Q2 2026 Northern Technologies International Corp Earnings Call

Speaker #1: These 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 and of the Private Securities Litigation Reform Act of 1995, and that NTIC desires to avail itself of the protections of the Safe Harbor for these statements.

Speaker #1: Please also be advised that the actual results could differ materially, but 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.

Speaker #1: 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.

Speaker #1: 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 protections of the Safe Harbor for these statements.

Speaker #1: I would now like to turn the call over to Patrick Lynch, CEO, you may begin.

Speaker #2: 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 second quarter fiscal 2026 financial results was issued earlier this morning.

Speaker #1: 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.

Speaker #2: And is available at ntic.com. During today's call, we will review various key aspects of our fiscal 2026 second quarter financial results, provide a brief business update, and then conclude with a question-and-answer session.

Speaker #1: 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.

Speaker #2: Please note that when we discuss year-over-year performance, we are referring to the second quarter of our fiscal 2026 in comparison to the second quarter of last fiscal year.

Speaker #1: I would now like to turn the call over to Patrick Lynch, CEO. You may begin. Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO.

Speaker #2: Our results were in line with expectations. As we continued to execute against our long-term growth strategy. Second quarter performance was driven by solid top-line growth across our businesses, including record second quarter zeroest oil and gas net sales, with year-over-year growth across all geographies reflecting the investments we've made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry.

Speaker #1: Please note that a press release regarding our second quarter fiscal 2026 financial results was issued earlier this morning and is available at ntic.com. During today's call, we will review various key aspects of our fiscal 2026 second quarter financial results, provide a brief business update, and then conclude with a question-and-answer session.

Speaker #1: Please note that when we discuss year-over-year performance, we are referring to the second quarter of our fiscal 2026 in comparison to the second quarter of last fiscal year.

Speaker #2: We have also seen continued strength at NTIC China, despite the seasonal impact of the Lunar New Year and achieved another solid quarter of NatureTech growth.

Speaker #1: Our results were in line with expectations as we continued to execute against our long-term growth strategy. Second quarter performance was driven by solid top-line growth across our businesses, including record second quarter Zerust oil and gas net sales, with year-over-year growth across all geographies. This reflects the investments we've made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry.

Speaker #2: Overall, second quarter and year-to-date results reflect the resilience of our business model and the increasing value customers place on our corrosion prevention and compostable plastic solutions.

Speaker #2: While the macroenvironment, including geopolitical tensions in the Middle East, ongoing supply chain pressures, and continued challenges in the European economy, has become more uncertain, we remain confident in the direction of our business and the strategies we are executing to drive long-term value.

Speaker #1: We have also seen continued strength at NTIC China, despite the seasonal impact of the Lunar New Year, and achieved another solid quarter of NatureTech growth.

Speaker #2: The diversity of our end markets geographic footprint and product portfolio positions us well to navigate near-term volatility. As we move through the second half of fiscal 2026, we expect continued sales growth and improved profitability supported by stable trends in North America and ongoing strength in NTIC China, zeroest oil and gas, and NatureTech.

Speaker #1: Overall, second quarter and year-to-date results reflect the resilience of our business model and the increasing value customers place on our corrosion prevention and compostable plastic solutions.

Speaker #1: While the macro environment—including geopolitical tensions in the Middle East, ongoing supply chain pressures, and continued challenges in the European economy—has become more uncertain, we remain confident in the direction of our business and the strategies we are executing to drive long-term value.

Speaker #2: So with this overview, let's examine the drivers for the second quarter in more detail. For the second quarter ended February 28th, 2026, our total consolidated net sales increased 15.3% to 22 million dollars.

Speaker #1: The diversity of our end markets, geographic footprint, and product portfolio positions us well to navigate near-term volatility. As we move through the second half of fiscal 2026, we expect continued sales growth and improved profitability, supported by stable trends in North America and ongoing strength in NTIC China, Zerust Oil and Gas, and Nature-Tec.

Speaker #2: As compared to the second quarter ended February 28th, 2025. Broken down by business unit, this included a 72.1% increase in zeroest oil and gas net sales, an 11.2% increase in zeroest industrial net sales, and an 8.1% increase in NatureTech net sales.

Speaker #1: So with this overview, let's examine the drivers for the second quarter in more detail. For the second quarter ended February 28, 2026, our total consolidated net sales increased 15.3% to $22 million.

Speaker #2: Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2026 second quarter by our joint ventures increased year-over-year by 18.6% to 23.5 million dollars, reflecting improved year-over-year demand across many of our joint ventures.

Speaker #1: As compared to the second quarter ended February 28, 2025. Broken down by business unit, this included a 72.1% increase in ZerOest oil and gas net sales, an 11.2% increase in ZerOest industrial net sales, and an 8.1% increase in NatureTech net sales.

Speaker #2: We continue to closely monitor trends across our European markets for signs of stabilization, following years of subdued demand as governments begin to implement targeted economic stimulus packages.

Speaker #2: We expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany.

Speaker #1: Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2026 second quarter by our joint ventures increased year-over-year by 18.6% to $23.5 million.

Speaker #2: Improving sales trends continued at our wholly owned NTIC China subsidiary. Fiscal 2026 second quarter net sales at NTIC China increased by 18.5% to 4.4 million dollars.

Speaker #1: Reflecting improved year-over-year demand across many of our joint ventures, we continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand, as governments begin to implement targeted economic stimulus packages.

Speaker #2: Demonstrating strong demand in this geography. Furthermore, given that the majority of NTIC's China sales are for domestic Chinese consumption, we believe NTIC China's exposure to US tariffs is limited.

Speaker #1: We expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany.

Speaker #2: We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography.

Speaker #1: Improving sales trends continued at our wholly owned NTIC China subsidiary. Fiscal 2026 second quarter net sales at NTIC China increased by 18.5% to $4.4 million.

Speaker #1: Demonstrating strong demand in this geography. Furthermore, given that the majority of NTIC's China sales are for domestic Chinese consumption, we believe NTIC China's exposure to U.S. tariffs is limited.

Speaker #2: Now, moving on to zeroest oil and gas. Zeroest oil and gas sales were 2.7 million dollars. A second quarter record. An increased 72.1% from the same period last year.

Speaker #2: This growth reflects the investments we've made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry.

Speaker #1: We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography.

Speaker #2: A highlight of increasing zeroest oil and gas adoption includes the three-year contract with an estimated total value of approximately 13 million dollars we announced in November 2025 for a major offshore project with a leading global EPC company.

Speaker #1: Now, moving on to zeroest oil and gas. Zeroest oil and gas sales were 2.7 million dollars. A second quarter record. An increased 72.1% from the same period last year.

Speaker #2: We expect this project to ramp throughout the current fiscal year and continue through calendar 2028. This is a significant validation of our engineering capabilities.

Speaker #1: This growth reflects the investments we've made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry.

Speaker #2: The scalability of our zeroest oil and gas business and the reputation we've built as a trusted partner to leading offshore operators. Brazil represents one of the fastest growing deep-water markets globally and, we believe, this win provides a strong foundation for continued growth and expansion across international oil and gas markets.

Speaker #1: A highlight of increasing Zeroest Oil and Gas adoption includes the three-year contract—with an estimated total value of approximately $13 million—we announced in November 2025 for a major offshore project with a leading global EPC company.

Speaker #2: During the second quarter, we also experienced higher year-over-year oil and gas sales, in the Middle East, North America, India, and China, from both new and existing customers.

Speaker #1: We expect this project to ramp throughout the current fiscal year and continue through calendar 2028. This is a significant validation of our engineering capabilities.

Speaker #2: Reflecting the contribution of recent investments we've made to enhance our sales team and add resources to support future growth. This has improved our sales pipeline and the size and number of opportunities have expanded.

Speaker #1: The scalability of our zeroest oil and gas business and the reputation we've built as a trusted partner to leading offshore operators. Brazil represents one of the fastest growing deep-water markets globally and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets.

Speaker #2: Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. The nature of this industry will always cause certain and fluctuations in zeroest oil and gas sales.

Speaker #1: During the second quarter, we also experienced higher year-over-year oil and gas sales in the Middle East, North America, India, and China, from both new and existing customers.

Speaker #2: Nevertheless, we still expect to see zeroest oil and gas sales and profitability improve significantly in fiscal 2026 as we continue to leverage these investments and rein in operating expense growth.

Speaker #1: Reflecting the contribution of recent investments we've made to enhance our sales team and add resources to support future growth, this has improved our sales pipeline, and the size and number of opportunities have expanded.

Speaker #2: Turning to our NatureTech bioplastics business, second quarter NatureTech sales were 5.4 million dollars, representing an 8.1% year-over-year increase in NatureTech sales. We continue to pursue several larger opportunities in North America and India for our NatureTech solutions that we believe hold significant promise to benefit our sales in the coming quarters.

Speaker #1: Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. The nature of this industry will always cause certain fluctuations in Zerust oil and gas sales.

Speaker #2: Including advancing the compostable food packaging solution we mentioned on prior calls. Overall, we believe NatureTech is a best-in-class compostable plastic business that is well-positioned for significant future growth in the United States and abroad.

Speaker #1: Nevertheless, we still expect to see zeroist oil and gas sales and profitability improve significantly in fiscal 2026 as we continue to leverage these investments and rein in operating expense growth.

Speaker #2: And we expect sales to continue to expand throughout the year. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners, our success in our ability to navigate more complex economic periods are in direct result of their efforts.

Speaker #1: Turning to our NatureTech bioplastics business. Second quarter NatureTech sales were $5.4 million, representing an 8.1% year-over-year increase in NatureTech sales. We continue to pursue several larger opportunities in North America and India for our NatureTech solutions that we believe hold significant promise to benefit our sales in the coming quarters.

Speaker #2: With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2026 second quarter.

Speaker #1: Including advancing the compostable food packaging solution we mentioned on prior calls. Overall, we believe NatureTech is a best-in-class compostable plastic business that is well-positioned for significant future growth in the United States and abroad.

Speaker #1: Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 15.3% in the fiscal 2026 second quarter, the strongest year-over-year growth rate we've achieved since fiscal 2022 because of the trends Patrick reviewed in his prepared remarks.

Speaker #1: And we expect sales to continue to expand throughout the year. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners.

Speaker #1: Sales across our global joint ventures increased 18.6% in the second quarter, joint venture operating income in the second quarter increased 19.8% compared to the prior fiscal year period, primarily due to higher sales at our joint ventures.

Speaker #1: Our success and our ability to navigate more complex economic periods are a direct result of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2026 second quarter.

Speaker #1: Total operating expenses for the fiscal 2026 second quarter increased 7.7%, the 9.5 million dollars, primarily due to higher selling and general and administrative expenses partially offset by a reduction in research and development expenses.

Speaker #2: Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 15.3% in the fiscal 2026 second quarter—the strongest year-over-year growth rate.

Speaker #2: We've achieved this since fiscal 2022 because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures increased 18.6% in the second quarter.

Speaker #1: Operating expenses as a percentage of second quarter sales were 43.2% compared to 46.2% in the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations.

Speaker #2: Joint venture operating income in the second quarter increased 19.8% compared to the prior fiscal year period, primarily due to higher sales at our joint ventures.

Speaker #1: Gross profit as a percentage of net sales was 35.7% during the three months ended February 28th, 2026, compared to 35.6% during the prior fiscal year period.

Speaker #2: Total operating expenses for the fiscal 2026 second quarter increased 7.7%, to $9.5 million, primarily due to higher selling and general and administrative expenses, partially offset by a reduction in research and development expenses.

Speaker #1: Higher gross margin for the second quarter was primarily due to the increase in sales we expect gross margin to improve sequentially during fiscal 2026.

Speaker #2: Operating expenses as a percentage of second quarter sales were 43.2%, compared to 46.2% in the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations.

Speaker #1: As a reminder, during the second quarter, last fiscal year, NTIC recognized 1.1 million dollars in other income due to the receipt of a one-time cash employee retention credit payment.

Speaker #1: No other income was recognized in this fiscal year's second quarter. NTIC reported a net loss of $35,000 or 0 cents per share for the fiscal 2026 second quarter, compared to a net income of $434,000 or 4 cents per diluted share for the fiscal 2025 second quarter.

Speaker #2: Gross profit as a percentage of net sales was 35.7% during the three months ended February 28, 2026, compared to 35.6% during the prior fiscal year period.

Speaker #2: Higher gross margin for the second quarter was primarily due to the increase in sales we expect gross margin to improve sequentially during fiscal 2026.

Speaker #1: For the fiscal 2026 second quarter, NTIC's non-GAAP adjusted net income was $70,000 or 1 cent per diluted share compared to a non-GAAP adjusted net loss of $300,000 or a loss of 3 cents per diluted share for the fiscal 2025 second quarter.

Speaker #2: As a reminder, during the second quarter last fiscal year, NTIC recognized $1.1 million in other income due to the receipt of a one-time cash Employee Retention Credit payment.

Speaker #2: No other income was recognized in this fiscal year's second quarter. NTIC reported a net loss of $35,000, or $0.00 per share, for the fiscal 2026 second quarter, compared to net income of $434,000, or $0.04 per diluted share, for the fiscal 2025 second quarter.

Speaker #1: A reconciliation of GAAP to non-GAAP financial measures is available in our second quarter fiscal 2026 earnings press release that was issued this morning. As of February 28th, 2026, working capital was 20.2 million dollars, including 5.6 million dollars in cash and cash equivalents compared to 20.4 million dollars, including 7.3 million dollars in cash and cash equivalents as of August 31st, 2025.

Speaker #2: For the fiscal 2026 second quarter, NTIC's non-GAAP adjusted net income was $70,000, or $0.01 per diluted share, compared to a non-GAAP adjusted net loss of $300,000, or a loss of $0.03 per diluted share, for the fiscal 2025 second quarter.

Speaker #1: As of February 28th, 2026, we had outstanding debt of 14.3 million dollars. This included 11.3 million dollars in borrowings, under our existing revolving line of credit, compared to 12.2 million dollars as of August 31st, 2025.

Speaker #2: Our reconciliation of GAAP to non-GAAP financial measures is available in our second quarter fiscal 2026 earnings press release that was issued this morning. As of February 28, 2026, working capital was $20.2 million, including $5.6 million in cash and cash equivalents, compared to $20.4 million, including $7.3 million in cash and cash equivalents as of August 31, 2025.

Speaker #1: Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2026 and beyond. On February 28th, 2026, the company had 29.7 million dollars of investments in joint ventures, of which 51.8% or 15.4 million dollars was in cash, with the remaining balance primarily invested in other working capital.

Speaker #2: As of February 28, 2026, we had outstanding debt of $14.3 million. This included $11.3 million in borrowings under our existing revolving line of credit, compared to $12.2 million as of August 31, 2025.

Speaker #1: In January 2026, NTIC's board of directors declared a quarterly cash dividend of 1 cent per common share that was payable on February 11th, 2026, to stockholders of record on January 28th, 2026.

Speaker #2: Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2026 and beyond. On February 28, 2026, the company had $29.7 million of investments in joint ventures, of which 51.8%, or $15.4 million, was in cash, with the remaining balance primarily invested in other working capital.

Speaker #1: To conclude our prepared remarks, we believe our second quarter results demonstrate the continued strength and resilience of our business, led by strong year-over-year sales growth and improving year-to-date profitability.

Speaker #1: While the macroenvironment remains uncertain, we are encouraged by the underlying trends across our business and the momentum we are seeing across our operations. As we move through the balance of fiscal 2026, we expect revenue growth to increase increasingly translate to improved profitability, supported by operating leverage.

Speaker #2: In January 2026, NTIC’s board of directors declared a quarterly cash dividend of $0.01 per common share, payable on February 11, 2026, to stockholders of record on January 28, 2026.

Speaker #1: Disciplined expense management and continued focus on working capital efficiencies and debt reduction. We believe these factors position us well to navigate near-term macro uncertainty while driving stronger financial performance and cash flow generation over time.

Speaker #2: To conclude our prepared remarks, we believe our second quarter results demonstrate the continued strength and resilience of our business, led by strong year-over-year sales growth and improving year-to-date profitability.

Speaker #1: With this overview, Patrick and I are happy to take your questions.

Speaker #2: While the macro environment remains uncertain, we are encouraged by the underlying trends across our business and the momentum we are seeing across our operations.

Speaker #2: All right. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11

Speaker #2: As we move through the balance of fiscal 2026, we expect revenue growth to increasingly translate to improved profitability, supported by operating leverage. Disciplined expense management and continued focus on working capital efficiencies and debt reduction.

Speaker #1: One again Please stand by while we compile our Q&A roster And our first question will come from the line of Timothy Clarkson of Van Clemens .

Speaker #1: Your line is open . Timothy

Speaker #2: Hey , guys . Obviously a really good quarter revenues wise . Earnings still aren't quite there , but maybe you can talk a little bit about the investments that have been made over the last year or so .

Speaker #2: We believe these factors position us well to navigate near-term macro uncertainty while driving stronger financial performance and cash flow generation over time. With this overview, Patrick and I are happy to take your questions.

Speaker #2: And , you know , where the if you think the investments have are , are worthwhile

Speaker #1: All right. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Speaker #3: Yeah . I mean , I'd say there's , there's kind of a what I'll call the long term investments and the short term investments .

Speaker #3: I mean , the investments we made over the past two years , you know , are the are the really the hiring of a lot of people and starting the new subsidiary that we have in , in the UAE specifically to deal with the oil and gas opportunities there .

Speaker #1: Please stand by while we compile our Q&A roster. And our first question will come from the line of Timothy Clarkson of Van Clemens. Your line is open, Timothy.

Speaker #3: Hey, guys. obviously, a really good quarter revenues-wise. Earnings still aren't quite there, but maybe you can talk a little bit about the investments that have been made over the last year or so and, you know, or the if you think the investments have are are, are worthwhile.

Speaker #3: And we have seen success from that entity . Part of what is fueled the oil and gas revenue increase has been , you know , some of the the revenues that we have achieved in the in the Middle East .

Speaker #3: If I look at kind of the breakout of oil and gas revenue , I think part of the expectation was that the increase was due to the Brazil contract , which is true , but we're really looking at , let's say , a non Brazil increase .

Speaker #4: yeah. I mean, I'd say there's there's kind of a what I'll call the long-term investments and the short-term investments. I mean, the immediate investments that we made over the past two years are the are the is really the hiring of a lot of people and starting the new subsidiary that we have in, in the UAE, specifically to deal with the oil and gas opportunities there.

Speaker #3: This quarter of about 85% compared to second quarter last year . And a Brazil oil and gas increase of about 55% this year compared to Q2 of last year .

Speaker #4: And, and we have seen, you know, success from that entity. part of what has fueled the oil and gas revenue increase has been, you know, some of the, the, the revenues that we have achieved in the, in the Middle East.

Speaker #3: So the growth that we're seeing in oil and gas is not , you know , localized to Brazil . It's it's happening based on opportunities in North America , in the Middle East and other regions .

Speaker #4: If I look at kind of the breakout of oil and gas revenue, I think part of the expectation was that the increase was due to the Brazil contract, which is true.

Speaker #3: So we certainly get the sense that we're starting to get traction in that area from the investments that we made over the past two years .

Speaker #3: You know , so at this point in time , we're we're we're happy with those investments . We're kind of at a point now with oil and gas where it's a transition from the work that we've been doing behind the scenes to really focusing on closing business and adding revenue to the to the top line that ultimately flow down to an earnings per share standpoint The other investments , you know , key investments that we've made are , you know , will come through the investment section of the cash flow over the past couple of years where you look at purchasing the building next door and making improvements .

Speaker #4: But we're really looking at, let's say, a non-Brazil increase this quarter of about 85% compared to the second quarter last year, and a Brazil oil and gas increase of about 55% this year compared to Q2 of last year.

Speaker #4: So, you know, the growth that we're seeing in oil and gas is not, you know, localized to Brazil. It's happening based on opportunities in North America, in the Middle East, and other regions.

Speaker #4: So, we certainly get the sense that we're starting to get traction in that area from the investments that we made over the past two years.

Speaker #3: That building and adding , you know , both warehousing capability and manufacturing capability to our facility , you know , which has helped us maintain the gross margins on the new products that we have .

Speaker #4: You know, so, at this point in time, we're happy with those investments. We're kind of at a point now with oil and gas where it's a transition from the work that we've been doing behind the scenes to really focusing on closing business and adding revenue to the top line, that'll ultimately flow down to an earnings per share standpoint.

Speaker #3: So we don't have to outsource and essentially achieve better gross margins on those products So we've spent about 4 million plus on that facility and bringing in some manufacturing capabilities here .

Speaker #3: And then additionally , over the past two years , we implemented a new SAP system , which certainly has been a little bit more painful to deal with .

Speaker #4: The, the other investments, you know, key investments that we've made are, you know, will come through the investment section of the cash flow over the past couple of years, where you look at purchasing the building next door, and making improvements to that building and adding, you know, both warehousing capability and manufacturing capability to our facility, you know, which has helped us maintain the gross margins on the new products that we have so we don't have to outsource, and can essentially achieve better gross margins on those products.

Speaker #3: But long term , I think the data that we're getting out of that SAP system and the way that we will be able to kind of integrate things worldwide with the , you know , kind of how the company is set up with the areas around the world and the joint ventures it's going to give us much better data to be able to grow from a , you know , a total global company perspective .

Speaker #3: So those are really the three main investments we've made over the past two years . I think , although a lot of them have been , you know , I'll say difficult and certainly added to operating expense over the past two years .

Speaker #4: you know, so we've spent about 4 million-plus on that facility and bringing in some manufacturing capabilities here. And then additionally, over the past two years, we implemented a new SAP system, which certainly has been a little bit more painful to deal with, but long-term, I think the data that we're getting out of that SAP system and the way that we'll be able to kind of integrate things worldwide with the, you know, kind of how the company is set up with the subsidiaries around the world and the joint ventures is going to give us much better data to be able to grow from a, you know, a total global company perspective.

Speaker #3: I think that's really what's going to fuel the company for the coming 3 to 5 years .

Speaker #2: Right , right now , obviously , China is doing really well . I mean , there was some concern that , you know , as they transition to electric cars , there wouldn't be very much demand for zero .

Speaker #2: So it looks like there's still plenty of demand for Zero's electric cars or not

Speaker #3: Yeah . It's China has done well . It's a surprisingly well they're transitioning . You know if I look back at kind of where we were selling in China when we established the subsidiary in 2014 , 15 , 16 , compared to where we are now , there's been a little bit of a transition between supplying the , let's say , the US based or European based automotive companies to now , focusing on supplying for domestic consumption , which is which is good given the volatility of what happens in China from a from an exploitation standpoint .

Speaker #4: So, those are really the three main investments that we've made over the past two years. I think, although a lot of them have been, you know, I'll say, difficult and certainly added to operating expense over the past two years, I think that's really what's going to fuel the company for the coming three to five years.

Speaker #3: Right, right. Now, obviously, China is doing really well. I mean, there was some concern that, as they transition to electric cars, there wouldn't be very much demand for ZERUST.

Speaker #3: So it looks like there's still plenty of demand for ZEROs. Electric cars are not.

Speaker #3: So a lot of the increases that we've seen in China have been for , you know , for domestic consumption of the product , which is which is very positive from our standpoint , right ?

Speaker #4: Yeah, China has done well. It's surprisingly well. Their transitioning—you know, if I look back at kind of where we were selling in China when we established the subsidiary in 2014, '15, '16, compared to where we are now, there's been a, I'd say, a little bit of a transition between supplying the, let's say, the...

Speaker #2: One last question , just in general , on the R&D end , I mean , are there any is the R&D spend , particularly on on Zero's type products or on the composable stuff or some of both ?

Speaker #2: Are there some new emerging technologies coming from all the R&D spending

Speaker #4: In particular , we're very positive on going to happen in the food packaging sector . Extremely confident right now that that should fit in the next 6 to 12 months .

Speaker #2: Okay . And that's that was what creating the compostable packaging that doesn't allow moisture in . Right .

Speaker #4: That's correct .

Speaker #2: Right , right . That's no one else has that product . Right

Speaker #4: Right , right .

Speaker #2: Okay . All right . I'm done . I mean , obviously the well , one last question I'll ask it is I mean , is there still I mean , historically , you know , Northern Tech would net , you know , 10% net at kind of optimum sales level .

Speaker #2: Is that still the , the goal of the company 10% after tax

Speaker #3: It's it's difficult to kind of look at it just from that standpoint of what the traditional net is because , you know , obviously the joint venture operating income that comes in is , you know , is not included from a top line standpoint .

Speaker #3: And so I think the big the big difficulty we have as a company is , you know , if you look back at , you know , kind of the , the historical contributions from the joint ventures , it was significantly higher .

Speaker #3: I mean , just , just looking at what we previously received from the German joint venture , that would be anywhere from ten $0.12 per share per quarter coming in , where now you're looking at , you know , 5 or $0.06 , you know , per quarter coming in .

Difficult to kind of look at it. Just from that standpoint of what the traditional net is because

Speaker #3: So what we're seeing is that as we get back to , you know , getting up to , you know , which we expect to see in Q3 and Q4 , you know , a significant increase in the in the earnings compared to Q1 and Q2 .

Speaker #3: You know , it's really a matter of how are the , the tech business , the oil and gas business and the industrial businesses that we have ?

Speaker #3: How are those really kind of offsetting some of the declines we've seen from the difficulties at the German joint venture , specifically dealing with the German economy They've done a good job of of with what they're dealing with , given the difficulties with energy prices and things like that in Germany specifically , you know , but it's really a matter of getting the income from the new businesses and seeing those take off to really augment for what had been kind of a decline in in Germany

Speaker #2: Okay . Well , great . The revenue growth's already showing , so that's good . done . Thank you .

Speaker #3: Thanks , Deb .

Speaker #1: And our next question will be coming from the line of Jake Patterson of Talanta Investment Group . Your line is open . Jake

You know, obviously the joint venture operating income that comes in is, you know, is not included from a Topline sample. And so, you know, I think the big the big difficulty we have as a company is, you know, if you look back at, you know, kind of the the historical contributions from the joint ventures, um, it was significantly higher. I mean just just looking at what we previously received, you know, from the, the German joint venture that would be anywhere from, you know, 1012 cents per share per quarter. Uh, coming in where now you're looking at, you know, 5 or 6 cents, uh, you know, per quarter coming in. So what we're seeing is that as we get back to, you know, getting up to you know, which we expect to see in Q3 and Q4, you know, a significant increase in the in the earnings compared to q1 and Q2 you know, it's really a matter of how are the the the nature Tech business, the oil and gas business, and the industrial businesses that we have. How are those really kind of offsetting?

Speaker #5: Hey , guys . Just a couple quick ones . First off , on gross margin , I know you guided for sequential expansion and are continuing to guide for that .

You know, some of the clients we've seen, from the difficulties that the German joint venture specifically dealing with the German economy, they've done a good job of—of

dealing with given the, uh,

Speaker #5: We saw margins kind of flattish even down slightly quarter over quarter . And it looks like a lot of that was from nature tech .

The difficulties with energy prices and things like that, in Germany specifically, you know, but it's really a matter of—

Speaker #5: I know one of the weaker margins we've seen in at least the last couple of years . So I was kind of curious maybe what happened there .

Getting the income from the new businesses, and seeing those take off to, you know, really augment for what has been kind of a decline in German.

Speaker #5: And the outlook for the second half going forward on that margin .

Okay, well, great—the revenue growth is already showing, so that's good. So I'm done. Thank you, thank you.

Speaker #3: Well , there's a lot of different factors that have kind of impacted nature , tech . I'd say , over the past , if I look back 4 or 5 quarters , it's historic .

Atlanta Investment Group, your line is open, Jake.

Speaker #3: It's going to be a more volatile , gross margin . The reason for the volatility is twofold . One is you have kind of fluctuating input prices from the materials that we're using .

Speaker #3: And two , you know , a bigger component of that is that we're doing global manufacturing for the resins . And so there's been a lot of impact from the the tariffs and the changing and the changing tariffs that we have in place .

Uh, hey guys, um, just a couple quick ones. First off, on gross margin—I know you guided for sequential expansion and are continuing to guide for that. Um, we saw margin kind of flattish, even down slightly quarter-over-quarter, and it looks like a lot of that was from Nature Tech, kind of one of the weaker margins we've seen in at least the last couple of years. So I was kind of curious, maybe, what happened there, and, um, the outlook for the second half going forward on that margin.

Speaker #3: So when we were focused more on manufacturing in China and there was some volatility with tariffs there , we saw some increases . And then decreases .

Speaker #3: We're now set up where we're going to be set very quickly where we're able to do manufacturing in China . In Vietnam , in India and longer term looking for some North American manufacturing capabilities for nature tech .

I'd say over the past. Uh, if we look back 4 or 5 quarters, um, it's historic it, it's going to be a more volatile gross margin. Um, the reason for the volatility is is 2 volt 1 is you have kind of fluctuating, uh, input prices from the materials that we're using and 2.

Speaker #3: The other component to the gross margin is , is the selling price . And we certainly have seen that the nature tech and products , you know , it is a competitive environment .

Speaker #3: And we certainly are seeing that that that , you know , the companies we're dealing with are , are dealing with razor thin margins .

Speaker #3: And , you know , at times we have had to decrease price to remain competitive in some of those larger bids . So certainly the goal is to move forward in selling , let's say , more of the proprietary resins compared to the end products that are in the more competitive space .

You know, a bigger component of that is that we're doing global manufacturing for the nation that residents. And so there's been a lot of impact from the tariffs and the changing tariffs that we have in place. So, you know, when we were

Focusing more on manufacturing in China—there was some volatility with tariffs there. We saw some increases and then decreases. We're now set up, or we're going to be set up very quickly, where we're able to do manufacturing in China, in Vietnam, and in India. And longer term, we're looking for some North American manufacturing capabilities for NTIC.

Speaker #3: But , you know , ultimately , there's just a lot of input factors to what impacts the gross profit for nature tech , specifically .

Um, the other component to the gross margin is the selling price.

Speaker #3: Certainly , the goal is to hold it , hold the tech and gross margin and increase margin as much as possible . It's just sometimes difficult depending on the region

Speaker #5: Okay , okay . It's still on the margin side , I mean , zero two , I mean , just looking at the oil and gas mix relative to last year , I mean , it's 500 basis points higher in gross margins down year over year .

In some of those larger bits.

So, you know, certainly the goal is to move forward and selling, let's say, more of the proprietary resins.

Speaker #5: There is that still any impact from that supplier issue you guys had in the first quarter ? It doesn't really seem like as much improvement as I would have thought .

Speaker #3: Yeah we did . We did continue to have , you know , the impact on inventory and the impact from supplier issue . We talked about in Q1 and kind of the carry over to Q2 , you know , the other difficulty we have , it hasn't impacted us from a second quarter standpoint is what's going to happen in Q3 and Q4 , given what's going on with energy prices and polyethylene prices and things like that worldwide .

Um, compared to the end products that are in the more, you know, competitive space. But, you know, ultimately, there's just a lot of input factors to what impacts the gross profit for Nature Tech specifically. Um, certainly the goal is to, um, hold it, you know, hold the Nature gross margin and increase margin as much as possible, and it's just sometimes difficult, uh, depending on the region.

Okay. Um,

Speaker #3: You know , we've dealt with this before , whether during Covid or whether during other other time periods . But we do our best to pass through increases in raw material prices to , to customers as much as possible , but certainly we're seeing an increase in some of the main base materials that go into our polyethylene based products .

Uh, okay. It's still on the margin side. I mean, zero is too—I mean, just looking at the oil and gas mix relative to last year. I mean, it's 500 basis points higher, and gross margins are down year over year. There is that.

Still, any impact in that supplier issue you guys had in the first quarter? Because it doesn't really seem like—

Speaker #3: So that's certainly something to kind of watch out for in Q3 and Q4

As much improvement as I would have thought. Yeah, we did—we did continue to have, you know, the impact on inventory and the impact from, uh, supplier ocean we talked about in Q1, and kind of the carryover to Q2.

Speaker #5: Yeah , I saw that . It was like down . Lionel . I think razor price is 60% or so . So that should be interesting to see .

You know, the other difficulty we have that has impacted us from a second quarter standpoint is what's going to happen in Q3 and Q4, given what's going on with energy prices and policing prices and things like that. Um,

Speaker #5: I guess one last one you just mentioned that the Middle East contributed to some of your oil and gas revenue growth , and they were up , I think like 80% or something year over year .

Speaker #5: When you go look at your investor presentations , you guys , I think you break out the geographies for us oil and gas and it only lists Brazil and North America , at least as of November or for fiscal 25 year .

Worldwide. Um, you know, we we've dealt with this before whether during Co or whether during other other time periods, but we do our best to pass through increases in raw material prices to to customers as much as possible. But certainly, we're seeing an increase in some of the main base materials that go into our, uh, probably polyethylene based products. So it's certainly something to kind of watch out for in Q3 and Q4.

Speaker #5: So I was kind of curious . It sounded like there was some Middle East revenue from that geography last year , but I'm assuming it's like pretty minimal at this point

Yeah, I saw that it was, like, down line out. I think Razor price is 60% or so, so,

Speaker #3: I mean , I wouldn't say it's minimal . I mean , if I look at kind of what they did , you know , we previously were selling to some of these Middle Eastern opportunities as far as , you know , we had we had larger contracts with British Petroleum in Georgia and some other areas like that .

That should be interesting to see. Um, I guess one last one, and you just mentioned that the Middle East contributed to some of your oil and gas revenue growth, and they were up, I think, like 80% or something year over year.

When you go look at your investor presentations, you guys, I think you break out the geographies.

Speaker #3: We've historically sold to Reliance in India , and these sales were happening through North America . Now , what we're doing is , is pushing some of these opportunities to do more .

For Zero Soil and Gas, it only lists Brazil and North America.

At least as of November or, uh, your fiscal '25.

Speaker #3: You know , localized in that area because they're better set up to serve that region . You know , so it's kind of a those previously were going through North America , I think , kind of going forward .

Yeah, so I was kind of curious—you sounded like there was some Middle East revenue from that geography last year, but I’m assuming it’s pretty minimal at this point.

um,

Speaker #3: Once the once the subsidiary in the UAE is fully up and running fully functional and , you know , operating completely independently , we'll break out the revenues for that area know , in the investor presentation .

I mean, I wouldn't say it's minimal. I mean, if I look at kind of what they did, you know, we previously were selling to some of these Middle East opportunities. As far as you know, we had, we had, we—

Speaker #3: I mean , the other thing that's kind of changed is we are using the subsidiary network that we have in place to go after the oil and gas opportunities .

Had larger contracts with British Petroleum in Georgia and some other areas like that. We historically sent, sold to Reliance in India, and these sales were happening through North America.

Speaker #3: I mentioned specifically , you know , opportunities in India , there's opportunities in China . Certainly the subsidiary in Brazil , these are all areas where we want to go after oil and gas opportunities with those subsidiaries .

Now what we're doing is, it's pushing some of these, um, opportunities to be more, you know, localized in that area because they're better set up to serve that region. Um, you know, so it's kind of a—those previously were going through North America. I think kind of going forward, once the, uh, once the subsidiary in the UAE, you know, is—

Speaker #3: So some of them are also bringing in and hiring people that specialize in oil and gas space to be able to go after those opportunities .

Fully up and running, fully functional. And—

You know, operating completely independently, we'll break out the revenues for that area.

Speaker #3: There . So , you we'll establish kind of regional hub in Asia , as we talked about in the Middle East , which makes sense .

Um,

Speaker #3: But ultimately , we're looking to push those those oil and gas products out through all the subsidiaries that we have to take advantage of that network that we spent so long to build up

You know, in the investment presentation, I mean, the other thing that's kind of changed is we are using the subsidiary network that we have in place to go after the oil and gas opportunity. I mentioned specifically, you know, opportunities in India, there's opportunities in China,

Certainly the subsidiary in Brazil.

Speaker #5: Gotcha . Now that makes sense . Cool . All right , that's it for me . I appreciate it .

Speaker #3: Thanks , J .

Speaker #1: And our next question will be coming from the line of Gus Richard of Northland Capital Markets . Gus , your line is open .

Speaker #6: Yes . Thanks so much for taking the questions . I kind of want to focus on on the impact of the war . You guys reported last quarter or last quarter ended before the war started .

These are all areas where we want to go after oil and gas opportunities with those subsidiaries. Um, so some of them are also bringing in and hiring people that specialize in new oil and gas space to be able to go after those opportunities there.

Speaker #6: There's been a lot of change in the world , and I'm curious , you know , is that changing regional demand in terms of where companies are ?

So, you know, we'll establish kind of regional hubs in Asia, as we talked about, in the Middle East, which makes sense. Um, but ultimately, we're looking to push those, you know, those—

Oil and gas products out through all the subsidiaries that we have, to take advantage of that network that we've spent so long to build up.

Speaker #6: Countries or regions are getting more active or less active

Gotcha, now that makes sense. Um, cool — Florida. That's it for me. I appreciate it.

Speaker #3: I guess there's , there's a bunch of different impacts from , from , from what's happening , you know , kind of kind of across the board .

Thank you.

Speaker #3: You've got the very , very , you know , up and close impact where , you know , the individuals that we have in the subsidiary in , in Dubai are , you know , getting , getting air raid sirens and are , you know , locked in place and told not to go out at various times .

And our next question will be coming from the line of Gus Richard of Northland Capital Markets. Gus, your line is open.

Speaker #3: And they're seeing , you know , they're seeing this firsthand . And so , you know , a lot of the areas where they're going to sell products and do installations and things like that , you know , are on lockdown , but , you know , you do have the opportunity that , you know , with some of the infrastructure that's been , you know , essentially blown up , you are going to have opportunities where there's rebuilding and where there's different things going on and increased increased spending in those areas where they're going to need some corrosion protection and things like that .

Taking the questions. Um, I kind of want to focus on, on the impact of the war. Are you guys reported the last quarter or the last quarter ended before the war started? There's been a lot of change in the world and and I'm first curious, you know, is that changing Regional demand, um, in terms of where um, companies are are countries or regions are getting more active or less active?

Speaker #3: So there's , there's the very direct impact from those things . Then you have kind of the , the secondary impact of what's happening with supply chain energy prices and things like that with , with what's going on in the straight and what's going on , kind of with the from a relationship standpoint , which is causing energy prices to increase , which is causing raw material prices to increase , which is , you know , obviously impacting not just NTSC , but certainly all the joint ventures and the and the subsidiaries .

Um, I guess there's there's a bunch of different impacts from from, from what happening, you know, kind of kind of a cross the board. You've got the very, very um, you know, up and close impact where, you know, the individuals that we have in the subsidiary in in in Dubai are, you know, getting getting air raid sirens and are, you know, locked in place and and told not to go out at various times and and they're seen. Um,

Speaker #3: On top of that , you've got subsidiaries that , you know , I'd say are further away . Take , for example , Brazil , you know , where they potentially have supply constraints , you know , from , from the standpoint of the product needs to be shipped , you know , the raw material product need to be shipped there .

You know, they're seeing this first hand, and so, you know, a lot of the areas where they're going to sell products and do installations and things like that, um, you know, are on lockdown. But you know, you do have the opportunity that, you know, with some of the infrastructure that's been, um, you know, essentially blown up, you are going to have opportunities where there's rebuilding, and where there's different things going on, and increased, uh, increased spending in those areas where they're going to need some corrosion protection and things like that. So there's—

Speaker #3: And there's potentially shortages of the product . We're not seeing shortages of products in North America . It's , it's the prices are going up .

Speaker #3: But we're not seeing shortages . But we're looking at certain regions around the world where they're potentially saying , you know , we're they're running into issues of even having raw materials in place to be able to make the product , which is different than just seeing price increases .

If there's a very direct impact from those things, then you have kind of the, you know, the secondary impact of what's happening with supply chain, energy, price and things like that with, um, with what's going on in the streets and what's going on kind of from a relationship standpoint, which is causing energy prices to increase, which is causing raw material prices to increase, which is, you know, obviously impacting not just NTIC, but certainly all the joint ventures and the subsidiaries.

Speaker #3: And so there's a lot of different ways where , you know , with what's going on in the Middle East , with what's going on with the war is impacting the company , you know , but certainly , you know , it .

Speaker #3: It's certainly a concern . But we have , you know , I think we're in a position where we're able to deal with those issues .

Speaker #3: You know , if I look at kind of what's happening in Brazil , we had a conversation in Brazil about what's kind of a supply line .

Speaker #3: We're fortunate that we have we have other subsidiaries and other entities around the world that could potentially be able to , you know , meet the customer in Brazil , meet their demand and provide product to them .

On top of that, you’ve got subsidiaries that, you know, I’d say are further away. Take your example, Brazil, um, you know, where they potentially have supply constraints—you know, from the standpoint of the product needs to be shipped, you know, the raw material products need to be shipped there. Um, and there’s potentially shortages of the product. We’re not seeing shortages of products in North America. It’s, it's—the prices are going up, but we’re not seeing shortages. But we’re looking at certain regions around the world where they’re potentially seeing, you know, we’re—

They're running into the issues of even having raw materials in place to be able to make the product, which is different than just seeing price increases.

Speaker #3: So we're not sole sourced in areas it allows us flexibility , it allows us the ability to pick and choose what we want to go after and , and have , have options as far as picking , you know , lowest cost suppliers , things like that

And so there's a lot of different ways where, you know, with what's going on in the Middle East, with what's going on with the war, is kind of impacting the company. Um, you know, but certainly, you know, it—

Speaker #6: Got it . And then , you know , so you've got increase in input prices . Is that , you know , are you able to pass that increase on to your customers ?

Speaker #6: How , how are you adjusting to , you know , higher input costs and how receptive are your customers to , to that or contractually ?

Speaker #3: Well , the good thing that we have is that when we have initially , when , when things kicked off , we did build up inventory a little bit , we're doing our best to hold prices where we can , but we also don't want to be in a situation like what we had in Covid , where we reacted too slowly and ultimately we didn't raise prices for like six months .

It, it's certainly a concern, but we have, you know, I think we're in a position where we're able to deal with those issues. Um, you know, if I look at kind of what's happening in, you know, Brazil, we had a conversation in Brazil about what's going on. With supply lines, we're fortunate that we have a, we have other subsidiaries and other entities around the world that potentially be able to, you know, meet the meet those customer in Brazil, meet their demands and provide product to them. So we're not sole sourced in areas. Um, it allows us flexibility, it allows us, you know, the ability to pick and choose what we want to go after. And you know, have have options as far as picking uh, you know, lowest cost supplier steps things like

Speaker #3: And we had issues . So we're kind of in a , we're in a situation where we're monitoring prices . We are looking at raising prices where we can specifically when we are selling custom made products .

Speaker #3: That it's based off of the price that we pay . It's easy to push that increase onto customers . The other benefit that you have is it's not like this is an anomaly where the customers don't understand what's going on from an international standpoint and from from , from a raw material pricing standpoint .

Speaker #3: I mean , they see what's happening at the gas pump specifically . They can read and hear what's happening from supply chain and prices going up .

Speaker #3: And so it's easy to come in and explain and say , look , the price of , you know , polyethylene is increased from , you know , by $0.20 .

Got it. And then, um, you know, so, uh, you've got increase in input prices. Um, is that, um, you know, are you able to pass that increase on to your customers? How, you know, how are you adjusting to um, you know, higher input costs and and you know how receptive are your customers to to that or contractually? Well the the good thing that we have is that 1 1, we have initially when, when things kicked off, we did build up inventory a little bit. We're doing our best to hold prices where we can, but we also don't want to be in a situation like what we had in Co where we reacted too slowly. And you know, ultimately we didn't raise prices for like 6 months and we had issues. So we're kind of in a we're in a situation where we're monitoring prices. We are

Speaker #3: This is how you price of our product is increasing . And why . And so , you know , it's a matter of walking the customers through it and explaining what's happening .

Looking at raising prices where we can, specifically when we are selling custom-made products that it's—it's based off of the price that we pay. It's easy to push, um, that increase on the customers,

Speaker #3: But we can certainly point to very clear data that shows , you know , exactly how our input prices are increasing . And that certainly helps with passing those increases onto customers .

The other benefit that you have is, it's not like—this isn't an anomaly where the customers don't understand what's going on from an international standpoint. And from, from, from—

Speaker #3: In an increased final price of the product

A pricing standpoint.

Speaker #6: Got it . And then , you know , you talked about operating leverage . You know , does the operating leverage come from holding opex flat and rising , rising revenue or is there an opportunity to trim your your opex a little , a little color there could be helpful .

Speaker #3: The goal from the goal from a leveraging standpoint is to increase revenue . And if we kind of look forward right now with the backlog that we have and the projects that we have , you know , the expectations are that , you know , our third and fourth quarter will be up significantly better than first and second quarter .

And so, you know, it's a matter of walking the customers through it and explaining what's happening. But we can certainly point to very clear data that shows, you know, exactly how our input prices are increasing, because that certainly helps with passing those increases on to the customers.

In an increased, uh, final price of the product.

Speaker #3: We've historically had very strong third and fourth quarters from a revenue standpoint . And I would expect that trend to continue . Second quarter is historically a every not every second quarter , but traditionally our second quarters are our slowest quarters for revenue standpoint .

Got it and then um you know you talked about operating leverage. You know, is does the operating Leverage come from holding Opex, flat and rising Rising revenue or or is there an opportunity to, to trim your your Opex, in a little, a little color there and be helpful.

Speaker #3: You know , the reason why revenues look good in second quarter this year is because second quarter last year was was down so much .

The the the goal from an the goal from a leveraging, standpoint is to increase Revenue.

Speaker #3: And it was such a bad quarter last year from a competitive standpoint . But given what we're at from a backlog and expected projects that we had to close third and fourth quarter should really show , you know , I think , how the company is going to get back on track from an earnings standpoint and profitability standpoint , where , you know , we can see how we're going to utilize that leverage and , you know , push as many gross margin dollars to bottom line as possible .

Speaker #3: So holding opex , you know , flat or as low as possible is certainly the objective , not necessarily cutting expenses at this point in time

Speaker #6: Okay . Got it . And then the last one for me , just looking at the balance sheet , cash is declined . Last five quarters in a row or net cash right .

And if we kind of look forward right now at the backlog that we have and the projects that we have, you know, the expectations are that, you know, our third and fourth quarter will be, um, significantly better than first and second quarter. Uh, we're going to store up—we had very strong third and fourth quarters from a revenue standpoint and I would expect that trend to continue. Um, second quarter is historically—in every, not every second quarter, but traditionally our second quarters are our slowest quarters from a revenue standpoint. Um, you know, the reason why revenues look good in second quarter this year is because second quarter last year was, um, was down so much. It was such a bad quarter, um, last year from a comparative scale point. But given where we're at from a backlog, um,

Speaker #6: Has has declined . Your debt has increased . The cash has kind of stayed the same . And I just want to understand , you know , what was driving that decline ?

And then expected projects we had to close, certain fourth quarters should really show, you know, I think, how the company's going to get back on track from an earnings standpoint. The profitability standpoint, where—

Speaker #6: Was it ? Was it investments in the business and sort of , you know , what's , what's the plan to get , you know , cash back to a better place , you know , can you repatriate , repatriate some of the cash in some of the JVs , for example , you know , any , any , any thoughts there ?

you know we can see how we're going to utilize that leverage and you know push as many gross margin dollars to the bottom line as possible. So holding Opex, you know flat or as low as possible is certainly the objective not necessarily cutting expenses at this point.

Speaker #3: Yeah , there's kind of a three pronged approach . One is certainly to bring back from a dividend standpoint , cash at the subsidiaries and at the JV level to , to , to help us increase the amount of cash we have here .

Speaker #3: And ultimately get out of the line of credit . The the number one thing that we need to do is we need to increase earnings .

Okay, got it. And then the the last 1 for me, just looking at the balance sheet, cash is declined. Last 5 quarters in a row or or, um, net cash. Right? Has has declined during debt has increased. The cash is kind of stayed the same, um, and, and I just want to understand, you know, uh, what was driving that decline. Was it, was it investments in the business? Um,

And sort of.

you know, what's what's the plan to get, you know, cash back to uh, um,

Speaker #3: If you look back , you know , quarter by quarter , what we're doing from an earnings standpoint , it's you're not going to be able to build your cash back .

Speaker #3: You know , obviously in fiscal 25 , you know , we'd we'd with virtually no earnings . You know , the last time fiscal 24 we certainly generated you know , we generated $0.60 a share , which helped from a cash standpoint .

Speaker #3: But obviously everything we did in 2005 from an earnings standpoint hurt us . You know , a big component to our income is the equity income , which obviously isn't cash coming in .

A better place, you know? Can you repatriate repatriate some of the cash in some of the JVS? For example, you know, any any any any thoughts there? Yeah. There there's there's kind of a 3-prong uh approach 1 is certainly to bring back from a dividend standpoint cash at the subsidiaries and at the JV level um to to, to help

Speaker #3: It's the dividends that come in from the equity income that ultimately get you there . And so , you know , the goal is to increase earnings , which is , I think what you're going to see in , you know , Q3 and Q4 , which will help pay down the debt .

Increased the amount of cash we have here and, and ultimately get out of the line of credit, the number one thing that we need to do is we need to increase earnings. Um, if you look back, you know, quarter by quarter at what we're doing from an earnings standpoint, it's—you're not going to be able to build your cash back. You know, obviously, in fiscal '25, um, you know, we, we, we, we—

Speaker #3: The other item is , you know , the the investing section from a cash flow standpoint , we've made as a kind of explained earlier in the call , we made significant investments .

Speaker #3: You know , in PPE items as far as the building next door and the SAP system that we had cash out the door to fund the actual investments that we're going to be making , you know , from a from a cash flow standpoint over the next few years is going to be significantly smaller than what we've done in the past two years .

Virtually no earnings. Um, you know, the last time, you know, fiscal '24, we certainly generated, uh, you know, we generated $0.60 a share, which helped from a cash standpoint, but obviously, everything we did in 2005 from an earnings standpoint hurt us.

Speaker #3: And I think that's going to ultimately , that's also going to significantly put , you more cash back on the books . So I think the trend is going to start with Q3 and Q4 to work on reducing the the debt exposure

You know, a big component to our income is the equity income, which obviously isn't cash coming in. It's the dividends that come in from the equity income that ultimately get you there. And so, you know, the goal is to increase earnings, which is, I think, what you're going to see in Q3 and Q4, which will help pay down the, uh, the debt. The other item is, you know, the investing section from a cash flow sample.

Speaker #6: Got it . Okay . I think that's it for me . Thanks so much .

Speaker #3: Great . Thanks , guys .

Speaker #1: And I'm showing no further questions . I would now like to turn the call back to management for closing remarks

Speaker #4: I just want to thank everybody for coming out this morning and wish you a good day .

we've made is a, is a kind of explained earlier in the call, we made significant Investments, you know, in in, in PPE items as far as the building next door and the S&P system that we had cash out the door to fund um the actual Investments that we're going to be making, you know from a from a cash flow standpoint over the next

a few years is going to be significantly smaller than we've done in the past two years, and I think that's going to ultimately, you know, that's also going to significantly put

um, you know, more cash back on the books.

So I think the trend is going to start kind of with Q3, and Q4 will work on reducing the, uh, the—

The debt exposure.

Got it. Okay. Um, I think that's it for me. Thanks so much.

Closing remarks.

Just want to thank everybody for coming out this morning and wish you a good day.

And this concludes today's program. Thank you for participating. You may now disconnect.