Northern Technologies International Corporation

Good day and welcome to the third quarter 2024 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, please press star 1-1. As a reminder, this call is being recorded. As part of the discussion today, the representatives from NCIC will be making certain forward-looking statements regarding NCIC's future financial and 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 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 would now like to turn the call over to Patrick Lynch. Please go ahead.

Good morning.

I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Welsfeld, NTIC's CFO. A press release regarding our fiscal 2024 third quarter 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 2024 third quarter financial results, provide a brief business update, and then conclude with a question and answer session. Please note that when we discuss year-over-year performance, we are referring to the third quarter from our current fiscal year in comparison to the third quarter from our previous fiscal year. Our third quarter results reflect the progress we're making navigating a fluid macro environment while capitalizing on growing demand within our NatureTech and Xeris oil and gas markets. We achieved record quarterly NatureTech sales driven by continued growth in North America and India for our compostable plastic products and specialty resins. While shipping delays caused the timing of approximately $600,000 in orders to be moved from the third quarter to the fourth quarter, negatively impacting our third quarter results, demand for our oil and gas solutions is expanding. As a result, we expect a significant rebound in oil and gas sales in the fourth quarter. Furthermore, I'm particularly encouraged by the continued year-over-year improvement in our gross margin, demonstrating that our initiatives aimed at offsetting supply chain and raw material challenges are working as intended. We anticipate that profitability will continue to improve and that we will continue to generate positive operating cash flow throughout the remainder of fiscal 2024. Year-over-year cash from operating activities improved, by 116% to $7.6 million, primarily due to higher net income for the nine months ended May 31, 2024, and positive changes in working capital. We intend to continue allocating capital to support our growth initiatives and quarterly dividend payments while using excess cash flow to pay down the balance on our existing line of credit. As we look to the remainder of fiscal 2024, we believe we are well positioned for top-line growth, driven by our Xeros oil and gas and NatureTech product categories. We also remain focused on enhancing the performance and profitability of our international joint ventures. In addition, we continue to make strategic investments in our operations, aimed at supporting additional growth opportunities across our markets, most notably in North America, Brazil, and India. I am pleased with NTIC's performance and believe fiscal 2024 will be another good year of growth and profitability. So with this overview, let's examine the drivers for the third quarter ended May 31st, 2024 in more detail. For the quarter, our total consolidated net sales decreased 1.4% to $20.7 million as compared to the third quarter ended May 31st, 2023. Total net sales for the third quarter by our joint ventures, which we do not consolidate in our financial statements, decreased year-over-year by 2.7% to $25.6 million. Excore Germany, our largest joint venture, experienced a 7.1% decrease in net sales compared to the prior fiscal year period due primarily to a previously disclosed loss of a customer and softer demand within the region related to higher energy prices, and other externalities linked to the war between Ukraine and Russia. Fiscal 2024 third quarter net sales by our wholly owned NTIC China subsidiary increased on a year-over-year basis by 6.7% to $3.5 million. Sales trends in this geography have stabilized, and NTIC China has experienced two consecutive quarters of year-over-year sales growth. We remain cautiously optimistic that demand in China will improve throughout the remainder of fiscal 2024 and into fiscal 2025, helping to support higher incremental sales and profitability in this market. We are committed to the long-term opportunities the Chinese market provides our industrial and bioplastic segments and we continue to take steps to enhance our operations in this geography. As a result, we continue to believe China will likely become a significant geographic market for us in the future. Now, moving on to Xerox oil and gas. For the fiscal 2024 third quarter, Xerox oil and gas sales were $1.4 million, compared to $2.0 million for the same period last fiscal year. The 31.9% year-over-year decrease in Xeris oil and gas sales was primarily associated with approximately $600,000 in sales that were expected to ship before the end of the third quarter of fiscal 2024, but got delayed until the beginning of the fourth quarter. So now, these $600,000 in sales, coupled with orders booked for delivery before August 31st, are anticipated to make sales in the fourth quarter of fiscal 2024 exceptionally strong for our Xeris oil and gas solutions. Overall, demand continues to grow among both new and existing customers of our Xerost oil and gas solutions, which today still focus primarily on protecting above ground oil storage tanks and pipeline casings from corrosion. As a result, we believe that fiscal 2024 will be another good year of growth for Xerost oil and gas as this business further scales and continues to contribute to our overall profitability. We are optimistic these trends will continue into fiscal 2025. Turning to our nature bioplastic business nature tech sales were strong during the third quarter and increased 20.1% year over year to a quarterly record of $5.8 million. Nature text growth during the third quarter was a result of new customer wins in North America and India, as well as expanding relationships with existing customers. We expect NatureTech sales growth to continue throughout fiscal 2024 and into fiscal 2025. Globally, we continue to see robust 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. We also continue to make strategic investments across several parts of our business in order to capitalize on current and expected future growth opportunities. In India, we are consolidating three separate nature tech warehouses into a single larger facility and also are adding manufacturing capacity to support nature tech sales growth in the region. Sales in Brazil have doubled since fiscal 2019, so we are in the process of adding a facility to support growth opportunities in both that country as well as the broader region. We also continue to invest in our domestic operations, as demonstrated by the new Circle Pines Minnesota facility that came online earlier this year. At this location, we've been able to insource certain manufacturing processes that were previously outsourced as part of our efforts to improve gross margin. As you can see, fiscal 2024 is shaping up to be a strong year of growth, profitability, and strategic investments for NTIC. We are excited by the positive momentum underway and the direction NTIC is headed. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our recent success and the opportunities we are pursuing to drive value for our shareholders in the future are a direct result of their efforts. With this overview, let me now turn the call over to Matt Wolffeld to summarize our financial results for the fiscal 2024 third quarter.