Good day ladies and gentlemen and welcome to Northern Technologies International Corporation’s First Quarter 2019 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. If anyone should require assistance during the conference, you may press star then zero on your touchtone phone. As a reminder, this conference is being recorded. As part of the discussion today, the representatives from NTIC will make forward-looking statements regarding NTIC’s future financial and operating results as well as their business plans, objectives and expectations. Please be advised 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 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. I would now like to introduce to your host, Patrick Lynch, Chief Executive Officer. Please begin, sir.

Good morning. I’m Patrick Lynch, NTIC’s CEO, and I’m here with Matt Wolsfeld, NTIC’s CFO. Please note that the financial results for our fiscal 2019 first quarter were included in a press release issued earlier this morning, a copy of which is available at NTIC.com. During this call, we will review various key aspects of our fiscal 2019 first quarter financial results, give a brief business update, comment on our net sales and earnings guidance for fiscal 2019, and then conclude with a question and answer session. Fiscal 2019 is off to a record start as our growth initiatives in Natur-Tec and Zerust oil and gas continued during the first quarter to favorably drive sales and earnings. Meanwhile, although many of our joint venture partners around the world experienced record first quarter sales, North American Zerust industrial as well as NTIC China sales were softer than anticipated due to ongoing concerns regarding the trade dispute between the U.S. and China. Nevertheless, we remain encouraged by the strong start to the year and are cautiously optimistic that fiscal 2019 will be another good year for the company. With these highlights, let’s examine the drivers for the first quarter. For the first quarter ended November 30, 2018, total consolidated net sales increased 22.1% to a quarterly record of $14.1 million as compared to the three months ended November 30, 2017. Broken down by business units, this includes a 100% increase in Natur-Tec sales and nearly a 250% increase in oil and gas net sales, partially offset by a 1.6 decline in Zerust industrial net sales and a 4.8 decline in net sales from NTIC to its Zerust joint ventures. Total sales by our joint ventures, which we do not consolidate in our financial statements, grew to $30.5 million for the fiscal 2019…

Thanks Patrick. NTIC’s net sales increased 22.1% in the fiscal 2019 first quarter as a result of the trends Patrick reviewed in his prepared remarks. Higher sales and profitability across many of our joint ventures continue to drive compelling growth in joint venture operating income. Income from joint venture operations increased 5.7% for the fiscal 2019 first quarter compared to the corresponding period last year. Our total operating expenses increased 10% to $6.2 million during fiscal 2019 first quarter. This increase was primarily a result of additional personnel, an increase in general administrative and research and development expenses, as well as expenses associated with NTIC’s annual financial audit primarily due to our requirement this year for an auditor attestation of our internal control over financial reporting. Net income attributable to NTIC was $1.5 million or $0.32 per diluted share for the fiscal 2019 first quarter compared to net income attributable to NTIC of $1.1 million or $0.24 per diluted share for the fiscal 2018 first quarter. As of November 30, 2018, working capital was $24.2 million including $4.5 million in cash and cash equivalents and $1.7 million in available for sale securities, compared to $22.8 million including $4.2 million in cash and cash equivalents and $3.3 million in available for sale securities as of August 31, 2018. NTIC’s business model does not require significant additional capital and we expect our financial model will continue to produce strong operating cash flows. As we have experienced in prior years, our cash balance is typically at its lowest level in November. We expect our cash balance will increase as the year progresses as a result of seasonal benefits we typically experience in earnings from operating activities and anticipated continued business growth and improved overall profitability. On November 30, 2018, the company had $23.1…

[Operator instructions] Our first question comes from Greg Weaver from Invicta. Your line is open.

Good morning gentlemen.

Hey Greg.

Quick question on the oil and gas outlook. Patrick, you mentioned it’s choppy but you usually say that because that’s just general business; but nice sales again this quarter, and you mentioned about the tank bottom recurring. Any additional color there in terms of getting more sustainable traction?

On the whole, things are looking pretty good, not necessarily in the second quarter but certainly in the third and fourth quarter as projects are [indiscernible].

Okay. How about in terms of the gross margin outlook, what should we think about there? It was down a little bit sequentially, but I assume some of that is oil and gas mix.

Yes, it’s just kind of--it’s going to fluctuate a little bit with all the different--you know, the weighted average from all the different business units having some pretty different gross margins tends to lead to a little bit of volatility in the overall gross margin, but we haven’t seen any of the businesses experience any significant declines in gross margin or changes in gross margin. It usually just has to do with the product mix.

And input costs--I mean, was oil down? I don’t know how much that’s influencing things.

So far it hasn’t really impacted us yet. We’ll just have to see how that goes.

Okay. Your inventories were up quite a bit sequentially. Any color there?

Nothing significant, other than there’s a little bit of volatility in the overall commodity price and things like that. We’ve increased inventory a little bit just to deal with some demand, but nothing specific as far as inventory goes. A lot of it probably is more of just timing as far as inventory that we had, specifically at the end of November.

Okay. Yes, I was just looking at the cash numbers and trying to figure what it was. Last question is on the tax rate. What should we expect there for fiscal ’19?

I think somewhere between probably 10% and 13% for an effective tax rate.

For the full year?

Yes.

Okay, appreciate that, Matt. Thanks guys.

No problem.

Thank you. Our next question comes from Tim Clarkson of Van Clemens & Company. Your line is open.

Hi Matt, hi Patrick. Another great quarter, so. Just wanted to focus a little bit on this compostable part of your business. That’s part of your business that I think is the least understood. The first piece of it is how much of the demand is coming from some of the new initiatives in California and how much of it is just overall acceptance of compostable products?

We would say it’s a combination of the two.

How much of this is business going to fast food places?

Not so much. It’s mostly going to the larger institutional cafeteria services.

How about in terms of China? That’s a new market for you guys. What’s the typical application in China?

I honestly don’t know.

How about--

Actually, I take that back. It’s to the garment industry in China.

Okay, sure. How about in terms of the initiative on the straws? Are we any closer to manufacturing and shipping straws in the United States?

Well, as I’ve mentioned in the past, we are not going to be manufacturing straws at all and not selling straws, but we are already selling resin compounds to straw manufacturers, so there are certain straws on the market already with our product in it.

Okay, and being sold in the United States?

I believe so.

Okay, all right. Otherwise, I was impressed with the fact that despite the softness in China, you’re still able to show some growth there.

Well, that’s also partially due to the Natur-Tec sales in China. That’s a nice new avenue of revenue for us in that market.

Right, okay. I’m done, thanks.

Thanks Tim.

Thank you. Again ladies and gentlemen, to ask a question, that’s star, one. Our next question comes from Charlie Pine of Van Clemens & Company. Your line is open.

Hi, good morning everyone.

Morning.

Just wanted to ask quickly, and a little bit was addressed by a prior caller in the oil and gas, Zerust oil and gas space. With the big drop in crude prices over the last few months, have you seen any of your end use customers for tank bottoms pull in their order streams currently and they’re delaying maintenance, or has that not been an issue as of yet?

No, we’re seeing everything going on schedule as before.

Okay, great. That’s encouraging to hear. That was all I wanted to ask. Thanks a lot.

Thanks Charlie.

Thank you. Our next question comes from Joe Zicherman of Stadium Capital. Your line is open.

Hi, great quarter. A quick question. Any thoughts on splitting the stock, making your trading somewhat more efficient?

Yes, it’s something that the Board is considering. You noticed in the proxy that’s out there right now in preparation for the annual meeting in January that we are looking to increase the authorized number of shares, which would allow the company flexibility and the ability to then make a determination if we want to move forward and do something like splitting the stock. It’s certainly something that we’re considering.

That’s great. Great quarter, thank you very much.

Thanks.

Thank you. Our next question comes from Jerry Weld [ph], a private investor. Your line is open, sir.

Morning, guys. Just had a question relating to what you’re seeing, if anything, in the automotive-related world that you serve as far as slowness or so forth, not only in the U.S. but with your partners.

Well, I can say that certainly Germany, for example, is doing very well despite everything else going on in the world markets. What we’re seeing here in the United States and in China is that sales are slightly slower than what we would anticipate under normal circumstances, so the various manufacturers are being cautious in their purchasing requirements, but nothing really dramatic, just a slight--a very slight downturn, and we’re probably expecting that as soon as any kind of trade issues get resolved, that can pick up for the rest of the year and will probably wind up being even or slightly above what we were last year.

Okay, thank you. Then relating to China, do you see much pushback, if you will, the fact that you’re a U.S. company based in China - you know, political pushback in addition to any other economic factors over there?

Fortunately so far, that has not seemed to be an issue.

Okay, and then feedback from the big project you did up in Canada on the pipeline? Have you got any feedback or any other potential bids relating to that particular site of work?

The project went well and we now have got a good case study as we’re approaching other customers with that solution.

Okay, thanks guys. Congratulations. I’m done.

Thanks.

Thanks Jerry.

Thank you. At this time, I have no other questions in the queue. I’d like to turn the call back over to Mr. 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.

Ladies and gentlemen, thank you for your participation in today’s conference. You may disconnect. Have a wonderful day.