Good day and thank you for standing by. Welcome to the Northern Technologies Second Quarter 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As part of the discussion today, the representatives from NTIC will be making certain forward-looking statements regarding the 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 be advised that the 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 the 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 turn the call over to Mr. Patrick Lynch. Sir, you may begin.

Thank you. Good morning. I am Patrick Lynch, NTIC’s CEO and I'm here with Matt Wolsfeld, NTIC’s CFO. Please note that a press release regarding our second quarter fiscal 2022 financial results was issued earlier this morning and is available at ntic.com. During today's call, we will review various key aspects of our financial -- of our fiscal 2022 second quarter financial results, provide a brief business update and then conclude with a question-and-answer session. Strong demand across our product categories and many of our global markets contributed to strong sales results in the fiscal 2022 second quarter. In fact, total net sales increased 13.6% when excluding incremental sales as a result of our recent acquisition of ZERUST India. The robust year-over-year expansion in consolidated net sales was primarily a result of sales growth across all of the company's product categories, due to higher global demand and the recovery from the COVID-19 pandemic, as well as the contribution from ZERUST India. As anticipated, we continue to encounter significant inflation, which has increased the cost of our raw materials and labor, as well as intense friction across our global supply chain, resulting from the impact of the continuing COVID-19 pandemic. This inflation reduced the gross margin and operating profit of not only NTIC, but also our joint ventures as well throughout the first half of the fiscal year. Consequently, we have implemented certain measures and passed these costs on as soon as possible to improve our profitability. As a result of these actions, profitability improved late in the second quarter, and we anticipate very noticeable improvements in our operating profits during the second half of fiscal 2022. So with this overview, let's examine the drivers for the second quarter in our detail -- in more detail. For the second quarter ended…

Thanks, Patrick. Compared to prior fiscal year period, NTIC's consolidated net sales increased 31% in the fiscal 2022 second quarter to a second quarter record. This growth was driven by the positive trends Patrick reviewed in his prepared remarks and the incremental sales from ZERUST India. Second quarter joint venture operating income declined 35.6% compared to the prior fiscal year period. This decrease was primarily attributable to the acquisition of the remaining 50% of ZERUST India and lower profitability at the company's joint ventures. Total second quarter fiscal 2022 operating expenses were $6.7 million. The 14.4% increase over the prior fiscal year period was due primarily to incremental expenses due to ZERUST India acquisition and increased selling expenses associated with the higher consolidated sales, as well as higher wages, travel expenses and R&D investments. Operating expenses as a percentage of net sales were 40.1% compared to 45.9% for the same period last fiscal year. As illustrated in our second quarter results, the ZERUST India transaction increased our net sales and operating expenses, since it is now consolidated with our financial results, and decreased our equity and income from joint ventures in each case, as compared to the same period last fiscal year. The acquisition will continue to have these effects on our financial results for the remainder of fiscal 2022. Gross profit as a percentage of net sales was 29.8% during the three months ended February 28, 2022, compared to 33.3% during the same period last fiscal year, primarily as a result of the increased prices and raw materials and increased labor costs. As Patrick stated, we are pursuing certain actions to address inflationary pressures. While we expect gross margins to improve throughout the second half of fiscal 2022, we believe inflationary pressures may persist during the remainder of the…

And our first question comes from Tim Clarkson of Van Clemens. Your line is open.

Hi, guys. I guess the results are kind of what we expected them to be. As far as increasing the prices to improve profitability, have you had resistance from your clients so far, are the prices sticking?

The prices are sticking. I mean, so far, the results have been fairly good. It has taken us a little bit longer than we anticipated, but it's not very difficult to go to your customers and say, listen, raw material prices, which are well known throughout the world have risen by a significant amount. It's time that we have to -- we can't keep the prices as they were in the past. We have to increase them. And they've agreed. So it's been going. It's just hasn't gone quite as quickly as we had hoped it would be.

Right. Now on the oil and gas segment, I mean potentially how big could that market turn into? Is this a market that's kind of maxing out or are you still doing 3% of the potential?

We're still doing about 3% of the potential and it is that. As we've said in the past, we believe that the oil and gas market has the potential to be bigger than what we're doing in the ZERUST Industrial side.

Right. Now, I know when you're selling these products, you're claiming that the tanks last 30 years versus 10 years, something like that. I mean, is that what it actually is occurring in the field?

We do inserts, installed probes in our installations to monitor the rate of corrosion. And so far, we've seen that our installations are working as we thought they would. So they are doing very well.

Right. So that's a tremendous return on investment for the end user if the tanks extend their life threefold, right?

That's exactly right.

Yep. Okay, on the compostable end, again I always ask this question, but I'll ask again, what would you say is, when you're going, I mean, who's your typical customer? I noticed that Costco is using, I think some sort of form of compostable packaging, so I'm guessing that not who would be your typical customer. Who would be your typical customer with the compostable products?

In the United States our typical compostable customers include universities, schools, office parks, stadiums, sports arenas, those kinds of large establishments that have well developed food waste diversion programs, so that the -- our products don't wind up in a landfill, but wind up in a managed composting site.

Okay, so what would…

With that…

Yes?

Go ahead.

What's the differentiator when you're competing against other people I assume have similar products, why does -- why are they picking Natur-Tec?

Because through our patented technology we can produce our products to have greater -- higher mechanical strength at a lower cost than our competitors alternatives.

All right, well, price and quality is always the two best things. Then last question is a question for Matt. I just noticed on the balance sheet there suddenly about $10 million of between goodwill and intangible assets. How is that going to affect the earnings on a forward basis?

That's obviously the goodwill intangible assets that showed up in the first quarter, obviously will be there for some time. At this point in time, you'll see in the Q that I will put out tomorrow, we have a -- we're going to have an ongoing about $100,000 amortization expense associated with the transaction of acquiring the 50% ZERUST India, about $100,000 U.S. dollars of amortization expense per quarter going forward for 15 years.

Okay. Now, another question, if you added back the India joint venture back into the old joint ventures structure, I mean, what would have added impact, I see that the total joint ventures were down 15%. What would have been the, if you added it back, what would have been the total joint ventures down if you had added India back?

It would have been, I'm looking at it, India and second quarter had about $2.2 million in sales and had about $4.7 million in revenue for the full fiscal. So if I'm looking at that 4.7 million, total worldwide sales at the JV is through second quarter was about $51 million. So, India represented about 8% to 9% of the sales. So the total joint ventures say six months would have been down probably 4% to 5% from a revenue standpoint.

Right. Okay, well good, I think I'm done. I'm -- we knew that earnings would be down, but it looks like earnings will be up for the balance of the year. So thanks. I'm done, thank you.

Thanks Tim.

Thanks Tim.

Our next question comes from Gus Richard of Northland. Your line is open.

Yes, thanks for taking the question. Hey, real quick on PLA. You talked about supply disruptions. Can you add a little more color? Is that lack of raw materials? Is it somebody's facility went down in capacity?

It's like a manufacturer has at this point, there are several manufacturing sites being put on line at this point, but due to various delays, they haven't been able to start manufacturing at some of these PLA plants. So the global supply of PLA is shorter than the current market demand.

Okay, so you're currently on allocation?

Yes, I mean, we've got a higher allocation than most based on our past history with PLA, but it's still not as high as we would like it to be. So that's -- so we are turning away certain opportunities at this time simply because we don't have the capacity to take these orders.

Got it. And then when do you think the supply will be disrupt -- when will incremental supply come on so you can service more customers is it couple of quarters, a year?

We're thinking a couple of quarters, two or three quarters.

Okay. And you can sustain at this level?

Yes.

Got it, thank you. And then turning to China, clearly the lockdowns in Shanghai have been accelerating. A lot of the economy is shut down. How has that changed your China business over the last 30 days?

How long? How long? How much has it changed? What please?

Your China business, all the lockdowns has it slowed down, accelerated or just been constant?

The business has been slowing down because just with lockdowns overall demand in China has been reduced. I mean, for right now either people are required by -- in Shanghai to either work and live at the office or they can get to their offices. So nobody's visiting customers, which is slowing down various transactions and also nobody is shopping with the lockdowns which is reducing demand ultimately.

Got it, got it. And has that accelerated over the last 30 days or were just been a slow drift?

Matt actually needs to answer this.

No, I can answer that from a revenue standpoint. I can say that our March revenue, with what we sold in March was down about 30% compared to expectations that we had in January. So February numbers are always difficult in China specifically because of Chinese New Year. And then basically our -- the location that our office is in, in Shanghai was shut down where everybody was essentially sent home for a portion of March. There is going to be some makeup revenue coming in, in April to make up for some of that revenue shortfall in March. But what we're seeing is that there is still an awful lot of shutdowns that are occurring across China. And so that's really impacting not just demand for our product, but all products out there and products that our products go into. So our feeling is that looking forward for the next six months in China, we expect things at some point in time to kind of get back on track. Again, that's kind of one of the wildcards that we're dealing with. At present through second quarter, we are down roughly 8% to 10% in China compared to prior years. And obviously, with the kind of growth and the size of the market we have in China, that's typically an area where we expect 20% plus year-over-year growth. So we feel like at some point in time, China is going to open back up and revenues will ramp up quickly, but at this point in time, there are just so many sporadic lockdowns that are occurring there that it's difficult to predict.

Got it? No, I completely understand. I just wanted to get an idea of the color and I'm really sorry that the world has thrown so many jokers in the deck. And shifting to Europe…

I understand the comment.

Yes, yes, I know it is a tough environment. And then shifting to Europe, what I'm seeing is a contraction in supply of metal and hike in prices and I suspect the German automakers are going to have some issues going forward. And in the sort of the same set of questions, sort of what on the margin have you been seeing in the month of March and early April in terms of your the JV customers in Europe?

What about the market. For example, we just had record sales reported from Poland, and that's despite the refugee crisis they are facing. So it's on country by country basis. Yes, Germany particularly being the engine of manufacturing in Europe is a bit worried at this point what the future holds, particularly in raw material price increases, but we'll see.

Okay, got it. And, okay, I appreciate it. That's it from me. Thank you so much.

Thanks, Gus.

And I am not showing any further questions at this time. I would now like to turn the conference back to Patrick Lynch for closing remarks.

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

This concludes today's conference. Thank you for participating. You may now disconnect.