Good day, and welcome to NTIC's Fourth Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. 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 advise that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including described in NTIC's most recent Annual Form 10-K, subsequently 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 and revise its forward-looking statements. I would now like to turn the call over to Patrick Lynch, CEO. Please go ahead.

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that a press release regarding our fourth quarter and full year fiscal 2024 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 fiscal 2024 fourth quarter and full year financial results, provide a brief business update, and then conclude with a question-and-answer session. We closed fiscal 2024 with robust sales growth in both our ZERUST Oil and Gas and Natur-Tec businesses. Furthermore, thanks to the continued successful execution of various margin improvement initiatives, NTIC was also able to achieve another year of significantly improved profitability. Our fiscal 2024 results continue to demonstrate the value we bring to our global customers, as well as our resilience amidst ongoing economic challenges. Higher sales of ZERUST Oil and Gas and Natur-Tec products, along with improved gross profits contributed to a nearly $6 million or 21.5% year-over-year increase in gross profit for fiscal 2024. This expanded gross profit allowed NTIC to offset a $2.2 million reduction in joint venture operating income, primarily resulting from a one-time gain of nearly $2 million last fiscal year tied to the liquidation of our former joint venture in China, as well as challenging market conditions, including higher energy prices and other regional economic pressures that affected sales and profitability across various European joint ventures. We are actively focused on our European joint ventures and remain cautiously optimistic that demand and profitability in Europe will begin to improve in fiscal 2025. As we enter fiscal 2025, demand within our North American ZERUST industrial market remains stable, and we believe we are well-positioned to capitalize on opportunities within our ZERUST Oil and Gas and Natur-Tec businesses. The strategic investments…

Thanks. [Technical Difficulty] periods. NTIC's consolidated net sales increased 6.5% in fiscal 2024 to an annual record and grew 12.7% in fiscal 2024 fourth quarter because of the positive trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures declined 3.6% in the fourth quarter. Joint venture operating income decreased 51.4% compared to the prior fiscal year period, primarily due to a one-time $2 million gain that was recorded during the fourth quarter of fiscal 2023 associated with the liquidation of the company's joint venture in China, as well as a decrease in net income at NTIC's joint venture in Germany, partially offset by increases in net income at other joint ventures. For fiscal 2024, sales across our global joint ventures decreased 4.7%, while joint venture operating income decreased 18.6% compared to the prior fiscal period. Total operating expenses for fiscal 2024 fourth quarter increased 2.3% to $9.5 million, and for fiscal 2024 increased 5.9% to $35.4 million. Higher operating expenses for both the fiscal 2024 fourth quarter and full year were primarily due to increased personnel costs and other inflationary increases in expenses. As a percentage of net sales, operating expenses were 40.7% for the fourth quarter compared to 44.8% for the prior fiscal year period. For fiscal 2024, operating expenses as a percentage of net sales were 41.6% compared to 41.8% for the prior fiscal year. Gross profit as a percentage of net sales was 43.8% during the three months ended August 31, 2024, compared to 36.5% during the prior fiscal year period. The 730 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures and the increased sales of higher gross margin ZERUST Oil and Gas Solutions. Gross profit as a percentage of our net sales…

Thank you. [Operator Instructions] Our first question comes from Gus Richard with Northland Capital Markets. Your line is open.

Yes, thanks for taking the question, and congratulations on the strong results. Could you add a little color to your Natur-Tec wins that you mentioned, the new wins, what sector of the market, any color there would be helpful?

Yeah. Anticipating some of the Natur-Tec questions, I asked Vineet Dalal, who is the Vice President of Natur-Tec to join the call. So he's sitting next to me here, and he'll be happy to answer questions about Natur-Tec specifically. So Vineet?

Yeah. Hi, Gus. Yeah, we've seen growth pretty much across all regions and all the market segments that we are in. We're seeing growth in Asia, in North America. We've seen growth for both finished products as well as our resins. In North America, obviously, we sell a lot of finished product and we sell it through several national distributors. These distributors have been on an [indiscernible] over the past 12 months, 18 months. We've been picking up smaller distribution -- smaller regional and local distribution houses. So we've been able to grow along with them. But we've also seen market demand for compostable products in the U.S. And then in our resin sales, we have seen increased demand for our cutlery resin, especially with more adoption of zero-waste solutions across North America. And in India, we've seen growth both in the apparel taxing space, as well as demand for food service resins. One of the largest fast-fashion brand in India has adopted our material for their packaging, and they've been growing at a pretty strong place and we've benefited from that growth.

Got it. That's super helpful. And then just shifting over to ZERUST Industrial, North America is stable, but I'm sort of wondering what trends you're seeing in Europe, particularly Germany, has that -- you feel that will be stable going forward, or is there still a bit of a headwind due to the weak macro over there?

You'll still be seeing the headwinds in Europe going forward, particularly also with the transition to EV vehicles, which is affecting Volkswagen as many other European manufacturers.

Okay. That's helpful. And then just in terms of gross margin, I mean, that was a spectacular result for the quarter. Matt, what do you think gross margins trend going forward? I know it's heavily dependent on mix, but nominally, what are you -- where do you think gross margins go next year?

I think it's -- obviously, it's going to be entirely depend on the weighted average components coming in from the different business units. We are still seeing a stabilization of the industrial gross margin that we've kind of experienced over the past 12-plus months, which has been helpful. The Natur-Tec gross margin has improved over the past 12 months and also kind of stabilized at a similar margin to where the traditional ZERUST business is, and obviously, we have a slightly more favorable gross margin coming in from the Oil and Gas business. And as that -- as those amount of dollars increase, that potentially is going to skew the weighted average gross margin of the company slightly. So all in all, it certainly was a nice bump up in gross margin for the quarter. But if you look at it on a business-by-business basis, the gross margins have been pretty consistent in each business unit for the past few quarters.

Got it. Let me try it this way. If you think about just taking mix out of the equation, structurally, how much do you think you increase gross margins out of that 500 basis points you improved year-on-year for the full year in '24, how much was that structural? And how much was that mix?

I would say, probably half and half. I mean we saw a lot of improvement in the first few quarters, and kind of -- I mean, if I'm comparing Q4 of this year to Q4 of prior year, we're certainly seeing stronger gross margins that don't have to do with mix. We're seeing stronger gross margins kind of comparing certainly the industrial business and the Natur-Tec business, but kind of comparing from what would be Q3 to Q4, they'd be pretty consistent gross margins from business line to business line.

Got it. That's super helpful. And then the last one for me, sort of what's your expectations for growth of oil and gas in '25?

I mean just looking at it, we obviously saw some significant growth in Q4, which we anticipated, and if you kind of look back to our Q2 and Q3 earnings calls, we kind of forecast that a stronger second half to the year, which certainly came to fruition with a strong $4.2 million fourth quarter. It's still going to be a very volatile business line for us just because of the size of the opportunities that come in and the timing that comes in, we're finding a little bit of seasonality to the business as well. So if I look at a year-over-year basis, we certainly expect to see significant growth going into fiscal '25 because the investments that we're making in various new regions around the world and also existing and new customers in North America and some other areas. So -- the total for the fiscal '25, I think, is going to see some very nice growth, kind of consistent with what we've put out from an expectation standpoint of 20% to 30% growth with potential opportunities for more of an acceleration. And so that's what we're kind of waiting to see. But you're not going to see a first quarter that's consistent with fourth quarter. I think you're likely going to see a first quarter that is better than prior year first quarter, but I think for the year-over-year, you're going to see some nice improvements in oil and gas. That makes sense.

Yes, that does. I will turn it over to somebody else to ask some questions. Thanks a lot.

Thank you. [Operator Instructions] Our next question comes from Joseph Vidich with Manalapan Oracle Capital Management. Your line is open.

Yes, hello, Matt and Patrick. Great quarter. I'd love to see it. I just one question actually. You've talked about, I believe, awaiting a certain certification for the Oil and Gas ZERUST technology in the U.S., and I just wondered if you can remind me what the time frame is for that. Do I have that correct or not?

Yes, I think you do. Matt, do you have the answer?

Yes. There is a -- there was an API change that came through, it looks like it's going to take effect sometime in late fiscal 2025 as far as the utilization of [VCIs] (ph) in certain preservation markets. But if I look at kind of what we're doing around the world, I don't know if that's going to be the one key change that all of a sudden dramatically accelerates the product, but we're certainly working through the API and NACE to push the acceptance of VCIs in the industry. And that certainly -- I think it has more to do with just the overall credibility of VCIs and that technology taking more of a foothold in the Preservation business.

Right, right. I mean, my assumption was that this -- it really only impacts the speed of adoption within the United States and not really -- doesn't really affect it anywhere else around the globe, would that be correct, do you think?

Would necessarily [indiscernible] because the rest of the world watches when NTIC started especially with the API guidelines.

[Multiple Speaker] So it would be a net -- it would actually be a much bigger net positive than once that is actually [indiscernible]. You guys also -- I believe last -- I'm not quite sure if this last quarter, talked about good growth in Brazil. I was just wondering if you could highlight just in general, South America, talk about what's going on down there.

Yes. Just to kind of highlight some growth that we've seen, one of the nice increases that we saw going from fiscal '23 to fiscal '24 is the -- is kind of the growth that we saw specifically in oil and gas at our ZERUST Brazil location. They had a nice increase in revenues to Petrobras. They are working with Petrobras companies, and they have some new opportunities that they're looking at not the Petrobras but some of the Petrobras suppliers to sell more oil and gas products. And so that's part of the reason why Patrick mentioned in his prepared remarks, the increase that we're doing in the infrastructure of Brazil because we see a significant opportunity in South America, specifically to go after that oil and gas market. So there are industrial sales in Brazil, and really what we've seen is that over the past four years or five years, the overall revenues that we're seeing coming out of Brazil, both from an industrial standpoint and from an oil and gas standpoint, have increased. And so we're looking to kind of capitalize on that momentum and kind of keep that going through, obviously, for the next -- the foreseeable future. Does that makes sense?

Sure. Sure. I appreciate that. That's all I have. I appreciate for taking my questions.

Yes.

Thank you. I'm showing no further questions. I'd like to turn the call back over to Patrick Lynch for any closing remarks.

I like to thank everybody for joining us in today and your interest in NTIC. Have a nice day.

Thank you for your participation. This does conclude the program. You may now disconnect.