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Northern Applied sciences Worldwide Corp (NASDAQ: NTIC) Q2 2023 earnings name dated Apr. 13, 2023
Company Individuals:
Patrick Lynch — President and Chief Govt Officer
Matthew C. Wolsfeld — Chief Monetary Officer and Company Secretary
Analysts:
Gus Richard — Northland Capital Markets — Analyst
Tim Clarkson — VanClemens — Analyst
Presentation:
Operator
Good day, and thanks for standing by. Welcome to the Northern Applied sciences Worldwide Company’s Second Quarter 2023 Earnings Convention Name. [Operator Instructions].
Please be suggested that at present’s convention is being recorded. As a part of the dialogue at present, the representatives from NTIC shall be making sure forward-looking statements relating to NTIC’s future monetary and working outcomes in addition to their enterprise plans, targets and expectations. Please be suggested that these forward-looking statements are coated beneath the Protected Harbor provisions of the Personal Securities Litigation Reform Act of 1995 and that NTIC wishes to avail itself of the protections of the Protected Harbor for these statements. Please even be suggested that precise outcomes may differ materially from these acknowledged or implied by the forward-looking statements because of sure dangers and uncertainties, together with these described in NTIC’s most up-to-date Annual Report on Kind 10-Ok, subsequent quarterly stories on Kind 10-Q and up to date press releases. Please learn these stories and different future filings that NTIC will make with the SEC. NTIC disclaims any obligation to replace or revise its forward-looking statements.
I might now like at hand the convention over to your speaker at present, Patrick Lynch, Chief Govt Officer. Please go forward.
Patrick Lynch — President and Chief Govt Officer
Good morning. I’m Patrick Lynch, NTIC’s CEO. And I’m right here with Matt Wolsfeld, NTIC’s CFO. Please be aware {that a} press launch relating to our second quarter of fiscal 2023 monetary outcomes was issued earlier this morning and is obtainable at ntic.com. Throughout at present’s name, we are going to assessment varied key points of our fiscal 2023 second quarter monetary outcomes, present a short enterprise replace after which conclude with a question-and-answer session.
For nearly 20 years now, NTIC has been singularly targeted on constructing a stable basis comprised of an skilled and dedicated management crew in addition to a consistently rising portfolio of options to reply their various and evolving wants of our world buyer base. We now have regularly invested in our enterprise by including capabilities, enhancing our operations and opportunistically shopping for out choose three way partnership companions. This in flip has enabled us to pursue long-term development methods, aimed toward diversifying our finish markets, product classes and geographic footprint.
Our second quarter monetary efficiency displays the success of those initiatives and the resilience of our platform as steady demand for our Zerust industrial services in North America, coupled with rising curiosity in our NaturTec and Zerust oil and fuel merchandise each within the U.S. and overseas supplied one more new gross sales file within the second quarter. Whilst we proceed to navigate a particularly advanced working surroundings comprised of however not restricted to persistent inflation, uncooked materials value will increase, geopolitical conflicts in Europe and the lingering results of the COVID-19 pandemic in Asia.
I’m additionally happy to report that we’re making appreciable progress rebuilding our gross margins and controlling working bills. Actually, our second quarter gross margin of 35% marks a big enchancment on each a sequential and year-over-year foundation, reflecting the rising contributions made by a worthwhile Zerust oil and fuel enterprise, in addition to the advantages of different measures we’ve carried out efficiently up to now this fiscal yr.
General, momentum stays constructive and we count on NTIC China gross sales will enhance within the third quarter and past because the Chinese language economic system lastly has the chance to start out rebounding from its exceptionally lengthy self-imposed pandemic freeze. As well as, NaturTec gross sales are anticipated to profit within the third quarter from new buyer relationships and incremental orders. Consequently, we consider we’re properly positioned for a robust end to fiscal 2023.
So with this overview, let’s look at the drivers for the second quarter in additional element. For the second quarter ended February 28, 2023, our complete consolidated internet gross sales elevated 9.1% to a second quarter file of $18.3 million as in comparison with the second quarter ended February 28, 2022. Damaged down by enterprise unit, this included 212.4% enhance in Zerust oil and fuel internet gross sales, a 5% enhance in NaturTec internet gross sales, and a 3.7% enhance in Zerust industrial internet gross sales.
Complete internet gross sales for the fiscal 2023 second quarter by our joint ventures, which we don’t consolidate in our monetary statements, elevated 3.6% to $25.5 million. This enhance was due primarily to a rebound in demand throughout the territories serviced by our world joint ventures, after a number of quarters of decrease demand because of sure geopolitical conflicts and their affect on elevating the price of power, whereas concurrently decreasing its availability.
Fiscal 2023 second quarter internet gross sales by our wholly-owned NTIC China subsidiary decreased by 31% to $2.9 million because of the unfavorable affect of extreme COVID-19-related lockdowns throughout a lot of that nation in the course of the quarter. And the ensuing weaker financial circumstances in addition to the affect of Chinese language New 12 months. We proceed to intently watch market circumstances in China. Now that the Chinese language authorities has terminated the PRC zero COVID coverage, we count on demand to enhance all through the rest of this fiscal yr. We stay dedicated to the Chinese language market and the long-term alternatives, it represents for NTIC. We proceed to take steps to boost and shield our Chinese language operations, and we proceed to consider China will seemingly grow to be our largest geographic market sooner or later.
Now transferring on to Zerust oil and fuel. The fiscal 2023 second quarter was one of many strongest quarters we’ve got ever had for Zerust oil and fuel, as gross sales elevated 212.4% to $1.8 million. The second quarter of fiscal 2023 can be the fourth consecutive quarter of Zerust oil and fuel gross sales over $1.5 million and on a trailing 12-month foundation, we’ve got reported practically $6.5 million of oil and fuel gross sales. We consider these constructive developments replicate accelerating momentum inside our oil and fuel enterprise. Curiosity is rising for our Zerust oil and fuel options, which embody purposes to guard above-ground oil storage tanks and pipeline casings from corrosion. We consider the third quarter of fiscal 2023 shall be one other good quarter of oil and fuel gross sales and development. The increasing adoption of our Zerust oil and fuel options inside the oil and fuel trade is supporting larger alternatives for our Zerust oil and fuel merchandise and applied sciences. In consequence, we consider fiscal 2023 shall be a transformative yr for Zerust oil and fuel as this enterprise scales and continues to contribute to profitability.
Turning to our NaturTec bioplastics enterprise. Fiscal 2023 second quarter NaturTec gross sales had been $3.8 million, a 5% enhance over the prior fiscal yr interval. Whereas gross sales developments inside the NaturTec stay constructive, second quarter gross sales development slowed because of seasonality and the timing of each shipments and orders. We count on NaturTec gross sales development to re-accelerate within the third quarter, supported by its favorable demand in North America and India and vital new buyer wins and orders in these geographies.
Globally, we proceed to see rising market demand for brand spanking new purposes of licensed compostable plastic merchandise and resin compounds, in addition to elevated curiosity in industrial and municipal packages that use licensed compostable plastics as alternate options to standard plastics. In consequence, we consider we’re well-positioned for long-term sustainable development inside our NaturTec bioplastics enterprise.
Whereas the worldwide financial surroundings stays extraordinarily advanced, our outcomes have continued to exhibit the highly effective platform we’ve got created. Daily, our crew members and three way partnership companions are working intently with our prospects to offer main options to assist shield world provide chains and oil and fuel trade infrastructure from corrosion, whereas additionally enhancing the surroundings by offering best-in-class compostable bioplastics. I’m pleased with our crew’s robust efficiency throughout a really fluid enterprise panorama and I’m extraordinarily excited by the alternatives we’ve got sooner or later to create lasting worth for our shareholders.
With this overview, let me now flip the decision over to Matt Wolsfeld to summarize our monetary outcomes for fiscal 2023 second quarter.
Matthew C. Wolsfeld — Chief Monetary Officer and Company Secretary
Thanks, Patrick. In comparison with the prior fiscal yr interval, NTIC’s consolidated internet gross sales elevated 9.1% within the fiscal 2023 second quarter to a second quarter file. This development was pushed by the constructive developments Patrick reviewed in his ready remarks. A 3.6% enhance in second quarter gross sales throughout joint ventures mixed with the actions to enhance gross margins drove a 9.8% enhance in second quarter three way partnership working earnings in comparison with the prior fiscal yr interval. Complete working bills for the fiscal 2023 second quarter had been $7.5 million and 11.8% enhance over the prior fiscal yr interval, which was primarily because of elevated personnel bills and bills incurred within the present fiscal yr interval in reference to the startup of a brand new oblique majority-owned subsidiary shaped to imagine the operations of a former three way partnership in Taiwan.
Working bills as a share of internet gross sales had been 41% in comparison with 40.1% for the prior fiscal yr interval. Gross revenue as a share of internet gross sales was 35% in the course of the three months ended February 28, 2023 in comparison with 29.8% throughout the identical interval final fiscal yr. The 520 basis-point enchancment was primarily results of profitable actions taken by the corporate to deal with inflationary pressures and the elevated gross sales of higher-margin Zerust oil and fuel options. NTIC reported internet earnings of $885,000 or $0.09 per diluted share for the fiscal 2023 second quarter in comparison with a $183,000 or $0.02 per diluted share for the fiscal 2022 second quarter.
NTIC’s non GAAP internet earnings adjusted for amortization bills and bills associated to the NTIC India transaction was $991,000 or $0.11 per diluted share in comparison with $392,000 or $0.04 per diluted share for the fiscal 2022 second quarter. A reconciliation of GAAP to non-GAAP monetary measures can be found in our second quarter earnings press launch that was issued this morning. As of February 28, 2023, working capital was $24 million, together with $5.5 million in money and money equivalents in comparison with $23.2 million, together with $5.3 million in money and money equivalents as of August thirty first 2022.
As of February 28, 2023, we had $7.1 million excellent on our revolving line of credit score. In the course of the second quarter, we bought the 26,000 square-foot facility instantly adjoining to our headquarters in Circle Pines, Minnesota for $1.2 million. The constructing shall be used for extra warehousing and manufacturing house to assist our continued development. We generated $2.2 million in working money movement for the six months ended February 28, 2023, together with $202,000 within the second quarter. In the course of the second half of the fiscal yr, we count on to make use of constructive working money movement to cut back the excellent stability of our revolving line of credit score. On February 28, 2023, the corporate had $21.5 million in investments in three way partnership, of which roughly 52.9% or $11.4 million was in money with the remaining stability primarily invested in different working capital.
In the course of the fiscal 2023 second-quarter, NTIC’s Board of Administrators declared a quarterly money dividend of $0.07 per frequent share that was payable on February 15, 2023 to stockholders of file on February 1st 2023. To conclude, our second quarter and year-to-date monetary outcomes exhibit the progress we’ve made elevated gross sales throughout our various finish markets and geographies, and the success of our near-term initiatives to enhance profitability.
I’m inspired by the route we’re headed, and whereas the financial surroundings stays extraordinarily fluid, we proceed to consider fiscal 2023 shall be one other good yr of gross sales and profitability to NTIC. With this overview, Patrick and I are glad to take your questions.
Questions and Solutions:
Operator
Thanks. [Operator Instructions] Our first query comes from the road of Gus Richard with Northland Capital Markets. Your line is now open.
Gus Richard — Northland Capital Markets — Analyst
Sure, good morning. Thanks for taking my questions. Was simply questioning should you may discuss a little bit bit about what you’re seeing in China now. Clearly, the final quarter was difficult and simply questioning how shortly you see that geography coming again?
Patrick Lynch — President and Chief Govt Officer
There are nonetheless — we’re assuming wait and see extra, actually. We expect now that China will flush out [indecipherable] steerage, it’s taking a while for them to get better and get issues going once more. We’ll have a greater image of how shortly China will get better mainly on the finish of the third quarter.
Gus Richard — Northland Capital Markets — Analyst
Bought it and you then talked about a few new prospects purposes in NaturTec and I’m simply once more, any shade round that when it comes to geography, end-market, and many others.
Patrick Lynch — President and Chief Govt Officer
Nicely, a type of is home. We now have one massive buyer we really feel is comfy about to come back on-line. We already began manufacturing on their preliminary orders and we count on begin delivering this quarter.
Gus Richard — Northland Capital Markets — Analyst
Okay after which final one for me, oil and pure fuel. No pun supposed, what’s the pipeline seem like there?
Patrick Lynch — President and Chief Govt Officer
Proper now, it seems fairly good.
Gus Richard — Northland Capital Markets — Analyst
Any shade do you add, multinationals, is the pipeline work above-ground storage, simply —
Patrick Lynch — President and Chief Govt Officer
It’s mixture of each. And it’s very wholesome pipeline at this level.
Gus Richard — Northland Capital Markets — Analyst
Okay, all proper. I respect it. Thanks a lot.
Matthew C. Wolsfeld — Chief Monetary Officer and Company Secretary
Gus, I’ll simply add one remark that the revenues of second quarter for oil and fuel didn’t embody any gross sales to British Petroleum from the contracts that we obtained within the first half of the yr, that’s one thing that we’re beginning to ship on within the second half of the yr.
Gus Richard — Northland Capital Markets — Analyst
Bought it, bought it. And only one follow-on. Type of what number of prospects do you’ve gotten in 1 / 4 or is it a handful, simply any sense there?
Matthew C. Wolsfeld — Chief Monetary Officer and Company Secretary
From an oil and fuel standpoint, I imply, the variety of prospects can be within the 10 to twenty per quarter, imply if I have a look at form of a possibility itemizing. It’s actually not just like the Zerust industrial itemizing. Once you have a look at the backlog, so far as the lots of of consumers that we’re regularly delivering to, it’s clearly a product that we promote from a worth per alternative is way increased than the Zerust and NaturTec conventional enterprise.
So, yeah, it’s merely a handful of consumers per 30 days and that’s what provides to the volatility of the revenues. It’s constructive and a very good be aware that we’re lastly beginning to see is considerably of a baseline of income is popping out, as Patrick mentioned in his ready remarks that within the final 4 quarters, it’s been over $1.5 million in income per quarter. As we’re trying ahead, we’re higher capable of form of plan the place we’re not simply in third and fourth quarter developing, but additionally all through fiscal 2024, we will see the scale of the chance, we will see the expansion that we’re and that’s one of many the reason why we’re excited in regards to the route that oil and fuel is headed.
Gus Richard — Northland Capital Markets — Analyst
I’m sorry I carry on pondering extra questions. What number of prospects roughly are within the pipeline?
Matthew C. Wolsfeld — Chief Monetary Officer and Company Secretary
I might say you’re in all probability — it’s not essentially all new prospects. However should you have a look at — I’m simply alternatives that we’re in and ship on in third quarter, you’re seemingly in all probability 30 or 40 completely different prospects.
Gus Richard — Northland Capital Markets — Analyst
Okay, bought it, bought it, very useful. Thanks.
Operator
Thanks. [Operator Instructions]. Our subsequent query comes from Tim Clarkson with VanClemens and Firm. Your line is now open.
Tim Clarkson — VanClemens — Analyst
Hey guys, nice quarter. Anyhow you’ve bought this new URL quantity to get onto the decision, you thought you could possibly shake me off. Understanding how dangerous I’m with particulars however I hit Angie to the rescue so there, anyhow, on the oil and fuel stuff, what are the everyday gross margins on oil and fuel versus your conventional enterprise?
Patrick Lynch — President and Chief Govt Officer
I imply, there’s actually extra constructive. We like placing out particular gross margins as a result of it’s clearly does fluctuate based mostly on alternative, nevertheless it actually has a better gross margin than what we see in in comparison with Zerust industrial and Zerust industrial has traditionally been barely higher than the NaturTec gross margins.
Tim Clarkson — VanClemens — Analyst
All proper, what roughly is the breakeven in that division?
Patrick Lynch — President and Chief Govt Officer
The breakeven within the oil and fuel division?
Tim Clarkson — VanClemens — Analyst
Yeah.
Patrick Lynch — President and Chief Govt Officer
We now have — if I’m oil and fuel, I believe we had — it’s nice in between about USD4.2 million to USD4.8 million in income, so given the trailing 4 months, trailing nonetheless far you wish to wish to return from after we form of noticed the step-up in income, , the oil and fuel group has been constructive for the previous couple of quarters, which was form of an enormous milestone — which was an enormous milestone for that group. And now it’s — now we’re what are the extra alternatives, what are the extra geographies that we will begin going into. There’s further hiring that’s going down in oil and fuel to form of service these alternatives. And so a part of what offers us loads of optimism with what’s happening at the moment in oil and fuel.
Tim Clarkson — VanClemens — Analyst
Proper. And so, simply on massive image intuitive foundation. I assume what’s lastly taking place which Patrick predicted is after eight to 10 years, individuals are truly seeing this know-how work dramatically higher than the normal applied sciences.And so they see the opposite individuals utilizing it so between seeing different individuals utilizing it and eager to catch-up and truly seeing the know-how constantly show on the market lastly and believers, and together with much less authorities variances that they’ve jumped via.
Patrick Lynch — President and Chief Govt Officer
Precisely proper. Thanks.
Tim Clarkson — VanClemens — Analyst
Yeah, okay, properly, good. After which on the compostable stuff. I assume, I’ve been listening to once more. I had been in county right here regionally, placing a push on the compostable. I assume that’s the opposite big-picture that they’re beginning to be some authorities motion requiring organics to get pushed out the rubbish stream and you must have the packaging as a part of that resolution.
Patrick Lynch — President and Chief Govt Officer
That’s precisely proper. I imply one of many key drivers for the that market generally, are the municipal and state mandates that we’re seeing and even countrywide mandates that we’re seeing in varied markets, so. And in addition with NaturTec, we’re additionally seeing constructive actions with among the key uncooked supplies which are going into the merchandise, so far as these worth factors coming down as properly.
So the expectation is that. We’re going to see continued restoration within the Zerust industrial gross margin and in addition enhancements within the NaturTec gross margins in comparison with the place we had been in first and second quarters.
Tim Clarkson — VanClemens — Analyst
Proper. What are the concerns when it comes to probably spinning this division out and having a commerce individually?
Patrick Lynch — President and Chief Govt Officer
Nicely, I imply, we’re actually that chance simply because it’s prudent to take action, however I imply at this time limit NTIC is such a small — we all the time say, we aspire to be a microcap firm at this time limit NaturTec, we don’t really feel has the scale, the revenues and the profitability at this level to be standalone, actually sooner or later, that’s one thing that we’re going to be it’s going to be evaluating and as a result of it’s, it’s one thing that may very well be valued in another way because it wasn’t seen along side the remainder of the commercial and oil and fuel enterprise.
Tim Clarkson — VanClemens — Analyst
Proper. Is there a possible to get a strategic companion that will assist carry out. I imply, like like a Cargill, somebody like that, that will deliver know-how and possibly gross sales and advertising into the deal.
Patrick Lynch — President and Chief Govt Officer
It’s doable. I don’t — it’s nothing — there isn’t any exterior conversations that we’ve had anyone from that degree of partnership, however as we — as NaturTec continues to develop and the market continues to develop, actually, there’ll be loads of completely different choices on the market for the enterprise.
Tim Clarkson — VanClemens — Analyst
Now in your previous the difficulty of there being a scarcity of the important thing factor that you just’re utilizing to make these items.
Patrick Lynch — President and Chief Govt Officer
No restrictions at the moment. We’ve bought loads of uncooked materials obtainable to us.
Tim Clarkson — VanClemens — Analyst
All proper. Okay, properly nice, good quarter. And it seems like quarters developing are getting be even higher. So thanks, I’m carried out.
Patrick Lynch — President and Chief Govt Officer
Thanks, Tim.
Operator
Thanks. And I’m at the moment exhibiting no additional questions at the moment, I’d like at hand the call-back over to NTIC administration crew for closing remarks.
Patrick Lynch — President and Chief Govt Officer
I’d identical to to thank everyone for listening in at present. I hope you’ve gotten a very good week.
Operator
[Operator Closing Remarks]
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