Ladies and gentlemen, thank you for standing by, and welcome to Northern Technologies International Corp.'s First Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. 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 statements. Please also be advised that actual results could differ materially from those stated or implied by the 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.

Thank you, and good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO, and Vineet Dalal, NTIC's Vice President and Director for Global Market Development of our Natur-Tec product line. Please note that the financial results for our fiscal 2021 first quarter were included in a press release issued earlier this morning, a copy of which is available at ntic.com. Let me begin by wishing everyone all the best for this 2021 New Year. I'd also like to remind everyone of our upcoming annual meeting of stockholders next week, on January 15. Please consider, however, that although the meeting will be held in person due to the COVID-19 pandemic, we are strongly encouraging all stockholders to vote by proxy in advance. The safety and well-being of our stockholders, as well as our employees is important to us, and we believe that we'll be able to better comply with CDC safety guidelines if attendance is kept to an absolute minimum and the meeting is kept as short as possible by only reporting the election results and not making any business presentation this year. Now, during this call, we will review various key aspects of our financial results, provide a brief business update, and then we'll conclude with a question-and-answer session. Our fiscal 2021 first quarter financial and operating results are encouraging. On a sequential basis, overall sales increased 27.4%, and we saw strong double-digit growth over the past three months across most of our products categories and many of our international markets. Furthermore, we experienced these higher sales despite the recent global surges in the new COVID-19 cases, as well as new lockdowns throughout several European countries. In fact, our NTIC China sales and aggregated joint venture sales for fiscal 2021 first quarter are currently above the pre-COVID-19 levels recorded during fiscal 2020 first quarter. Nevertheless, substantial uncertainty remains with respect to not only when the COVID-19 crisis will be over, but also the pace of subsequent worldwide economic recovery, as well as the impact of the annual slowdown across much of Asia caused by the Chinese New Year holidays. Consequently, our near-term outlook remains guarded. That said, I am still extremely encouraged by the direction we are headed, and NTICs compelling position within large growing and global markets. In addition, our scale, experienced management team, end-market diversification and strong balance sheet provide NTIC with the flexibility to pursue opportunities that support our long-term growth strategies. So, with this overview, let's examine the drivers for the first quarter.

Thank you, Patrick. Unfortunately, the COVID pandemic continues to have a material impact on the demand for our Natur-Tec products. Many of the large users of compostable food service products include college campuses, stadiums, arenas, restaurant, and corporate office complexes. And these institutions are expected to be some of the last businesses to reopen. Many of them have still not announced reopening plans. Furthermore, production across the apparel industry is also down sharply, further decreasing demand for our Natur-Tec bioplastic packaging, which have become an important part of that industry sustainability initiatives. As a result, fiscal 2021 first quarter Natur-Tec sales were only $2.6 million, a 45.4% decline over the prior fiscal year period.

Thank you, Vineet. So, to conclude, while our near-term outlook remains guarded as we head towards the fiscal 2021 second quarter, as well as the annual Chinese New Year holidays, recent market and sales trends are encouraging. As a result, we are cautiously optimistic we will return to year-over-year sales growth and improving profitability for fiscal 2021. I'd like to use this opportunity to express our appreciation to all our global employees and joint venture partners. On behalf of the entire leadership team, thank you for your hard work and dedication throughout this crisis. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2021 first quarter. Matt?

Thanks, Patrick. Compared to prior fiscal year period, NTIC's consolidated net sales decreased 12.7% in the fiscal 2021 first quarter and increased 27.4% from the fiscal 2020 fourth quarter because of the trends Patrick reviewed in his prepared remarks. A 5.2% increase in first quarter sales across our global joint ventures benefited joint venture operating income, which increased 19.2% for the fiscal 2021 first quarter, compared to the prior fiscal year period. We continued to proactively manage expenses, as total operating expenses were $5.9 million, and in line with operating expenses for the same period last fiscal year. Selling expenses declined 5% over the prior fiscal year period as most travel related activities have been suspended due to the COVID-19 pandemic, which partially offset a slight increase in research and development costs. NTIC reported net income of $1.3 million, or net income of $0.13 per diluted share for the fiscal 2021 first quarter compared to net income of $1.2 million, or $0.13 per share for the fiscal 2020 first quarter. As of November 30, 2020, working capital was $28.2 million, including nearly $7 million in cash and cash equivalents and $6.4 million in available for sale securities, compared to $27.1 million, including $6.4 million in cash and cash equivalents, and $5.5 million in available for sale securities as of August 31, 2020.

And our first question comes from the line of Tim Clarkson with Van Clemens.

Hi guys, great quarter. Just a few questions here. Could you give us a little bit more color on what are the dynamics that's driving the growth in China?

Just an overall – the Chinese domestic economy is doing exceptionally well. Their automotive industry is humming along, and we also expect that with the ban on certain plastic use articles that are – sales of Natur-Tec will also be increasing.

Great. Second question. I'm just looking at the real excellent research report on NTI on Seeking Alpha, and in it, I guess the thing that surprised me was the importance of – let me read the line here. Fortunately, Northern Tech, with the support of Exxon and other industry tycoons, is working with the API to certify Xerox in the future regulations. Could you just expand on that, how that will change the acceptance on the tank business?

Well – I'm sorry, you said how that .

Yeah, yeah. So, why is that important?

Well, PHMSA controls the pipelines connected to a lot of oil storage tanks. And so their regulations govern what kind of corrosion and protection methods can be used on those storage tanks. And with this change in the regulations, we expect that to significantly increase our potential market.

Sure. Okay, one last question just to Vineet, just on the compostable business, what would you summarize is what's unique and superior to the compostable products that Northern Tech makes versus most of the competition?

Yeah. I think what is unique is really our expertise and working with all the different base polymers. As you know, we are not tied to one base polymer to just PLA or PHA. We are raw material agnostic and that allows us to kind of take different base polymers and develop a unique solution that meet the performance requirements of our brand at a reasonable price point.

In general, are your products cost competitive with the competition?

Yes. And that's where we've seen kind of growth. Obviously, we are talking about better performance, easier processability at competitive pricing.

Right, right. Okay, I'm done. Great quarter, guys. Thanks.

Thank you. Your next question comes from the line of Joe Vidich with Manalapan Oracle.

Good morning, guys. Great quarter. It's really nice to see the business bounce back like this. I was wondering if you could, you know California, I don't know when they passed their recent laws, AB 1045, AB 876, AB 199, kind of all their recycling laws that they've passed. But I was just wondering if you could comment a little bit about how you – how that might impact your business and if you're at all focused on trying to take advantage of those laws?

Certainly. Yeah, those – obviously, California is – they passed some of those laws recently and we believe that it should help grow demand for our products. We were involved with influencing that legislation through some of the industry organizations that we are part of, such as the Biodegradable Products Institute, where I served on the Board of this BPI organization. So, obviously, it works to our benefit and it will increase demand in California, and we have seen similar kind of legislation. As Patrick mentioned, we have seen similar legislation coming up in China, which is driving demand for our products there. So, in general, I think this is a helpful trend for us.

Okay, great. I guess, from a bigger picture perspective, I'm making the assumption your business is going to be bouncing back pretty nicely hopefully within the next year as the pandemic sort of comes to an end. And the question comes down to capital deployment, because at some point, you're going to start to generate, I would assume fairly reasonable amount of capital. And in the past you've talked about how you don't – there is – you don't really have big CapEx requirements. So, the question is, can you – what are you going to do with that capital? How do you see it being deployed? Are you – down the road, and maybe this is a little early to talk about it, but obviously reinstating a dividend or mergers or – anyway, just your thoughts on that?

I think I can.

Go on, take it Patrick.

I was going to say, I think all options are on the table and we're considering just about everything. I would expect that we have a Board meeting next week, where we will be discussing the dividend and when to reinstate that. And as far as capital – other capital expenditures, we certainly want to do everything we can to grow the business, but traditionally we've been a little more conservative. I would say that we are certainly looking at all the opportunities to make sure that we are taking advantage of any available opportunities that are out there. And so everything from returning profits to shareholders, to investing in the future of all the different businesses are what we're doing.

Okay, that's great. I appreciate it. That's all I have.

Thank you. Your next question comes from the line of Gus Richard with Northland.

Yes, thanks for taking the question. Nice quarter, guys. In the past, I think you've been a little concerned about the ban on plastics in China due to the use of oxo-degradables. And I was just wondering, it seems like that tone has changed. Can you amplify that a little bit?

Certainly, Gus. I think that concerns still remains with any of these legislations around the world. Enforcement is a very key success of that legislation and enforcement in countries like China and India tends to be spotty. But having said that, if you look at some of the major brands, they understand that they have to comply with the requirements of this legislation. So, given some of the work and our engagements some of these brands, we expect that this will net-net increase the demand for compostable and biodegradable polymers.

Okay. And when do you expect that to start to show up in your P&L.

We have seen some increases in demand for our products in China already, and we expect to kind of start seeing the growth over the next few quarters.

Got it, got it. And then, there has been a little bit of talk recently about the use of PHA for a compostable plastic, and I was just wondering if you could compare and contrast that to PLA? Are they different applications? Do you see that as a competitor? And then finally on that topic, if you talk a little bit about the supply of PLA.

Yeah, so I think PHA is, as I mentioned earlier, PHA is one of many compostable base polymers that are out there in the market along with PLA, PBAT, PBS. And PHA has its own advantages and disadvantages. Obviously, the biggest disadvantage is its high price compared to PLA or PBAT. So, really, when we look at all these different polymers, we kind of look at what the advantages and disadvantages are, and then we use our unique chemistry to create compatible blends that will meet the requirements of specific packaging application for a brand. So, our viewpoint is having PLA come into the market – or having PHA come into the market as a additional base polymer is great. We welcome that. And it actually adds to the credibility of the bioplastics industry and increases the market even further for all of us. In terms of positioning versus PLA, obviously PLA supply is tight because of the high demand for compostable and biodegradable polymers worldwide with all these various legislations coming into force. But at the same time, even with PLA supply being tight, it still is available at a much lower price compared to PHA. So, those are some of the things that brands and converters and users will have to kind of balance as we go forward.

Got it. And then finally from me, I think you touched on it in the script, but if you could add a little more color to the impact of the recent lockdowns in Europe and sort of shuttering and shutdowns in the US on your business, both Zerust and Natur-Tec, that'd be helpful.

So, I can talk a little bit about Natur-Tec and then Patrick can talk about Zerust. So, in terms of Natur-Tec, one of the product applications that we looked at was organic diversion of zero waste initiatives that were being implemented by schools, universities, major office campuses, also on the West Coast of Silicon Valley. And with all of those institutions being closed, that definitely hurt a demand for our compostable food service there, and that was obviously – that's kind of reflected in our results over the past couple of quarters. The other impact with some of these lockdowns was because malls and retail shops were closed, demand for clothing went down and as a result, the demand for our apparel packaging was affected. With countries coming out of lockdown, and obviously we've seen a lot more growth in Asia, with India and China coming back pretty strongly. We expect that over the next few quarters we should kind of start seeing some of that demand come back.

Also with regard to Zerust, right now, Europe has been doing just fine before they entered into lockdown. The essential businesses, I'm expecting them to continue to be supplying their customers. How much that impact is going to be, or is it going to be any significant impact on our sales, remains to be seen depending on how long the lockdowns last.

Got it. Okay. And then just the – I'm sorry, the last one on new applications for Natur-Tec. You alluded to those again in the script, and I was just wondering if there was any more color you could provide?

Sure. One of the new applications that we've seen is compostable gloves and that is something that's a new product that we recently launched and we are pretty excited about market demand for that, not just here in North America, but also in Asia. And then there are several other applications that we are working on with brands, where it would be premature for me to kind of comment on that right now. Hopefully, we'll have more to the board in future calls.

Great. Great, thanks so much.

And your next question comes from the line of with – he is a Private Investor.

Hey guys, thanks for taking my question. When I look sort of internationally from a geographic standpoint, is there any part of the globe where you guys feel you are lacking a bit of a presence in Zerust?

I would say that from an industrial perspective, we are, I think pretty much everywhere around the world, we have major industrial centers with oil & gas. As we are continuing to expand internationally, there are certainly additional countries where we could build an additional presence, where we are – for example, in the former countries, arguably the countries, the former Soviet republics and other geographies like that.

Okay, that's helpful. When we think about the new PHMSA requirements coming in, does that change the...

I'm sorry, what did you say?

…potential addressable market. Sorry, the new PHMSA requirements coming in for oil & gas and the storage tanks, does that change the addressable market, or was that sort – was that...?

That significantly expands the addressable market. So far, our tank sales within the United States have been restricted to those tanks that are not connected to a PHMSA pipeline. So, with the PHMSA regulation changes and once they roll out in their entirety, which we still expect that there's going to be some follow-up from NACE and API in terms of exactly what the specifications are going to be finalized, which we expect to happen within the next – during this calendar year, then that would increase our addressable market significantly, because PHMSA really has the – controls the pipelines connecting most of the storage tanks around the country.

Okay, thank you. That's helpful. Turning to Natur-Tec, the business was growing quite nicely before COVID and you've talked a little bit about some new applications or new products. Is there any need for additional capital for that business to be, you know for it to not only rebound to pre-COVID levels, but to a larger part of the consolidated results?

We – actually I mean, we are making investments in anticipation of the market growth. We have added some new manufacturing capability in Asia. And as Matt mentioned, all options are on the table and as we continue to kind of see and execute on our plans, we will make appropriate investments to kind of fund that market growth.

Okay. And last question from me. Several years ago in the – on the income statement there used to be a line item labeled joint venture support, and it's not there anymore. I was trying to get a sense of what is the required OpEx from a quarterly basis to support the joint venture partners?

Previously we had that line, and that line was relatively small compared to the three lines, so we moved it more into general and administrative expenses. It's difficult to say with looking at our G&A line on our income statement, what portion of that is in support of joint ventures, what portion of that is related to North American operations. If you look at management, management spends a lot of time working with the joint ventures, a lot of time coordinating with them. We also handle certain, obviously the R&D – the R&D work that we do also goes and flows to the joint venture network. So, it's difficult to come in and say these specific expenses are directly allocated to the joint ventures. So, it's very difficult. As far as the direct expenses that we pay, that would be a wire transfer to some sort of a service or some sort of a company in Europe or in Asia to support the joint ventures is relatively small, and that's part of the reason why we get rid of that line item.

Okay, thank you. Is it safe to say that the amount of OpEx required has not grown over the last several years to support the joint ventures?

Yeah, it has stayed relatively stable.

Okay, all right. Thank you, guys. That's it from me.

Thank you. And I'm showing no further questions. So with that, I'll turn the call back over to President and CEO, Patrick Lynch, for any closing remarks.

I'd like to thank everyone for participating today and for your interest in NTIC. Have a great day. Thank you.

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