Northern Technologies International Earnings Call Nuggets: Natur-Tec, New Products
On Wednesday, Northern Technologies International (NASDAQ:NTIC) reported its second quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with investors.
Aaron Martin – AIGH Investment Partners: Quick question on Natur-Tec, are we expecting any ramp up or in the overall revenues despite the Italian push-out or is the whole expectation of increase revenue entirely dependent upon Italy?
G. Patrick Lynch – President and CEO: No. Actually, we have a lot of opportunities pending, certainly the Italian one was the single largest. But we have several smaller opportunities that in combination – if we can get them all brought in, they should nicely ramp up our Natur-Tec sales as well.
Aaron Martin – AIGH Investment Partners: But nowhere is close to being breakeven for the year at this point?
G. Patrick Lynch – President and CEO: At this point because of the Italian delay, we don’t expect to be breakeven this year, not this fiscal year now.
Aaron Martin – AIGH Investment Partners: And then just understand that in terms of why you think those revenues are going to be pushed out all the way to second half of fiscal 2013 despite implementation at the end of this year, end of this calendar year, any understanding there?
Matthew C. Wolsfeld – CFO and Corporate Secretary: Well we expect that we’ll start to see certain ramp up sales in the second half of this year in the fall. But we won’t see the full implementation of that until the spring of next year.
Aaron Martin – AIGH Investment Partners: So even after they start implementing it still will be sort of ramp up in terms of the implementation.
Matthew C. Wolsfeld – CFO and Corporate Secretary: That’s our expectation.
Aaron Martin – AIGH Investment Partners: If I am viewing this correctly – obviously the guidance for the year has not changed, you could hit the guidance multiple ways. But it’s almost due like some of the shortfall revenue here is going to be made up by Petrobras as I understand that is slightly higher margin business than the Natur-Tec business. So we are still hitting the revenue lines, why hasn’t the, maybe think that the net income line would have gone up a little bit the revenues coming from a slightly more profitable business. Does that make sense?
Matthew C. Wolsfeld – CFO and Corporate Secretary: I understand exactly what you are saying, yes the margins and the sales of Petrobras significantly higher than the margins to in anything that we sell in Natur-Tec and other opportunities that are coming along also with the increase in the Phase 2 contract we have with Petrobras that will make up a small portion of the increase in revenue that’s lost from the sales of volume sales. So we also have other items with in our standard U.S. industrial businesses where we anticipate very strong sales coming third quarter and fourth quarter. In North America, they are not oil and gas related or Natur-Tec related.
Aaron Martin – AIGH Investment Partners: And the gross percent and the gross margin over there are lower than the Natur-Tec ones?
G. Patrick Lynch – President and CEO: No, the margins on our U.S. industrial products are higher than Natur-Tec and our margins on our oil and gas products in Brazil, the Petrobras we are talking about are also higher than Natur-Tec. All the margins of all of our product are higher than Natur-Tec.
Aaron Martin – AIGH Investment Partners: If the shortfall in revenue is being replaced with higher margin business, would it make sense that the net income would increase to some degree?
G. Patrick Lynch – President and CEO: We’ll see how it turns out. Yes or no, it depends…
Aaron Martin – AIGH Investment Partners: I’m not asking in terms of guidance, I want to make sure I’m thinking about things in the right sort of way that’s all.
Matthew C. Wolsfeld – CFO and Corporate Secretary: We are also trying to be conservative based on the potential volatility with our revenues from our joint ventures basically from Europe and until we have a clear picture of how that market is going to turn out over the next six months, we are still being fairly cautions on how we manage our expectations.
G. Patrick Lynch – President and CEO: I think we’ve said at least in the last six to eight months that we anticipated our fiscal year 2012 to be very back loaded, meaning that third and fourth quarter were always going to be the, from an earnings per share standpoint, the quarters that will have the most impacts. And so we still are certainly continuing to see that, our sales guidance is a range, a $1.5 million where we may now be at the lower side of that range compared to our previously – now we are going to be at the higher side of that range, however the net income we feel we can still fall on – falls directly in the middle of it.
Timothy Clarkson – Van Clemmens & Company: Just a couple of questions on some of the new stuff. I know at the Annual Meeting, you mentioned that you’re coming out or you came out with a new line of super-proprietary rust resistant packaging. How’s that been received so far?
G. Patrick Lynch – President and CEO: Okay, I know what you’re talking about now. Well, we’ve started initial launches of that so far. The interest is proving to be good. We still have no expectations into how high those sales might be, but it’s certainly in conjunction with our existing product line, has allowed us to acquire I think two or three new customers that could promise some significant growth. So, we don’t know by itself how much that these new products will bring to us but in combination with our existing product line, they are giving us access to opportunities.
Timothy Clarkson – Van Clemmens & Company: In terms of the traditional ZERUST area, you mentioned that you have new opportunities outside of just the oil and gas. Can you just talk a little bit about that? We get all obsessed with the oil and gas but what are some of the new applications beyond automobile applications?
G. Patrick Lynch – President and CEO: I really would prefer to keep a good secret, secret.
Timothy Clarkson – Van Clemmens & Company: Okay, that’s fine. In terms of the Indian opportunity, has that developed more in the last three to six months than you expected or was that part of our game plan and how significant is that opportunity.
G. Patrick Lynch – President and CEO: Which significant opportunity are you talking about?
Timothy Clarkson – Van Clemmens & Company: We are now talking on switching the compostable.
G. Patrick Lynch – President and CEO: Well, the Indian opportunities specifically in the laminate packaging to the best of my knowledge, actually at this point ramping up a little bit faster than we initially anticipated. So, if the switches, particularly in the food packaging area gets it transitioned and the adoption continues at this pace, it would wound up being a nice boost to our Natur-Tec resin sales.
Timothy Clarkson – Van Clemmens & Company: One last question. Any further developments outside of Petrobras in terms of the oil and gas, are there any other countries are looking like they are closer to getting business?
G. Patrick Lynch – President and CEO: Well, we’ve started to get smaller orders from a few more major oil companies, which is promising that we will expand those, but certainly nothing yet on the horizon on the scope and scale of what we have with Petrobras.