NTIC - NASDAQ

Good day, and thank you for standing by. Welcome to the Northern Technologies International Corporation Fourth Quarter Fiscal Year 2023 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. 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 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 hand the conference over to your speaker today, Patrick Lynch, CEO. 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 a press release regarding our fourth quarter and full year 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 fourth quarter and full year financial results, provide a brief business update and then conclude with a question-and-answer session. Fiscal 2023 marked NTIC's third year of consecutive record sales despite the economic challenges growing in both Europe and China as well as rising interest rates in the U.S. Our continued sales growth success demonstrates the increasing value we provide our global customers as well as the efficacy of our strategic focus on diversifying our products, end markets and geographies. I am particularly encouraged by our top line results within the large oil and gas and compostable plastics markets. While fiscal 2023 proved to be highly successful with respect to diversifying our product mix and our end markets. At the same time, we also found sales conditions for our core

Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 7.7% in fiscal 2023 to an annual record and grew 2.3% in fiscal 2023 fourth quarter because of the positive trends Patrick reviewed in his prepared remarks. While sales across our global joint ventures declined 6.6% in the fourth quarter, joint venture operating income increased 39.6% compared to the prior fiscal year period as a result of a onetime gain on the liquidation of a previously written off investment in our former joint venture in China, Tianjin-

[Operator Instructions] Our first question comes from the line of Tim Clarkson from Van Clemens & Co. Inc.

It looks like it was a solid quarter again. Yes, I was trying to figure out why it was only $0.30. I was adding up the other quarters and it didn't add up. So that's the answer. Is this accounting snafu? So, there you go. I was just curious, how much expenses did we have in Taiwan for the fourth quarter?

I don't have it right in front of me as far as exactly in fourth quarter, but I can tell you that for the full fiscal year, we had expenses of about $660,000 of expenses in Taiwan that were included in operating expenses that were previously would be a part of the JV operations. So they're just new expenses that are related to the fact that Taiwan is now consolidated rather than previously being a joint venture.

Right. Do you feel good about the decision to consolidate it like that?

Yes, Taiwan is doing well. It was a pretty smooth continuation of the business. I don't think Taiwan is going to be -- I wouldn't call it a significant joint venture from the standpoint of the bottom-line income contribution, but I look at the revenues that are generated from that entity, probably contributed about $1 million to [ $1.2 million ] of income. So certainly, that level of expense that I talked about, a lot of it had to do with transactional expense of cleaning up the old entity and implementing the new entity. So that run rate of expense will go down in the future.

Right. On the oil and gas thing, on the deals that you've done so far, are customers pleased with what they're getting?

Yes. I mean, we've been very pleased. So getting repeat business in all the geographies where we're doing business. And we also have some very large projects going that should they come to fruition in the coming year, will make – maybe a significant difference.

Right. In terms of implementation, is it a pretty elegant technology? I mean, you guys can do it without having to worry about scrubs?

Well, we haven't had any problems so far. So, I think we've got a pretty good system going.

Good. On the compostable front, it looks like you had some decent growth again. Would you say things have normalized on the restaurant and in terms of the COVID stuff?

Yes.

Right. And is there any more innovation that needs to occur on the technology and to try to make this compostable thing a bigger deal, or is it at this point more on the governmental and mandating use of the product?

Well, it's a combination, but we certainly think that we continue to innovate and make R&D advances. In fact, we're working on several large projects in Europe, the United States and India at the moment. And again, if any of those come into fruition in the next 12 months, it'll make significant difference to our bottom line.

[Operator Instructions] Our next question comes from the line of Walter Ramsley from Walrus Partners.

I've got a couple of questions. The German joint venture, the results there were down quite a bit. Is that primarily a timing issue where you're going to catch up in future quarters, or has the business actually slowed down there? And if it has, what's going on?

Well, in Germany, in particularly, you're talking about several factors. One, because of the war in Ukraine and the sanctions that the West put on Russia, Russia in turn increased energy prices. So the cost of energy and plastics in Europe has gone up dramatically, which is good in putting a bit of a squeeze in our margins. In addition to that, Germany did lose one significant customer. And it's going to be a few months or actually maybe a couple of quarters before they can recover from that. So the economy in Germany also is being impacted again by the war that consumer optimism is not where it used to be, so the overall economy in Germany is facing downturn at the moment.

Okay. And the other question I have has to do with the liquidation of the old China joint venture. Did your company actually collect the money out of that liquidation process, or could you just explain what happened there actually? Is that just an accounting entry, or did the company actually get some money from that?

No, I'm glad to say that we actually did receive the cash out of China. The money has been sitting in the bank in China and was essentially being held by the government as part of the liquidation from when we terminated the joint venture in 2015. And it had been sitting there and we're going through a liquidation process since then. The company NTICN that owns Tianjin-

Okay. And on the balance sheet, as of August 31, is the cash on there, or is that still showing as a receivable?

The cash is not on there. The cash is sitting as a receivable. It's listed as a joint venture dividend receivable in the current assets.

Thank you. I would now like to turn the conference back over to Patrick Lynch for closing remarks.

Just want to thank everybody for joining us this morning, and have a good week.