Northern Technologies International (NTIC) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total consolidated net sales increased 23% to nearly $19 million for Q3 2022 compared to Q3 2021, driven by strong demand and contributions from ZERUST India [8][15] - Gross margin for Q3 2022 was 32.9%, the highest this fiscal year, compared to 34.2% in the prior fiscal period [19] - Net income for Q3 2022 was $1 million, or $0.11 per diluted share, down from $2.1 million or $0.21 per share in Q3 2021 [20] Business Line Data and Key Metrics Changes - Natur-Tec's net sales increased by 48.6% to $4.5 million [8] - ZERUST Oil & Gas net sales rose by 47% [8] - ZERUST Industrial net sales increased by 22.9% [8] - Joint ventures' total net sales decreased by 16.8% to $26.6 million due to geopolitical uncertainties and changes in accounting treatment for ZERUST India [9] Market Data and Key Metrics Changes - NTIC China subsidiary's net sales decreased by 10.2% to $3.6 million due to COVID-19 lockdowns [10] - Sales in China were approximately $1 million short of expectations for Q3 2022, but June showed improvement post-lockdown [27] Company Strategy and Development Direction - The company is optimistic about long-term growth in the Natur-Tec bioplastics business, driven by increasing demand for compostable products [13] - NTIC plans to continue addressing inflationary pressures and expects profitability to improve in Q4 2022 [19][22] - The company is focusing on expanding its oil and gas solutions globally, with strong demand across various regions [11][47] Management's Comments on Operating Environment and Future Outlook - Management noted that while economic uncertainty has increased, they believe fiscal 2022 will be a good year for sales and profitability [22] - The easing of COVID-19 restrictions in China is expected to benefit sales in the short term, with a potential for China to become the largest market [10][27] Other Important Information - Total operating expenses for Q3 2022 were $7.1 million, a 12.7% increase due to the ZERUST India acquisition and higher selling expenses [16] - Working capital as of May 31, 2022, was $24.7 million, including $6.1 million in cash [21] Q&A Session Summary Question: Insights on the oil and natural gas business - Management indicated strong demand and greater installations, with more orders from existing and new customers [25] Question: Impact of lockdowns in China - Lockdowns have recently been lifted, and management expects a gradual return to normalcy over the next six months [26] Question: Response to plastic bans in India and California - Management anticipates increased sales due to new legislation, but implementation and enforcement remain concerns [29][30] Question: Competitive position of Natur-Tec - The company differentiates its products by modifying compostable resins for better processing and mechanical properties, attracting large multinational customers [33] Question: Pricing strategy amid inflation - Management is negotiating price increases on a case-by-case basis and has been able to implement them in a timely manner [39][40] Question: Supply chain constraints for Natur-Tec - There were some constraints in Q3, but expectations for Q4 are strong with adequate inventory and raw materials [46] Question: Geographic strength in oil and gas - Management reported strong orders from various regions, including India, the Middle East, and Europe [47]