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spk06: 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.
spk02: 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.
spk05: 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.
spk06: Thank you, and participants, as a reminder, to ask the question, you will need to press star one on your telephone keypad. Again, that's star, then the number one on your telephone keypad. To withdraw your question, please press the pound key. Your first question comes from the line of Tim Clarkson from Van Clemens. Your line is now open.
spk00: Hey, guys. Great numbers. Guys always do good. Really good. I have five questions, four easy ones, one a little more challenging, but we'll do the challenging one last. I'm just warning you. So first easy question, you know, why is China doing so well?
spk02: China's doing well for a variety of reasons. I mean, obviously, there's still... We've got both domestic demand and international demand. And certainly as the domestic demand increases, it's carrying things where even if you have a slight drop in Chinese exports, our sales are going to continue.
spk00: And I know a few of my investors are concerned about investing in China because it's such a different kind of a place. What's your philosophy on China in terms of the safety of investing there?
spk02: Well, I'm sure you recall our past experience with our previous joint venture partner, which kind of didn't go so well in 2014. So we are working with an abundance of caution in China, being very careful, obviously, with who we work with and always especially very cautious in our approach to the market and in everything we do in our business there.
spk00: Sure. Okay. In terms of... India, you mentioned that it's about $10 million. How fast has it been growing?
spk03: Matt, do you have the exact figures on the growth in India?
spk05: Yeah, we've seen pretty significant year-over-year growth in India. India was actually one of our newest joint ventures that we started, I want to say, in 1999, and it's seen some pretty significant growth where it's gone from, obviously, when it started, the smallest joint venture to – This past year, it was our second most profitable joint venture that we have. And so they've seen significant growth. If I look back over the past 10 years, some pretty significant growth to get up to $9 million to $10 million of anticipated revenue. So when we look at it, the Indian market is a sizable market that we think could still have significant room for growth and expansion, not just in the industrial business, but also in the oil and gas space. So we had the opportunity to purchase the remaining 50% ownership in it, so we were excited to move ahead with that opportunity. The other benefit that we have in India is that the Indian joint venture was being run with somewhat of a passive other investor that owned the 50%. So when we were able to purchase his ownership in it, We have an existing management team that has been in place for years, so the continuity of existing business and relationships was an easier transition.
spk00: Great. Great. Just a general question. What's new in the compostable space?
spk02: In terms of?
spk00: Well, what new opportunities or how are things developing in terms of, Anything new that's happening there?
spk02: We are certainly getting some new orders for some new applications, which I'm not going to talk about openly today. But, I mean, the demand continues to be there in the compostable space. The biggest problem we face, as I mentioned before, is we're waiting for certain facilities to reopen for the very large users of compostable plastics, including corporate campuses, and certain sports facilities to come back into full usage. And there is also a bit of a problem with our long supply chain. We have an exceptionally long supply chain globally and that basically the current shipping issues are certainly impacting or slowing down our ability to deliver product to our customers.
spk00: Sure, sure. Okay, one last question. This is a little more challenging, but I know you don't like to talk about what you're doing currently in R&D, but can you talk a little bit about historically how your R&D investments have developed valuable new products for northern technology, at least historically? The whole thing is kind of mysterious to me, and maybe you can enlighten us as to some of the successes you've had previously that are publicly known already.
spk02: Well, I would say certainly all of the NatureTech developments are a result of our R&D and continue to be because we are continuing to develop custom solutions for a specific customer needs. So these are resin compounds that simply haven't been available anywhere else, and so customers who have challenging needs with bioplastics come to us first. Same thing we can say about the investments we've made in terms of R&D for the oil and gas applications. I mean, we keep on telling you that it's a very large potential market that has needs that can be met best by the products we've been developing. So there is another reason for heavy investment in that sector. And in terms of what we're doing just in the Xerox industrial space, we've developed a number of products over the last few years, particularly in our diffuser section and in our liquids that are growing sales quite handsomely at this point. It's going to take a while for them to grow up to the film sales level, but they're certainly doing very well on their own and contributing significantly to our bottom line.
spk00: Right, right. One last comment. I actually saw a Xerox sticker on my kid's fishing tackle, so that was kind of cool to see.
spk03: Did he buy a tackle box? Oh, yeah.
spk00: Yeah, we bought the box. I didn't even know it was there until I noticed it a couple weeks later. So, yeah, no, it's really kind of a cool, cool application. So, well, thanks. Thanks, everyone. Great quarter, obviously.
spk02: Thanks, Tim.
spk06: Your next question comes from the line of Charles Bellos from White Pine Capital. Your line is now open.
spk01: Hi, guys. Nice numbers. Two quick questions. One, did I understand you are now approved in the, you're included in the API guidelines?
spk02: Yes.
spk01: Okay. What does that mean for timing and as you look at it to get the next really big one, which is from the Hazardous Materials Administration, the PHA? Give us that. Yeah.
spk02: Matt, you want to talk about that one?
spk05: Sure. I mean, Charlie, what was approved during the last fiscal year, what took place with the API was the technical report that was issued, which basically validates the tank technology of using the VCIs for storage bottom protection. And the expectations from a timeline standpoint is that, you know, that technical report that was written will at some point in time, you know, transition to recommended usage, which will then transmit to, you know, guidelines being issued at some point as far as being able to utilize the technology, which is a significant step, you know, given how widely followed the API guidelines are. And so that's something that we certainly expect to move forward. From a FEMSA standpoint, you know, FEMSA is the government body that basically regulates a lot of the, you know, how the oil flows and how the oil is required to be stored, you know, by any tanks or pipelines that are used in the U.S. infrastructure. They also review the API guidelines. And now that that's been moved forward, we can move forward with certain FEMSA requirements where they will be evaluating using the technology so that it At some point in time, we're also looking for FEMSA approval and FEMSA wording that validates and encourages people to use the technology. We've had certain situations where some customers have applied to FEMSA to be able to utilize our technology, and so we're seeing really a nice acceptance of the technology, knowledge of the technology. All these things are really starting to take off, which is great news for the oil and gas division.
spk01: But are we really looking at sometime in the next, it's really probably 12 to 18 months out before all the pieces come together and it's open road?
spk05: Well, again, there's a lot of different moving pieces when it comes to the API and FEMSA and their guidelines and things like that. You know, it's something that's going to be a continual discussion for years and years for all the different guidelines and applications they have for their infrastructure. What I can say is that expectations as far as how long it would take from a technical report to become a recommended practice would be somewhere between, like you said, 12 to 18 months, kind of depending on timelines. There's other items that we're working on inside of the API for other uses and things like that. So it's not just one application with one approval. There's many different things that we're working on as far as changing the specs.
spk01: Okay, great. And the other question, which came from a comment that Patrick just made about the long supply chain and then opening, you know, seeing demand when the big facilities open up for the compostable pieces. What is that? Do you have the materials and ability to meet a surge in demand? And what is it going to do to your pricing? And can you pass it on?
spk05: We haven't seen – I mean, we've seen some increase in pricing from some of our base raw materials that we use inside of NatureTech, but not significant amounts. And we have been able to, you know, adjust pricing somewhat accordingly. The issue that we have with NatureTech is that there's – you know, with everything that's going on from a supply standpoint, we obviously move the NatureTech with it being compounded in either India and China – being shipped to other places to be manufactured and shipping back here to potentially be sold, it's, you know, we're running into certain backlog situations. The benefit that we have is we're running into the backlog situations because now we're starting to see the revenue and demand for nature tech to get back up to normal levels. Specifically going from fourth quarter to now first quarter, we've seen a significant ramp up with, you know, I'd say if you look at our first quarter that is, September, October, November, with colleges going back, K-12 schools going back, sports stadiums, obviously a lot of them coming back to full capacity. We're seeing a lot of that growth continue and getting back to solid numbers. We saw this coming. We started placing orders to ramp up the manufacturing of the product, and we expect to have the inventory catch up to the demand quickly so that you know, our expectations are that we will certainly be back to pre-COVID demand levels in, you know, sometime in the middle of fiscal 2022 from a nature tech standpoint. You know, if we do that, you're looking at a significant growth from fiscal 2021 to fiscal 2022 total nature tech sales. Obviously, it's going to be a significant increase and improvement in total sales. So, you know, we're experiencing some of the same pressure points that all companies are experiencing with the containers that are sitting on the water and it taking months to get product across the ocean rather than weeks to get product across the ocean that other people are experiencing. But the benefit is that we are seeing that the demand is coming back.
spk01: And you feel you can meet the demand given the timing you've got on those products?
spk05: Yeah, we do. And I think that will be reflected in sales that you'll see in 2022. Okay. I mean, will there potentially – there is the possibility that the demand continues to increase and, you know, we continue to have a large backlog and things like that as we get caught up. But I certainly think that the amount of inventory that we have on order, the amount of products that we're bringing in, And the ability to meet the customer's demand, you'll certainly be able to see that in increased sales of NatureTech during the current fiscal year.
spk01: Great. Thanks, and good luck this next year.
spk03: Thanks.
spk01: Thanks, Charlie.
spk06: Again, participants, if you would like to ask a question, you may press star, then the number one on your telephone keypad. Again, that's star, then the number one on your telephone keypad. Your next question comes from the line of Gus Richard from Northland. Your line is now open.
spk04: Yes, thanks for taking the questions. Great quarter. Just on the zero soil and gas, I was wondering if you'd just talk a little bit about the pipeline, you know, and should we expect the revenue level, you know, to be over, you know, a million dollars going forward? I know the business is lumpy. Just any color there would be helpful.
spk05: Your question is, what do we expect the pipeline for oil and gas to be, or are you asking about actual pipelines in oil and gas?
spk04: I'm asking what your sales pipeline looks like. Sorry. Got it. Our sales pipeline looks forward, you know, should we expect the revenue to stay above a million dollars? Historically, that business has been lumpy. I think it's going to continue to be lumpy.
spk05: I mean, I can tell you looking at, you know, we have pretty good visibility going forward because of the timeline of the sales opportunities. So we have a pretty good visibility into what we will see over the next, you know, our full fiscal 2022 year. So, you know, from our expectations, we expect sales to certainly grow up to levels of, you know, where the entire division is profitable. But, I mean, I can tell you just from looking at revenues that we have, you know, from September, October of this year compared to what we had in fourth quarter, you know, obviously what we did in fourth quarter this year just in North America, we had, you know, revenues of $1.5 million just in North America, which was significant. I can tell you the team worked very hard to meet that fourth quarter number and hit their objectives for the year. I would expect first quarter, like you said, to be a little bit down. I'd expect second quarter and third quarter and fourth quarter to bounce back. But total revenues, I would expect to see some nice growth comparing fiscal 2021 to fiscal 2022.
spk04: Got it. Very helpful. And then in the quarter, gross margins were quite strong. I imagine that was due primarily to a favorable mix. But I did want to talk about or get some color on your input costs, particularly with higher petroleum prices on the ZRust oil and gas. I'm sorry, the ZRust industrial. You know, are you seeing any cost pressure there? You know, and how might that impact gross margins over the next couple quarters?
spk05: Well, we saw very favorable gross margins across as a gross. Gross margin was very strong. Obviously, that was driven by significant oil and gas revenues that we saw in fourth quarters. which is terrific. Obviously, there are significant raw material price increases that we're seeing. If you just follow the LDPE index for the virgin polyethylene resin, which is the main raw material that goes into the ZRS products, it's up significantly. You know, if you look at over the past 10, you know, 8 to 10 months, you can see that it's up significantly. We have been able to pass a lot of that cost increase onto customers, given that we can show them the commodity index pricing of the main component that goes into their products. However, we do have some stock pricing and some other items, contract, you know, you know, the margins on those sales were lower than they historically have been. And so, you know, if you look at just the industrial products, the gross margin, you know, as a weighted average of what we're selling is down compared to where it was, let's say, in first and second quarter of the past fiscal year. Our expectations, and we're talking to resin suppliers, the resin suppliers and also our suppliers that are manufacturing our product, the expectation is that the price of LDP is going to come down in the coming months. That's what the indications are that they're giving us based on talking to the large LDP manufacturers. That's what they're starting to see when they're buying train load capacities of resin for their inventory. You know, but if we don't see that index, if we don't see that price come down, you know, we're going to obviously take a hard look at our stock pricing levels to get back up to, you know, the kind of margins that we previously had been able to achieve.
spk04: Got it. Very helpful. And then the last one for me, as you fold in ZRust India, you know, what, what sort of impact will that have on OPEX and gross margins and, you know, just a little bit of color on the numbers going forward?
spk05: The gross margins in India are going to be – pretty consistent with what we see across the other industrial, you know, ZRust industrial subsidiaries that we consolidate. You know, the overall, you know, bottom line profitability of the Indian entity is they generate basically, let's say, close to 20% after-tax profits. So previously, you know, off of the, you know, they did $9 to $10 million of revenue last year. Expectations are that they should do somewhat close to that this year. The expectation is that that entity will generate close to $2 million of income for fiscal 2022. Previously, we would have received through equity income and royalties and things like that $1 million of that $2 million of profit. Now that we've purchased the entity, the expectations are that we should take in, you know, probably close to $2 million, depending on how the year goes for them, close to $2 million of overall income, after-tax income from that entity. So the incremental gain that we would see is about $1 million of income or close to $0.10 per share.
spk04: Got it. All right. That's it for me. Thanks so much. Thanks, Gus.
spk06: And participants, if you would like to ask the question, you may press star then the number one on your telephone keypad. That's star then the number one on your telephone keypad. Please stand by while we compile the Q&A roster. And speakers, we don't have any questions over the phone. Please continue.
spk03: Okay. Then I'd like to thank everyone for participating today and for your interest in NTIC. Have a nice day.
spk06: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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