Northern Technologies International (US:NTIC)2022-04-07 16:10Financial Data and Key Metrics Changes - Total consolidated net sales increased 31% to a record $16.7 million for the second quarter of fiscal 2022 compared to the same period in the prior fiscal year [8][20] - Net income for the second quarter was $183,000, or $0.02 per diluted share, down from $1.3 million, or $0.13 per diluted share in the prior year [24] - Gross profit as a percentage of net sales decreased to 29.8% from 33.3% due to increased raw material and labor costs [23] Business Line Data and Key Metrics Changes - ZERUST Oil and Gas net sales increased by 60.1%, Natur-Tec net sales increased by 45.3%, and ZERUST Industrial net sales increased by 24.1% [9] - Natur-Tec sales were $3.6 million, reflecting a return to pre-pandemic demand patterns, particularly in North America and India [14] - The joint ventures reported total net sales of $24.6 million, a decrease of 15.3% compared to the same period last fiscal year [10] Market Data and Key Metrics Changes - NTIC China sales decreased by 6.3% to $4.1 million, impacted by COVID-19 related lockdowns [11] - The company anticipates that China will likely become its largest geographic market in the coming years despite current volatility [11] Company Strategy and Development Direction - The company is focused on passing increased costs onto customers to improve profitability, with expectations of noticeable improvements in operating profits during the second half of fiscal 2022 [7] - The company plans to navigate near-term challenges related to expenses, raw materials, and supply chain issues while maintaining a strong outlook for sales growth and profitability [26][27] Management Comments on Operating Environment and Future Outlook - Management noted that inflation has significantly impacted raw material and labor costs, affecting gross margins and operating profits [6][23] - Despite challenges from the Ukraine conflict and ongoing COVID-19 impacts, management believes sales and profitability will improve throughout the remainder of the fiscal year [18][27] Other Important Information - The company declared a quarterly cash dividend of $0.07 per common share payable on February 16, 2022 [26] - The acquisition of ZERUST India has resulted in increased net sales and operating expenses, affecting financial results for the remainder of fiscal 2022 [22] Q&A Session Summary Question: Have you had resistance from clients regarding price increases? - Management indicated that prices are sticking, and clients have agreed to the necessary increases due to rising raw material costs [31] Question: How big could the oil and gas market potentially become? - Management believes they are currently capturing about 3% of the potential market, which has the potential to grow significantly [32] Question: What is the typical customer for Natur-Tec products? - Typical customers include universities, schools, office parks, and stadiums with food waste diversion programs [35] Question: What differentiates Natur-Tec from competitors? - The patented technology allows Natur-Tec to produce products with higher mechanical strength at a lower cost than competitors [37] Question: What is the impact of goodwill and intangible assets on future earnings? - There will be an ongoing amortization expense of about $100,000 per quarter for 15 years due to the acquisition of ZERUST India [38] Question: How has the China business been affected by recent lockdowns? - The business has slowed down significantly, with March revenue down about 30% compared to expectations [52] Question: What is the outlook for supply disruptions in PLA? - Management indicated that supply disruptions are due to delays in starting manufacturing at several PLA plants, with expectations for improvement in two to three quarters [47]