Northern Technologies International Corporation

Morning, ladies and gentlemen. Thank you for standing by. Welcome to Northern Technologies International Cooperation third quarter 2023 earnings conference call and webcast. At this time, all participants are on 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 11 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. As part of the discussion today, the representative 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 Security Investigation Reform Act of 1995 and that NTIC desires to avail itself of the protections of the safe harbor of these statements 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. 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 I will now hand the conference over to your speaker host for today, Ms. Patrick Lynch, Executive Officer. Please go ahead, sir.

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Walsfeld, NTIC's CFO. Please note that a press release regarding our third quarter fiscal 2023 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 2023 third quarter financial results, provide a brief business update, and then conclude with a question and answer session. Record top line sales for our Xerost Industrial, Xerost Oil and Gas, and NatureTech segments in turn pushed total sales for the third quarter to a new quarterly record as well. It would appear, therefore, that our strong third quarter performance not only revalidates the efficacy of our long-term growth strategies, but also the value that our corrosion-inhibiting products and services and bioplastic solutions provide to our growing customer base. I am proud of these results as they show that our team members and joint venture partners have been working hard to support the complex needs of our global customers while also navigating extremely dynamic currents. As planned, we also made considerable progress rebuilding our gross margins and controlling operating expenses this period. Our third quarter gross margin of 36.7% marks a significant improvement on both a sequential and year-over-year basis. This primarily reflects the positive impact of the countermeasures we put in place against supply chain issues, significant raw material cost increases, and challenges across our European and Asian markets. As we look to the fourth quarter and beyond, momentum in our business remains positive. We believe NTIC China sales will improve in the fourth quarter and into fiscal 2024, now that the Chinese economy finally as the opportunity to start rebounding from its exceptionally long self-imposed pandemic freeze. Cirrus Oil & Gas and NatureTech are both expected to continue to benefit from new customer relationships and incremental orders from existing customers. Therefore, we believe we are well positioned for a strong finish to fiscal 2023 and believe fiscal 2024 will also enjoy good growth and higher profitability. So, with this overview, let's examine the drivers for the third quarter in more detail. For the third quarter, and it's May 31st, 2023, our total consolidated net sales increased 10.6% to a quarterly record of $21 million, as compared to the third quarter ended May 31st, 2022. Broken down by business units, this included a 32.7% increase in Xeris oil and gas net sales, a 9% increase in Xeris industrial net sales, and a 7.8% increase in NatureTech net sales. Total net sales for the fiscal 2023 third quarter by our joint ventures which we do not consolidate in our financial statements, decreased year-over-year by 1.1% to $26.3 million, but were up 3.3% on a sequential basis. A slight year-over-year decline was due primarily to softer demand across the territories serviced by our global joint ventures and currency exchange rate fluctuations. Fiscal 2023 third quarter net sales by our wholly owned NTIC China subsidiary decreased by 8.4% to $3.3 million due to weaker economic conditions on a year-over-year basis. On a sequential basis, NTIC China sales were up 15.6%, which we believe reflects stabilizing demand trends, and we continue to expect demand to improve throughout the remainder of this fiscal year. We remain committed to the Chinese market and the long-term opportunities it represents for NTIC. We continue to take 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 Xeris Oil and Gas. The fiscal 2023 third quarter was the strongest quarter we have ever had for Xeris Oil and Gas. As sales increased, 32.7% to a record $2 million. The third quarter of fiscal 2023 is also the fifth consecutive quarter of Xeris oil and gas sales over $1.5 million, and on a trailing 12-month basis, we have reported nearly $7 million of oil and gas sales. We believe these positive trends reflect accelerating momentum within our oil and gas business. Interest continues to grow from new and existing customers for our Xerost oil and gas solutions, which include applications to protect above ground oil storage tanks and pipeline casings from corrosion. The expanding adoption of our Xerost oil and gas solutions within the oil and gas industry is supporting bigger opportunities for our Xerost oil and gas products and technologies. As a result, We believe that fiscal 2023 will be a transformative year for Xeris Oil and Gas, as we expect this business to scale and continue to contribute to profitability. Turning to our NatureTech bioplastics business. As expected, NatureTech sales growth re-accelerated in the third quarter after seasonality and the timing of both shipments and orders impacted NatureTech sales in our second quarter. Fiscal 2023 third quarter NatureTech sales were a record $4.9 million, a 7.8% increase over the prior fiscal year period. We expect NatureTech sales growth will remain strong in the fourth quarter, supported by favorable demand in North America and India and significant new customer wins and orders in these geographies. Globally, we continue 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 nature bioplastics business. As you can see, our third quarter performance reflects the progress we are making to profitably grow our business and create significant value for our shareholders. This is a testament to the leading solutions we have created, the valuable services we provide, and the strength of our team members and joint ventures. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2023 third quarter.

Thanks, Patrick.