I would like to turn the call back over to Matt and Patrick for any closing remarks.

Matthew C. Wolsfeld: Well I could thank everybody for.

Matthew C. Wolsfeld: Oh, sorry go Patrick go ahead.

Patrick Lynch: Go ahead, just wanted to thank everybody for participating and enjoy.

Enjoy the rest of the day.

Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Thank.