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Edited Transcript of NTIC earnings conference call or presentation 7-Jan-20 2:00pm GMT

Q1 2020 Northern Technologies International Corp Earnings Call

CIRCLE PINES Jan 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Northern Technologies International Corp earnings conference call or presentation Tuesday, January 7, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* G. Patrick Lynch

Northern Technologies International Corporation - President, CEO & Director

* Matthew C. Wolsfeld

Northern Technologies International Corporation - CFO & Corporate Secretary

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Conference Call Participants

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* Auguste Philip Richard

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* James J. Dowling

Jefferies Capital Partners - MD

* Joe Furst;Furst Associates

* Scott A. Billeadeau

Walrus Partners, LLC - Principal & Portfolio Manager

* Thomas Claugus;Ampla Capital, LLC

* Timothy Clarkson

Van Clemens & Co., Inc. - Stockbroker

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Northern Technologies International Corporation's First Quarter 2020 Earnings Conference Call and Webcast. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

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 statement.

Please also be advised that actual results could differ materially from those stated or implied by those 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, President and CEO. Thank you. Please go ahead, sir.

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [2]

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Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that the financial results for our fiscal 2020 first quarter were included in a press release issued earlier this morning, a copy of which is available at ntic.com.

During this call, we will review various key aspects of our fiscal 2020 first quarter financial results, give a brief business update, comment on our net sales and earnings guidance for the remainder of fiscal 2020 and then conclude with a question-and-answer session.

Our fiscal 2020 first quarter net sales set a new first quarter record, in part due to a rebound in ZERUST industrial sales over the past 3 months, primarily caused by stabilizing demand in both North America and China. During the same period, however, demand across the majority of our other global industrial markets remained weak, causing sales by our JVs to decline by 16% and negatively impacting first quarter profitability.

Nevertheless, despite current short-term macroeconomic conditions brought on by various international trade disputes, we believe we are well positioned to grow our global market share as a result of our expansive geographic footprint, strong operating joint ventures and global corrosion prevention expertise as we believe fiscal 2020 will be another good year of profitable growth for NTIC.

So with these highlights, let's examine the drivers for the first quarter. For the first quarter ended November 30, 2019, total consolidated net sales increased 3.8% to $14.6 million as compared to the first quarter ended November 30, 2018. Broken down by business unit, this included a 16.2% increase in Natur-Tec net sales and a 4.6% increase in ZERUST industrial net sales, offset by a 9.6% decrease in net sales from NTIC to its ZERUST joint ventures and a 47.2% decrease in Zerust Oil & Gas net sales.

Total net sales by our joint ventures, which we do not consolidate in our financial statements, were $25.5 million for the first -- for the fiscal 2020 first quarter compared to $30.5 million for the same period last fiscal year. This 16% decline in joint venture net sales was the result of softer worldwide demand across many of the industrial markets we serve.

Net sales by our wholly owned NTIC China subsidiary were $3.9 million for the fiscal 2020 first quarter compared to $3.2 million for the same period last fiscal year. The 21.9% increase at NTIC China during the first quarter of fiscal 2020 was a result of both higher ZERUST industrial and Natur-Tec sales. We remain optimistic about the long-term potential in China as we intend to further expand our presence within this large and growing market.

Zerust Oil & Gas sales remained volatile, primarily due to longer sales cycles, overall challenging market conditions and the timing of orders and deliveries. Net sales for the first quarter were down 47% compared to last fiscal year. As we stated on our last conference call, there are several projects that we have been waiting to close. I am pleased to announce that we are currently delivering product for these projects and as a result, expect to see a significant increase in oil and gas revenue in the second quarter and expect first half oil and gas revenues to be higher than the $1.3 million of oil and gas revenue we recorded during the fiscal 2019 first half. We remain committed to the oil and gas market and believe we will be successful over time as more oil and gas customers adopt our solutions to replace cathodic and coating corrosion protection.

Now turning to our Natur-Tec bioplastics business. For the fiscal 2020 first quarter, Natur-Tec net sales increased 16.2% to a first quarter record of $4.7 million. Natur-Tec continues to achieve significant growth rates and as a result of strong demand in North America through our domestic distribution network as well as higher demand -- as well as higher sales of finished products and resin compounds by NTIC's majority-owned subsidiary in India and NTIC's wholly owned subsidiary in China.

The use of conventional polyethylene and polypropylene plastics continues to face ever-increasing societal and political criticism due to environmental and waste disposal concerns. This is reflected in the increasing global interest we are experiencing for Natur-Tec's biobased and compostable product solutions.

So while global market demand for ZERUST sales remained soft in the short term, our business continues to benefit from the geographic, market and product diversification strategies we are pursuing. We believe we are well positioned to expand profitability this fiscal year as a result of continued growth at NTIC China and Natur-Tec as well as improving demand for Zerust Oil & Gas products and solutions.

With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2020 first quarter.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [3]

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Thanks, Patrick. NTIC's net sales increased 3.8% in the fiscal 2020 first quarter as a result of the trends Patrick reviewed in his prepared remarks. Lower sales across many of our global joint ventures impacted joint venture operating income, which decreased 22.7% for the fiscal 2020 first quarter compared to the prior fiscal year. We continue to proactively manage expenses, and our total operating expenses decreased 4.5% or by $280,000 to $5.9 million during the fiscal 2020 first quarter, primarily due to a $446,000 reduction in G&A costs as a result of prudent cost control measures taken in the United States, India and China during the fiscal 2020 first quarter.

We continue to invest in developing new VCI solutions as well as bioplastic products. And during fiscal 2020 first quarter, NTIC invested nearly $1 million in R&D activities compared to nearly $900,000 in the first quarter of last fiscal year. NTIC reported net income of $1.2 million or $0.13 per diluted share for the fiscal 2020 first quarter compared to $1.5 million or $0.16 per diluted share for the fiscal 2019 first quarter.

I'm also pleased with the improvement in net income over the past 3 months as compared to -- as compared -- as the company earned $829,000 or $0.09 per diluted share for the fiscal 2019 fourth quarter.

As of November 30, 2019, working capital was $25.3 million, including $4.1 million in cash and cash equivalents and $3 million in available-for-sale securities compared to nearly $25.5 million, including $5.9 million in cash and cash equivalents and $3.6 million in available-for-sale securities as of August 31, 2019.

NTIC's business model does not require significant additional capital, and we expect our financial model will continue to produce strong operating cash flows. As we've experienced in prior years, our cash balance is typically at its lowest level in November. We expect our cash balance will increase as our fiscal year progresses as a result of the seasonal benefits we typically experience in earnings from operating activities and anticipated continued business growth and improvement in profitability.

On November 30, 2019, the company had $25.4 million in investment of joint ventures, of which approximately 56% or $14.2 million is in cash, with the remaining balance invested in working capital.

During the fiscal 2020 first quarter, NTIC's Board of Directors declared a cash dividend of $0.06 per common share that was payable on November 20, 2019, to shareholders of record on November 6, 2019. The first quarter dividend increased 8.3% over the first quarter dividend payment last fiscal year, which reflects our belief in the continued strength in our future financial performance.

Now turning to NTIC's annual guidance for the fiscal year ending August 31, 2020. We continue to expect fiscal 2020 sales to be between $62 million and $66 million. We estimate our net income attributable to NTIC will continue to range between $5.6 million and $7.5 million or between $0.60 and $0.80 per diluted share for fiscal 2020. These estimates are subject to significant risks and uncertainties, including those described in our forward-looking statements, disclosure and our earnings release.

As you can see, despite the macro level slowdown we've recently experienced across our joint ventures, we remain well capitalized and well positioned to execute our long-term growth opportunities. As a result, we remain excited about the direction that we're headed.

With this, Patrick and I are happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Tim Clarkson with Van Clemens.

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Timothy Clarkson, Van Clemens & Co., Inc. - Stockbroker [2]

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Good quarter. Just wanted to see if there's any new color in terms of your compostable business in terms of where you're seeing the best opportunities.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [3]

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Yes. And thanks for the question, Tim. The -- from a Natur-Tec standpoint, we're still continuing to see the significant demand growth kind of on the same -- with obviously the same business lines and with similar opportunities that we've talked about over the past couple of years. The -- there's obviously still a growing demand for this product across North America. We're seeing significant growth for the product in Asia, specifically what we're selling through our Chinese subsidiary and still in India. So across the garment space, across the -- just the traditional compostable business as far as supplying the bag liners and cutlery and things like that, it's where we're seeing the growth.

We're starting to -- we're starting to also deliver larger quantities of resins to customers so they can produce their own products with the base resins that we are providing to them. So that's one of the things that we think is an exciting opportunity for us is to provide larger quantities of resins to these companies.

So we still anticipate kind of those 3 product lines being the main product lines that will kind of push us through the next -- probably the next year, year plus.

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Timothy Clarkson, Van Clemens & Co., Inc. - Stockbroker [4]

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Now I've been told that the -- one of the big pluses that your compostable products have is superior strength. And while it's -- the products are compostable, they have similar strength characteristics to conventional plastic. And how does that play out when you're competing with competitive compostable products?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [5]

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Very well for us. I think our customers are very pleased with the product performance and also the cost points we can reach. I mean we're talking not just stronger mechanical performance but also providing it at a lower cost to what our competitors are able to offer.

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Timothy Clarkson, Van Clemens & Co., Inc. - Stockbroker [6]

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Okay. Now what's been driving the China growth?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [7]

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Primarily the garment industry. It's an expansion of what we were doing in India and other parts of Southeast Asia.

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Timothy Clarkson, Van Clemens & Co., Inc. - Stockbroker [8]

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Right. Right. And you've been spending a lot of money on R&D. Is there anything that you can talk about in terms of potential new products that could be significant?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [9]

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Nothing that I'm -- that I can share with you on this call today.

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Operator [10]

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Our next question comes from [Jerry Well], a private investor.

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Unidentified Participant, [11]

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See, just curious on the JV side. Where are you seeing the decrease primarily? Is it -- if you could give us a little more color as far as industry. Is it tied to automotive or whatever, or what's driving down the revenue side and by country?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [12]

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Sure. We are seeing a -- there's still an ongoing slowdown in the automotive industry in China. We are growing our sales in China, primarily by selling ZERUST products into other market segments. But India, for example, is way off because the Indian automotive component supply base is really -- hit the skids in the last couple of -- the last 6 months to 9 months. And there's even an article that was published today by -- excuse me, on January 3, by -- in Bloomberg. It says, "Germany's Humbled Industrial Titans Set for Tough 2020," according to E&Y. There are -- so even in Europe, a lot of the automotive companies like Daimler, BMW, Volkswagen, Renault are seeing a decrease in demand in -- partly due to the ongoing trade tensions that we've been seeing around the world. So that's the -- so it's pretty much spread out across the globe across the automotive industry at this point.

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Unidentified Participant, [13]

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Okay. And then one last question. I'm wondering relating to -- there's been resistance on the oil and gas side to make the expenditure, right? And we've been talking about it for a number of years. Have you seen any significant change in the way companies are looking at that investment on the oil and gas on the protection side?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [14]

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It is gaining -- we are getting greater acceptance and recognition because we've been presenting, along with customers, successful case studies at industry conferences like NACE, for example. So it's getting easier to introduce this in new locations. And we've been doing a number of new installations in Africa this year and parts of the Middle East that we haven't been in before. And so we are getting broader acceptance.

The market conditions in oil and gas in general have been a little bit challenging over the last 12 months with fluctuating oil prices. And so we're just trying to combat that while the projects are going forward. It's just taking some time and occasionally, they will get pushed from 1 quarter to the next as they're making adjustments to their budgets based on cash availability.

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Operator [15]

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Our next question comes from Scott Billeadeau with Walrus Partners.

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Scott A. Billeadeau, Walrus Partners, LLC - Principal & Portfolio Manager [16]

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I got just a couple of questions here. One, oil and gas, you mentioned that you are now delivering. So you do see the pretty significant pickup and good visibility. Is that just for this quarter? Is there a longer-term visibility to that? Maybe if you could just kind of give us a little view there.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [17]

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Sure. No, what we're seeing today as far as product that we expect to be out the door, let's say, by January 15 is that we're already at a point now where sales for this fiscal year through January are already at a point that is the same as what we were at through the full first 6 months of the year last year.

Obviously, last year, we had a really poor Q2 from an oil and gas standpoint, but we had a much stronger December and a very strong January from a sales standpoint in oil and gas. So I don't have -- although it looks like from an oil and gas standpoint in the first quarter, we're down 50%, almost 50%, I don't have a lot of concerns about eclipsing where we were last year through the -- to the 6-month period.

As far as the expectations for the remainder of the year, the pipeline of projects that we have right now that we expect to close on during the next 8, 9 months of the year, it's significantly more business than we -- than what we had at the same time last year. So there are more projects out there. There's more projects that we expect to close. We expect at this point in time that our oil and gas revenue for the year will be higher than what the oil and gas revenue was last year. Whether that's going to be a few hundred thousand dollars more or a couple of million dollars more, that's what we will see. But there are significant projects out there that as they're closed, will have a dramatic impact from both a revenue standpoint and an earnings standpoint given the margins that we see in oil and gas.

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Scott A. Billeadeau, Walrus Partners, LLC - Principal & Portfolio Manager [18]

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Great. And then anything new on the pipeline side of that? I know it's been working and those are long cycle, probably lots of -- I don't know if there's a test phase that has to -- or a proving out phase for there. Anything new you can comment on there on the pipeline protection side?

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [19]

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I wouldn't say specifically anything new. There are various opportunities that we're looking at as far as pipeline protection. Those are coming along. There's nothing -- there's no projects that we have at this point in time that's the size of what we did in fourth quarter of 2018. We were talking about protecting several thousand kilometers of pipe. We don't have any projects that are on hold that are of that size. But there certainly are other pipeline proposals and projects that we're looking at that are on a smaller scale. We think the technology and what we have as far as specifically of dealing with the pipeline solution is a good one, but it takes -- taking -- it takes some time to close on those deals and to become more of a standard.

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Scott A. Billeadeau, Walrus Partners, LLC - Principal & Portfolio Manager [20]

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Great. And then one last question just related to Natur-Tec. I know you've talked about, hopefully, turning into more delivering resin as opposed to final product. Maybe you can give us a little sense of are we still really early in that because that probably will alter the optics of what that business looks like because you may see lower revenue? But since it's just resin, it may be higher margin. Is that something that we should see or start to see that transition at some point during this fiscal year?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [21]

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I wouldn't expect it this fiscal year. As Matt mentioned, we are getting -- we have at least one large customer in the United States that is now buying significant quantities of our resin compounds to produce their own injection-molded plastic products. So that's probably our big anchor client at this point in that category. And we get -- we've got certain smaller projects we work on. But for the most -- at least for this fiscal year, we still foresee most of the sales going -- coming from finished products.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [22]

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And Scott, even with the resin that we're selling, it's not like we're selling a concentrate or anything like that. We're still selling the same amount of total pounds of product that would be used to make a product for these companies. So you wouldn't have a situation where the amount of revenue is significantly lower than if we were selling the finished product. And margins on the resin are very similar to the margins that we were selling the finished product at. So -- and I'll say with the resin deliveries, I want to say the first couple of resin deliveries just happened in the last month of the first quarter.

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Operator [23]

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Our next question comes from Jim Dowling with Jefferies Capital.

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James J. Dowling, Jefferies Capital Partners - MD [24]

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Can we get a little bit into the details on Natur-Tec in terms of, of 100% of their sales, how much is United States versus the rest of the world and with specific emphasis on China and India? And if you look at the sources of revenue and you take the first quarter, how was -- how were the growth rates different or similar among those major consuming areas?

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [25]

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Sure. If I break out -- if I'm looking at Natur-Tec from a geographic breakout, the growth in Natur-Tec North America in first quarter was about 10%. The growth in Natur-Tec India was about 23% or 24%, and the growth in Natur-Tec China was about 20%. So the -- and we break out the total revenues for Natur-Tec in the Q. But as I'm looking at it, so I'm looking at total Natur-Tec sales in North America for Q1 are close to, let's see, 1 point -- about $2.2 million; total revenue at Natur-Tec India is about a little over $2 million; and Natur-Tec China is, it looks like, I'm adding these up on the -- I'm adding up monthly numbers on the fly, so about $450,000.

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Operator [26]

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Our next question comes from Joe Furst with Furst Associates.

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Joe Furst;Furst Associates, [27]

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My questions had to do with oil and gas and mostly have been answered. Just one question. The new business you're getting from there, is it coming from new orders from existing customers or from new customers?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [28]

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It's always a combination of both.

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Operator [29]

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(Operator Instructions) Our next question comes from Gus Richard with Northland.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [30]

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On the ZERUST business, you had a strong quarter. Is that a function of new customer seasonality or inventory replenishment? A little -- can you add a little color there?

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [31]

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I don't know that we've seen a significant amount of inventory replenishment. It seems like we're kind of still in the -- we're still in the phase, at least what I'm seeing in North America, as far as consistent orders. We haven't seen a bump yet where customers are refilling inventories where you kind of see that double -- the double jump of existing orders and building up inventory yet. I can't really comment on that for the -- for any of the joint ventures. I don't have the data.

I would say from a Chinese -- from a China standpoint, as far as what we're seeing at ZERUST China, the majority of the growth that we have seen there is outside of the automotive industry. And so while as Patrick commented that auto sales are still down throughout Asia and in China, we've been able to augment that decrease in the auto industry with new opportunities outside of the automotive industry. So the 20-plus percent growth that we're seeing in China is due to nonautomotive sales growth opportunities.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [32]

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Got it. And then on the Natur-Tec side, it looks like your year-over-year comps have been decelerating for a bit now and particularly, I think, North America. If -- with your new resin customer in North America, should those North America sales start to reaccelerate from here?

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [33]

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I would expect our Q2 Natur-Tec numbers to be higher than Q1. Things were a little bit slower in Q1 than what we expected, specifically in North America. We're targeting certainly a higher growth rate than 10%. And like you said, with the additional business coming in from just incremental customer growth throughout our distribution base to some of the new resin customers, I would expect those numbers to be higher throughout the rest of the year.

As far as growth in India and China, a 20-plus percent growth rate is, I think, certainly reasonable for what they're looking at given the growth that they saw last year out of those 2 regions.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [34]

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Got it. And then the last one for me is you did a great job holding G&A down in the quarter. Is that a sustainable trend? Or is that a one-off for the quarter?

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [35]

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I would say it's a little bit of both. There certainly are some -- there were some items that we worked on as far as cost control initiatives across the company. It's certainly been a goal of the company, as I've kind of explained to each of you when I've met with you individually, that the goal is to have very low operating expense growth. I don't expect to have cost decreases that are going to be sustainable or going forward. There are some things that were -- as far as people leaving and other things like that, that -- where we will be hiring people coming on. So there will be some additional expense growth, but we still have the overall corporate objective of having very low single-digit operating expense growth to be able to leverage the top line revenue growth. And with the expectations of -- the concerns that we have right now about what's going on from a macro standpoint with the automotive industry and other industrial industries, certainly keeping a tight control of our costs is something that we are focusing on.

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Operator [36]

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Our next question comes from Thomas Claugus with Ampla Capital.

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Thomas Claugus;Ampla Capital, LLC, [37]

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Matt, since you predicted correctly that business will rebound this quarter, what's the visibility on the JV side in terms of whether it's bottoming or not? This is probably the lowest quarter in a long time and it changes the profitability significantly for the company. So is there any visibility on that?

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [38]

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Do you mind muting your line real quick because your -- somehow there's a lot of feedback. I heard your question and I think I can comment on it. But if you could mute your line, that would be terrific.

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Thomas Claugus;Ampla Capital, LLC, [39]

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I'm trying. I'm trying. I'll just hang up. You can answer the question.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [40]

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All right. Sorry about that. The -- as far as visibility into the joint ventures, I know Patrick has had conversations with numerous joint venture partners as far as kind of what we're seeing from a global standpoint. Do you want to…

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [41]

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I didn't hear the question.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [42]

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The question was basically what visibility does NTIC have into the joint venture performance given that this is the biggest decrease that we've seen in joint venture sales for some time.

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [43]

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Well, like I mentioned earlier, it's tied to basically a global macro shutdown or slowdown in the auto -- primarily in the automotive industry so far. But as I also mentioned that, for example, the key economy in Europe, Germany, is seeing a significant slowdown across all their top 100 companies -- industrial companies. So I think that…

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [44]

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I'd say, with talking to the various partners, one thing I can comment on is we're not seeing -- it's not as if there is a loss of any 1 customer. Or it's not as if there's any kind of a competitor coming in that is taking the business or the market share away from us. What we're seeing is that the sizes of the orders that are being placed, the volumes and the inventory levels at our customers are what is coming down. And so with fewer orders or smaller orders coming in, that's what's having the biggest impact on overall revenue.

The expectations that we have are that similar to the United States, a lot of the other countries in the world are going to be somewhat behind the United States. And whether that's going to be 3 months, 6 months, 12 months, the company is certainly positioned so that longer term, when we see the industrial rebound across the world, the company is going to be positioned to highly leverage that rebound. So I hope that answers your question and...

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [45]

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I think he hung up.

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Matthew C. Wolsfeld, Northern Technologies International Corporation - CFO & Corporate Secretary [46]

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He hung up. All right.

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Operator [47]

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Our next question is a follow-up from Scott Billeadeau with Walrus Partners.

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Scott A. Billeadeau, Walrus Partners, LLC - Principal & Portfolio Manager [48]

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Just a thought there, just as a follow-up to that question. Is there -- certainly, we've seen a macro slowdown, but is there any sense that within the auto or the industrial businesses out there, that there's just less metal in general that needs to be protected on a go-forward basis? They're taking metal out of things, i.e., I mean, electric car probably has less metal than an older combustion. Any -- do you guys have any sense or is there a discussion about that at all?

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [49]

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That certainly -- I mean, yes, electric vehicles use fewer metal components. And we're watching that trend, but we're not seeing a significant shift in that yet. Also, well, like I said, right now, it's a -- it's more of a decrease in general demand by our customers, which they all seem to relate to temporary slowdowns because of macro issues.

As Matt mentioned, we're not seeing any loss of customers. We're not losing projects. It's just that they're ordering less given what demand levels are at right now.

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Scott A. Billeadeau, Walrus Partners, LLC - Principal & Portfolio Manager [50]

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Okay. Yes. I mean certainly, we got a macro slowdown so it's kind of hard to vet whether there's an organic switch in there. So I just didn't know if you might have seen something.

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [51]

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And as I mentioned earlier in the call, for example, in China, we're shifting our focus away from the automotive industry because we know that we're not going to get much joy from them in the next 12 months. So we're -- a lot of the business increases you're seeing in China, for example, are coming from other industries other than automotive, where they're using plenty of metal now and in the future.

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Operator [52]

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And I'm currently showing no further questions at this time. I'd like to turn the call back over to Patrick Lynch for closing remarks.

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G. Patrick Lynch, Northern Technologies International Corporation - President, CEO & Director [53]

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I would just like to thank everybody for calling in today and wish you a nice afternoon. Thank you.

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Operator [54]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.