Northern Technologies International Corporation

Q3 2021 Earnings Conference Call

7/8/2021

spk_0: the day and thank you for standing by welcome to the northern technologies international corporation third quarter two thousand twenty one earnings conference guest at this time all participants are and listen only mode sophie require operator assistance please press star than zero after the presentation they'll be a question and answer session to ask a question during the session you'll need by star than one please be advised at a conference may be recorded as part of the discussion today the representatives from and he i see will be making certain forward looking statements regarding anti isis 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 ninety ninety five and the ntsc desires to reveal itself of the protections of the safe harbor for these statements with 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 anti isis most recent annual report on form ten k subsequent quarterly reports on form ten q and recent press releases please read his reports another future filings an anti i see will make with the as you see it as disclaims any duty to update or revise it forward looking statements and now it and the conference of your house today the sir patrick lynch please go ahead
spk_1: the morning i am padded lynch and to achieve ceo and i'm here with met was felt and lacey cfl please note that a press release was issued early this morning regarding the financial results for our fiscal twenty twenty one third quarter and is also available at and ghz that come during this call we will review various key aspects of our fiscal twenty twenty one third quarter financial results provide a brief didn't update and then conclude with a question and answer session shields for the fiscal twenty twenty one the recorder accelerated past second quarter levels and set a new quarterly record as momentum continued to build across our global product categories consolidated sales increased fifty eight point two percent year over year and were up to twenty point six percent from the second quarter while feels that into a joint ventures priests ten percent from the fiscal twenty twenty one second quarter and are up to seventy point two percent year over year looking at sales growth on a two year basis is especially encouraging as the chosen strong underlying the man despite last year's called nine nineteen pandemic related challenges comparing comparing the third quarter of the school twenty twenty one two third quarter of as as a school twenty nineteen results consolidated sales are up three point five percent and zero industrial net sales are up twenty two point five percent while net income has increased thirty eight point six percent throughout be called of nineteen pandemic that we maintained our operations staten level and services to our customers while investing in new product development and pursuing new sales opportunity this kept us ready to benefit from the significant resurgence currently underway in industrial production and we are seeing robust and improving the banned across many of our product categories and global and markets we believe the man's trends will remain strong throughout the remainder of this fiscal year and into the school twenty twenty two as more sectors of the global economy reopen and industrial production continues to improve so with this overview let's examine and the drivers for the third quarter in more detail for the third quarter ended may thirty one twenty twenty one our total and consolidated net field increased fifty eight point two percent to a quarterly record of fifteen point four million dollars as compared to the third quarter ended may thirty one twenty twenty broken down by business unit this included a one hundred and forty one percent increase in just oil and gas net sales and eighty six point one percent increase in jurist net sales to our joint ventures and a sixty one point four percent increase in us industrial know sales and a twenty seven point three percent increase in a major tech that sales total net sales for the fiscal school twenty twenty one third quarter of by our joint ventures which we do not consolidate in our financial statements were nearly thirty two million dollars this is an increase of seventy point two percent when compared to the same period last fiscal year and an increase of ten percent when compared to the second quarter of the kind of fiscal year in addition when compared to may thirty first twenty nineteen net sales from our joint ventures has increased fifteen point one percent demonstrating strong global demand for our products from both existing and new customers fiscal twenty twenty one second quarter net sales by are wholly owned and i see china subsidiary increased to thirty point seven percent to a third quarter record of one million dollars strong performance at and china is primarily due to higher sales to new and listing customers for both our dearest and the nature tech product categories we continue to believe that the chinese market represents a significant opportunity for and yet week and given our recent growth we expect china will likely to come on our largest geographic market in the coming years this week we invested in six point two million us dollars to buy a new facility in china which reflects our commitments to the chinese market and supports the expected growth within this geography the new facility will support our are indeed production sales and marketing and training efforts in china we closed the transaction on july six twenty twenty one and we expect to move into the new facility in the early fiscal twenty twenty two as coated nineteen point change and travel restrictions have used and for and and market dynamics improved oil and gas project installations have started to rebound as a result rest oil and gas fields and for the quarter was strong increasing one hundred and forty one percent over the prior to squeeze your period while we expect oil and gas sales will remain volatile on a quarterly basis we are seeing growing interest in arduous oil gas solutions please also note that the american petroleum institute a p i finally released it's technical report detailing how vapor corrosion inhibitor based technologies like of the ones offered to buy us oil and gas can provide effective corrosion protection for the bottom bottoms of above ground store tens we believe that a p i technical reward validates our technology and will help and jaycees long term a sales growth efforts within the oil and gas market as a result we believe there are substantial opportunities to drive growth throughout the remainder of the school twenty twenty one and into the school twenty talking to turning to our nature tech file path business fiscal twenty twenty one the third quarter nature textiles weren't three million dollars a twenty seven point three percent increase over the the prior fiscal year period for over the prior this fire year period site and a twenty one point seven percent increase from the pistol twenty twenty one second quarter as you can see nature text fields continue to recover and were at the highest sales levels and over twelve months as large users have some possible classics began reopening their facilities after prolonged pull nineteen shutdowns we anticipate that demand and for our nature texts some possible solutions will continue to increase further as the pace of reopening as accelerates so did include of my prepared remarks i am pleased with a strong sales and profitability performance we experienced in that the school twenty twenty one so quarter trends across our markets are encouraging and we expect to see continued year over year sales and earnings growth during the fourth quarter of fiscal twenty twenty one and into physical twenty twenty two on behalf of the entire and chasing leadership team i would also like to use the opportunity to thank all of our global employees and joint venture partners for their continued hard work and dedication with his own you let me now turn the call over to met also to summarize our financial results for the book twenty twenty one third quarter
spk_2: it and get it pathology fails for fiscal twenty twenty one third quarter increased fifty eight point two percent when compared to practice the year period and worth twenty point six percent from fiscal twenty twenty one second quarter failed and or doctor the trend patrick are you prepared remarks third quarter failed craft or jerk global joint venture a great seventy point two percent of the prayer period significantly benefiting joint venture average income which increased a hundred forty point six percent for the fiscal twenty twenty one third quarter compared to the prior fiscal your period elaborate expenses were six point three million dollars and eleven point six percent increase over the prior year period and primarily due to an increase in selling expenses associated with the fifty eight point two percent year over year key greatly expand the third quarter and started sale demonstrating the operating like rated ntsb business model operating expenses of it and a percentage of net sales for forty point nine percent and fifty eight point the or percent the same period last fiscal year and forty five point nine percent of the fiscal twenty twenty one second quarter and cases reported net income two point one million dollars or net income of twenty one cents per diluted share the fiscal twenty twenty one third quarter compared to a net loss of nearly one million dollars are lots of eleven cents per diluted share for the fiscal twenty twenty third quarter as a may thirty first twenty twenty one working capital was twenty six point nine million dollars including five point nine million dollars in cash and cash equivalents and five point one million dollars in available for sale security compared to twenty seven point one million dollars including six point four million dollars in cash cash equivalents and five point five million dollars and available for sale security as of august thirty first twenty twenty on may thirty first twenty twenty one the company had twenty six point nine million dollars of investments in joint ventures or which approximately fifty four point eight percent are nearly fourteen point eight million dollars was in cash
spk_1: with the remaining balance primarily invested in other working capital
spk_2: during the fiscal twenty twenty one third quarter and cases board of directors declared a quarterly give it a of six point five cents for common share as panel on may nineteen twenty twenty one to carolers a record and the sept twenty twenty one shelton who are conclude or prepared remarks or year to date financial results demonstrate that we have successfully navigated the coven eighteen pandemic as a result of are strong balance sheet asset like business model and commit to provide a leading corrosion have products and services as well as bio based and biodegradable polymer read the compounds to our global customers
spk_3: in addition
spk_2: friends remain strong across all our product category during the third quarter which led to a record consolidated sales and strong third quarter profitability or excited about the direction in which we're headed like for to ending fiscal twenty twenty one with the continued year over year to fail earnings growth like this ovary of patrick and are happy take your questions
spk_0: if you like to ask a question of his time please has to star than the number one key on your touchdown telephone game that a star and on one if you'd like to ask a question at this time we have a question to malign as kim clarkson with and clemens
spk_4: hey patrick hey matt obviously a wonderful quarter cross the board solve hardly the to complain about ah just a couple back wrong questions i you know this is a major investment or six million dollars in china can you can explain the logic of of like needed is than a pay money i knew
spk_5: for sally
spk_2: nah nah they go on check when when we're looking at are offered the opportunity that we had in china divided bad to bite at building and yell with with was very well we model it out it looked like a very good investment we we had the available cash to lot to do that will look at the real estate opportunity specifically and not in the area to area and it provided at the a great opportunity to stay close to the the shanghai market where we're currently are located the existing facility that we were an and we're having difficulty is aside beliefs was ending and the zoning that that building with and had changed so we ultimately we were going to be forced to likely moved several hours outside of shank so we found this building which allowed us to our have a permit to have a lab and are the facility and side of it because something it difficult to get our inside out the shanghai region
spk_4: today so were able to get that environmental permit to do the aren't the work that we were at that we need to do additionally provide a better location for us to me with customers bring customers into that facility to lie to to show them that that he noted that the rd worker working on to be the customer they're located area so ultimately just seemed like a very good that opportunity additionally i'm from what we've seen in the past is the real estate in shanghai is growing very quickly so from me out from the stimulate him template seem like a very solid investment
spk_2: church now i know some companies have had trouble love doing business in china what's been your experience in terms of the dealing with canada the politics of china we haven't really not you can take the strip know i had jumper and the with were not to say we we haven't really been
spk_6: they they did they need a political issues that really no other other other committed spirit similarity we had some problems in the past going back to two thousand and fourteen fifteen but that had more to do with the joint venture partner than anything
spk_4: ya it with the government are there any the politics out of china so so far you know we have been able to navigate that down the know that the chinese market really well
spk_7: good at giving it an
spk_2: term so on however one other question on china i know what what what your composition and china in terms of long percentage of business that's automobile related percentage of business that's compostable related and i guess the balance of be other industrial applications sure it and i'm taking a look at it's i picked that not the automotive that identity chinese market probably close to you between sixty five seventy per seventy percent automotive by automotive business
spk_8: as far as the the nature tech component of it
spk_1: you know they had i look at year to date sale
spk_4: he
spk_9: the next act upon it makes up probably close to fifteen percent of the total chinese that that the total chinese sales that we at the we have on yeah but that seems to be a market that is growing faster than the that the zero industrial sales in china
spk_1: okay okay what one last question on is composed of all issue i saw that dog kentucky fried chicken in canada has committed are converting to compostable within a couple years what what what further thinking out there and terms of these fast food places really accelerating the compostable partner
spk_10: or packaging
spk_11: i'm in our experience
spk_2: the fast food chains come to play with us
spk_1: i had not made any significant from whitman and certainly up until now
spk_12: and beyond
spk_10: some cutlery with we sell on to
spk_1: that's insane in in in on the west coast specifically the not on and on the nationwide market oil and gold by their bases
spk_13: and that's partly because of
spk_1: local mandates
spk_4: so the fast food industry is still lagging in terms of implementing a real
spk_1: significant
spk_4: making significant effort in the compost home pack of the market
spk_1: right right well as to see i saw what what wallet be your gas was the incremental cost of compostable packaging back during the yeah you do it do it more volume ha ha more expensive with compostable packaging be than conventional packaging by now is not that into the know when we can get fairly close so you're looking at maybe ten percent higher cost now doing and compostable
spk_4: yeah yeah so i i guess pop probably that the back yard is just getting these them in his jollies so they have you know composting facilities to take all his stuff in amateur meaning humble that we also you also looking at an industry that is very cost driven and you talking about a tenth fifteen the on price increase over with the kind of pain as they're not eager to do that unless absolutely necessary warning
spk_0: why they have a a a change of heart and realize that they want to put a revival just because the right thing to do yeah well as the suck the socially conscious thing as now off
spk_2: multi trillion dollar industry and it's getting really emphasized the with a publicly traded company saw it's it's it's common it's year but you're right it's taken longer than shut up or without up as great dog ray carter is all is said now stay stay with you guys thanks bye and then
spk_10: as a reminder that is star than one if you'd like to ask the question at this time
spk_1: i next question comes from gus richard with muslims
spk_10: yeah thanks for taking the questions on next quarter guys on just on the cutlery customer on the you have on
spk_1: is there any update on you know how they're coming along in terms of are ramping i think can the wrapping slow down a bit politically during because of coded nineteen and a lot of curve
spk_2: then use particular united states for around i've not university cafeterias company cafeterias and and the sports arenas are being shut down for a period of time and sales slowed significantly but now i can occasionally are that's surrounded by the end of the summer as me laugh and do on the follow that as new versions we open our people going back to work in offices are to some extent am and the sporting arenas and an open up again and that their though sales have increased nicely going forward
spk_1: okay caught it and then ah the gross margin performers some quarters that little bit better than i'm actually about a hundred and twenty acres points that are now expecting that i am or max i think that it's more think progress marty pinpoint a a data cap the join a mixture the product that were at their been sold we're not been any significant that changes in the gross margin i act is a unified business unit basis a added did read more sales coming through in this quarter my on gas and and we hadn't prior i are quoted skew gear at the gross margin christian of bit got it and then moving to the a a p i technical report on he was a strong quarter and oil and gas correlated with that report coming out and you know how is that on sales funnel
spk_2: changed since the report it's been abolished i'm i'm i'd say know there was no direct correlation between the two and the impact of that on our sales funnel or will not be immediate i would certainly it expected to help because it back with that validates or technology
spk_1: and it's applications but ah i would say that and he will take it will probably ramp up slowly over the next three to five years really
spk_2: the boy that well are really go industry industrywide of okay then that is that the strong performance in oil and gas just the fact that you know i'm
spk_1: in restricting have been listed somewhat and you could get get yeah the customer could get in and and do the main is one that them with their wounds and with little when we could deliver on waters
spk_14: and to the implementations because of the travel restrictions as anything
spk_0: okay that makes sense and then are less on for me i'm you know there's been a lot of supply chain issues are you guys experiencing any arm
spk_15: you know perturbations an ability to get material to deliver any any costs variances that that are are are you know positive or negative going forward or to a quarter
spk_16: i'm like everybody else out we are experiencing certain delays in raw material than finished goods
spk_0: so far we've been able to manage and not had any significant impacts or delays well customers are into in our customers or by we're obviously monitoring got on an ongoing basis to make sure that nothing has other hand got it okay that's it for me thank you so much
spk_1: sure
spk_0: i next question comes from gym dowling with jeffries
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only. Earnings Call, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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