Northern Technologies International Corporation

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Northern Technologies International Corporation first quarter 2023 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 a question during the session, you will need to press star 1-1 on your telephone keypad. As part of today's discussion today, the representatives from NTIC will be making certain forward-looking statements regarding NTIC's future financial and operating results, as well as their business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and that NTIC desires to avail itself of the protections of the safe harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by default looking statements due to certain risks and uncertainties, including those described in NTIC's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements. This call also may include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP, which are generally referred to as non-GAAP financial measures. Reconciliations of the historical non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release NTIC issued this morning on the investor relations portion of its corporate website at NTIC.com.

At this time, I would like to turn the conference over to Mr. Patrick Lynch, CEO. Sir, you may begin.

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. I want to begin this morning's call by wishing everyone a happy, healthy, and prosperous new year 2023. Please note that a press release regarding our fiscal 2023 first quarter was issued earlier this morning and is available at NTIC.com. During today's call, we will review various key aspects of our fiscal 2023 first quarter financial results, provide a brief business update, and then conclude with a question and answer session. Stable demand for our Xerost industrial products and services in North America, coupled with growing interest in our NatureTech and Xerost oil and gas products, both in the U.S. and abroad, provided record sales again this first quarter. This is particularly encouraging considering the prevailing complex business environment. NTIC has continued to navigate supply chain and shipping issues, persistent inflation, raw material cost increases, geopolitical conflicts in Europe, and the lingering effects of the COVID-19 pandemic in Asia with the intent of minimizing the impacts of these challenges on our business. Price adjustments made during the last fiscal year helped improve net sales and profitability in North America. While we expect some inflationary pressures and supply chain issues to persist throughout the second quarter, we continue to see improvements most notably being the increased availability of raw materials for our NatureTech bioplastics business during the quarter. Overall, momentum has remained positive, and we expect that NTIC will continue to offset near-term uncertainty within our European and Asian markets. In addition, we expect annual profitability to improve in fiscal 2023 as we continue to focus on rebuilding our margins. So with this overview, let's examine the drivers for the first quarter in more detail. For the first quarter ended November 30th, 2022, our total consolidated net sales increased 9.7% to a first quarter record of nearly $20 million as compared to the first quarter ended November 30th, 2021. Broken down by business units, This includes a 66.9% increase in Xeros oil and gas net sales, a 21.6% increase in NatureTech net sales, and a 4% increase in Xeros industrial net sales. Total net sales for the fiscal 2023 first quarter by our joint ventures, which we do not consolidate in our financial statements, decreased 8.5% to $24.7 million. This decrease was due primarily to slower demand across the territories serviced by our global joint ventures due to certain geopolitical conflicts and their impact on higher energy costs and availability. Fiscal 2023 first quarter net sales by our wholly owned NTC China subsidiary decreased by 7.7% to $3.7 million due to the negative impact of severe COVID-19 related lockdowns across much of that country during the quarter, and the weaker economic conditions as a result thereof. We continue to closely watch market conditions in China, and we are hopeful the recent suspension of that country's zero COVID policy will help to improve demand in China later this fiscal year. Overall, we remain committed to the Chinese market, and the long-term opportunities it represents for NTIC. We have taken steps to enhance and protect our Chinese operations, and we continue to believe China will likely become our largest geographic market in the future. Now, moving on to Xerost Oil and Gas. The fiscal 2023 first quarter was one of the strongest quarters we have ever had for Xerost Oil and Gas as sales increased 66.9% to $1.6 million. The first quarter of fiscal 2023 is also the third consecutive quarter of Xerost oil and gas sales over $1.5 million, reflecting the positive momentum within our oil and gas business. We believe interest is growing for our Xerost oil and gas solutions, which include applications to protect above ground oil storage tanks and pipeline casings from corrosion. And we believe the second quarter of fiscal 2023 will be another good quarter of oil and gas sales and growth. The expanding adoption of our Xeris oil and gas solutions within the oil and gas industry is supporting bigger opportunities for our Xeris oil and gas products and technology. As a result, we believe fiscal 2023 will be a transformative year for Xeris Oil and Gas as this business scales and begins to contribute to profitability. Turning to our NatureTech bioplastics business. Fiscal 2023 first quarter NatureTech sales were $4.6 million, a 21.6% increase over the prior fiscal year period. Sales trends within NatureTech have been encouraging and show that demand patterns have begun to return to pre-pandemic levels, especially in North America and India. Furthermore, the supply chain and logistics challenges that impacted NatureTech's results last fiscal year continued to ease during the first quarter and contributed to the strong year-over-year growth we experienced. We believe this is a testament to our strong position within the bioplastics industry and close relationships with important raw materials suppliers. We've continued to see growing market demand for new applications of certified compostable plastic products and resin compounds, as well as increased interest in commercial and municipal programs that use certified compostable plastics, as alternatives to conventional plastics. As a result, we believe we are well positioned for long-term sustainable growth within our NatureTech bioplastics business. While prevailing geopolitical and economic uncertainty continues to impact our outlook on the overall economy in recent months, especially in Europe and China, We believe we can continue to grow sales and improve profitability as we benefit from favorable North American demand trends, higher sales into the oil and gas industry, and higher nature tech sales. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2023 first quarter. Thanks, Patrick.