Northern Technologies International Corporation

As part of the discussion today, the representatives from NTIC will be making certain forward-looking statements regarding NTIC's future financial and operating results, as well as their business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provision of the Private Securities Litigation Reform Act of 1995-2022. and that NTIC desires to avail itself of the protection of the safe harbor for these statements. Please be also 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 report on Form 10-Q, and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements. Good day and thank you for standing by. Welcome to the fourth quarter 2021 earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Patrick Lynch. Please go ahead.

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that the financial results for our fourth quarter and full year fiscal 2021 were included in a press release issued earlier this morning and is also available at NTIC.com. During this call, we will review various key aspects of our fiscal 2021 fourth quarter financial results, provide a brief business update, and then conclude with a question and answer session. I am pleased to report that we ended fiscal 2021 with a robust operating performance, record quarterly and annual sales, and strong profitability. In addition, favorable demand trends across most of our global markets, combined with our strategies to diversify sales across our product categories and markets and geographies, drove fourth quarter sales to a new quarterly record. For the year, consolidated sales increased 18.6 percent over the prior fiscal year, and were up 54.7% during the fourth quarter compared to fourth quarter of the prior fiscal year. In addition, fiscal 2021 sales at NTIC's joint ventures increased 39.0% from the prior fiscal year and were up 79.3% during the fourth quarter 2021 compared to the fourth quarter of fiscal 2020. Looking at annual and fourth quarter sales growth on a two-year basis, is especially encouraging as this shows strong underlying demand despite last year's COVID-19 pandemic-related challenges. Notably, comparing fourth quarter of fiscal 2021 to fourth quarter of fiscal 2019 results, consolidated sales are up 15.4% and zero industrial net sales are up 42.0%, while net income increased 131.5%. As you can see, we're exiting the COVID-19 pandemic in a stronger competitive position and with a higher level of profitability. I believe this can be attributed to the strong value we provide our global customer base, our asset light business model, and our focus on managing our cost structure. In addition, throughout the COVID-19 pandemic, we improved our operations, increased staffing levels, and service to our customers. while pursuing new product developments, making strategic investments across our businesses, and targeting new sales opportunities. As a result, we have continued to benefit from the significant resurgence currently underway in industrial production, and we believe that demand trends will remain strong into fiscal 2022 as more sectors of the global economy reopen and industrial production continues to improve. More recently, I am proud of our team's efforts alongside our customers, suppliers and vendors to work through global supply chain challenges, including the availability of raw materials, labor and inflation. While many of these challenges are expected to remain throughout our fiscal 2022, I believe NTIC's asset light business model and global presence in over 65 countries provides the company with an advantage navigating these macro related headwinds. So with this overview, Let's examine the drivers for the fourth quarter in more detail. For the fourth quarter ended August 31st, 2021, our total consolidated net sales increased 54.7% to a quarterly record of $15.5 million as compared to the fourth quarter ended August 31st, 2020. Broken down by business unit, this included a 139.6% increase in Xeris oil and gas net sales, a 51.4% increase in NatureTech net sales, and a 47.0% increase in Xeris industrial net sales. Total net sales for the fiscal 2021 fourth quarter by our joint ventures, which we do not consolidate in our financial statements, were $33.2 million. This is an increase of 79.3% when compared to the same period last fiscal year and an increase of nearly 4% when compared to the third quarter of fiscal year 2021. In addition, when compared to the fourth quarter of fiscal year 2019, net sales from our joint ventures increased 15.8%, demonstrating strong global demand for our products from both existing and new customers. Fiscal 2021 fourth quarter net sales by our wholly owned NTIC China subsidiary increased 25.7% to $4.3 million over fourth quarter of fiscal 2020. Strong performance at NTIC China is primarily due to higher sales to new and existing customers for both our Xerox and NatureTech product categories. We continue to believe the Chinese market represents a significant opportunity for NGSE, and given our recent growth, we expect China will likely become our largest geographic market in the coming years. As we announced on our last conference call, during the fourth quarter, we invested $6.2 million to buy a new facility in China, which reflects our commitment to the Chinese market and supports our expected growth within this geography. The new facility will support our R&D, production, sales, marketing, and training efforts in China. We closed the transaction on July 6, 2021, and we expect to move into the facility in February of 2022. In addition, on September 22, 2021, we announced that NTIC acquired the remaining 50% ownership interest in our Indian joint venture, Harita NTI Limited, also known as Xerus India, for $6.25 million in cash. We funded this purchase mostly with cash on hand and some borrowings under our revolving line of credit, which was increased in connection with the transaction to $5.0 million. Xerus India is now a wholly owned subsidiary of NTIC and will be fully consolidated on NTIC's financial statements beginning in fiscal year 2022. As a result, Zeros India is expected to contribute approximately $10 million in net sales, along with over $2.2 million in net income during fiscal year 2022, amounting to an expected additional 10 cents per diluted share. Many of our multinational customers either have their own operations in India or have suppliers based there, making it one of our strongest international markets. As a result, we are excited to be further enhancing our presence in India. Moving on to our Xeros oil and gas product group, I'm encouraged by the progress we are making within this large and compelling market. Fourth quarter fiscal to 2021, Xeros oil and gas sales increased 139.6% over the prior fiscal year period, and for the first time in our history, we have had two consecutive quarters of oil and gas revenues over $1 million. We are getting notice globally for our growing base of successful installations on oil and gas assets. In addition, COVID-19 quarantines and travel restrictions have continued to ease, allowing us to enter more job sites each month. Finally, we remain optimistic that the recent American Petroleum Institute's technical report validating our technology will help NTIC's long-term sales efforts within the oil and gas market. As a result, we believe there are substantial opportunities to drive growth throughout fiscal 2022 and beyond. Turning to our nature tech bioplastics business, fiscal 2021 fourth quarter nature tech sales were $2.8 million. a 51.4% increase over the prior fiscal year period. While nature tech sales continue to recover on a year-over-year basis, we expect quarterly volatility will remain over the near term, as it takes time for large users of compostable plastics to reopen their facilities after prolonged COVID-19 shutdowns. However, we remain optimistic about our long-term prospects and strong market position within this large and compelling global market. So to conclude my prepared remarks, I am proud of the progress we made throughout fiscal 2021 and expect the positive momentum to continue into the new fiscal year. This includes the recently announced expansion of our Chinese operation and the purchase of the remaining 50% ownership interest of our Indian joint venture. In addition, we continue investing in our NatureTech and Xeris Oil and Gas business units to take advantage of long-term trends within these markets As a result, we expect fiscal 22 to be another strong year of sales growth and higher profitability. On behalf of the entire NTIC leadership team, I would also like to use this opportunity to thank all of our global employees and joint venture partners for their continued hard work and dedication. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fourth quarter and full fiscal year 2021. Thanks, Patrick.

Compared to the prior fiscal year period, NTIC's consolidated net sales increased 18.6% in fiscal 2021 to an annual record and grew 54.7% in the fiscal 2021 fourth quarter because of the positive trends Patrick reviewed in his prepared remarks. A 79.3% increase in fourth quarter sales across our global joint ventures drove a 69.4% increase in fourth quarter joint venture operating income compared to the prior fiscal year period. For fiscal 2021, sales across our global joint ventures increased 39%, contributing a 51.2% increase in joint venture operating income compared to the prior fiscal year. Total fourth quarter fiscal 2021 operating expenses were $6.6 million, a 24.1% increase over the prior fiscal year period due primarily to an increase in selling expenses associated with the 54.7% increase year-over-year that we experienced in our fourth quarter consolidated sales. Demonstrating the operating leverage of NTIC's business model, operating expenses as a percentage of net sales were 42.5% compared to 53.0% for the same period last fiscal year. We remain focused on proactively controlling expenses, and total operating expenses increased by only 5.8% in fiscal 2021 compared to the prior fiscal year. NTIC reported net income of $1.7 million or 17 cents per diluted share for the fiscal 2021 fourth quarter compared to a net loss of nearly $1.8 million or a loss of 19 cents per diluted share for the fiscal 2020 fourth quarter. For the full year, NTIC reported net income of $6.3 million or 64 cents per diluted share compared to last year's net loss of $1.3 million, or a loss of 15 cents per diluted share. Net income attributable to NTIC for the 2020 fourth quarter and fiscal year included a one-time $1.6 million non-cash adjustment to the company's U.S. deferred tax asset, which was required to remove the U.S. deferred tax asset from NTIC's balance sheet. As of August 31, 2021, working capital is $25.2 million. including $7.9 million in cash and cash equivalents and $5,000 in available for sale securities, compared to $27.1 million, including $6.4 million in cash and cash equivalents and $5.5 million in available for sale securities as of August 31, 2020. Our cash position was impacted by the $6.2 million investment that we made during the fiscal 2021 fourth quarter to buy a new facility in China. As Patrick mentioned, this reflects our commitment to the Chinese market and supports our expected growth within this geography. On August 31st, 2021, the company had $27.6 million in investment in joint ventures, of which approximately 57.6% or nearly $15.9 million was in cash with remaining balance primarily invested in other working capital. During the fiscal 2021 fourth quarter, NTIC's board of directors declared a quarterly cash dividend of 6.5 cents per common share that was payable on August 18, 2021 to shareholders of record on August 4, 2021. On October 20, 2021, NTIC's Board of Directors increased our regular quarterly cash dividend by 7.7% to $0.07 per share. So to conclude, our fiscal 2021 fiscal results demonstrated that we have thus far successfully navigated the COVID-19 pandemic. In addition, we continue investing across our businesses to support the meaningful growth opportunities that we have globally. Trends have remained strong across all our product categories during the fourth quarter, which led to record consolidated sales and strong fourth quarter profitability. We're excited about the direction in which we're headed and look forward to another strong year of year-over-year sales and earnings growth. With this overview, Patrick and I are happy to take your questions.