Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record quarterly Natur-Tec sales driven by growth in North America and India.
- Year-over-year improvement in gross margin, indicating successful initiatives to offset supply chain and raw material challenges.
- 116% improvement in year-over-year cash from operating activities, reaching $7.6 million.
- Strategic investments in operations to support growth opportunities in North America, Brazil, and India.
- Continued positive momentum and direction for NTIC, with expectations for a strong fiscal 2024.
Negative Points
- Total consolidated net sales decreased by 1.4% year-over-year to $20.7 million.
- Joint venture net sales decreased by 2.7% year-over-year to $25.6 million.
- Excor Germany, the largest joint venture, experienced a 7.1% decrease in net sales due to loss of a customer and higher energy prices.
- ZERUST oil and gas sales decreased by 31.9% year-over-year due to shipping delays.
- Total operating expenses increased by 7.1% year-over-year, primarily due to higher personnel costs.
Q & A Highlights
Q: What was the typical increase in salaries at Northern Tech for this year?
A: We changed salaries on September 1 of each year with the fiscal year. Last year, the average increase was probably 3% to 4%. (Matthew Wolsfeld, CFO)
Q: Are there any significant changes in the players who are buying compostables?
A: The players are similar, but we are expanding our distributors across North America and entering new markets in Europe and Southeast Asia. The market is increasing due to various legislations related to the use of conventional plastics. (Matthew Wolsfeld, CFO)
Q: Are you selling a finished product or the material that makes the finished product in the compostables segment?
A: We are selling both. Initially, we sold finished products like bin liners and cutlery. Now, we are also selling specialty blended resin so companies can make their own products. (Matthew Wolsfeld, CFO)
Q: Any changes in the kinds of people buying the oil and gas products?
A: The customer base is similar, but there is more adoption of the VCI solution. We are seeing significant purchase orders that will make the fourth quarter strong for oil and gas. (Matthew Wolsfeld, CFO)
Q: Is the decline in ZERUST industrial sales due to weakness in Germany or other factors?
A: The decline is due to the loss of a significant customer in Germany and economic pressures from the ongoing war in Ukraine, which has led to higher energy prices in Europe. (G. Patrick Lynch, CEO)
Q: Is it reasonable to assume a $2-million-a-quarter run rate for ZERUST oil and gas?
A: Yes, $2 million is a fair baseline, but it could be stronger. The actual purchase orders we have will make the fourth quarter particularly strong. (Matthew Wolsfeld, CFO)
Q: What are your expectations for the oil and gas segment in 2025?
A: We expect the base run rate to increment up, potentially to $2.5 million or $3 million a quarter, with continued growth as we exit fiscal 2025. (Matthew Wolsfeld, CFO)
Q: What is the growth outlook for the ZERUST industrial segment in Europe?
A: We are starting to see a rebound in Europe, particularly in Germany, which should help joint venture operating income. We target 10% to 12% growth in the industrial market. (Matthew Wolsfeld, CFO)
Q: What is the seasonality for the fourth quarter in the industrial segment?
A: Typically, the third and fourth quarters are stronger due to the rust season in the summer. We target 10% to 12% growth in the industrial market. (Matthew Wolsfeld, CFO)
Q: How do you view the long-term prospects for the Chinese market?
A: We are cautiously optimistic about demand in China improving throughout the remainder of fiscal 2024 and into fiscal 2025. We believe China will become a significant geographic market for us in the future. (G. Patrick Lynch, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
