Northern Technologies International Corp (NTIC) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Northern Technologies International Corporation second-quarter 2016 earnings conference call and webcast. (Operator Instructions) As a reminder, this conference call is being recorded.

As part of the discussion today, the representatives from NTIC will be making 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 the NTIC desires to avail itself from the protections of the Safe Harbor for these statements.

Please also be advised that the actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks, uncertainties, including those described by 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 hand the call over to Patrick Lynch, Chief Executive Officer at NTIC. You may begin.

Good morning. I'm Patrick Lynch, NTIC's Chief Executive Officer, and I'm here with Matt Wolsfeld, NTIC's Chief Financial Officer. Please note that our financial results for the second quarter of fiscal 2016 were included in the press release issued earlier this morning, a copy of which is now available at ntic.com.

During this call, we will review various key aspects of our fiscal 2016 second-quarter financial results, give a brief business update, comment on our net sales and earnings guidance for the full fiscal year, and then conclude with a question-and-answer session.

We experienced net sales growth of 14.5% for the fiscal 2016 second quarter driven by strong sales in North America, as well as record quarterly sales for Natur-Tec. The impact of this favorable demand in North America for ZERUST industrial products, as well as global demand for Natur-Tec products, more than offset the impact of slightly lower sales through our joint venture network. Total JV sales were $19.4 million for the fiscal 2016 second quarter compared to $23.1 million for the same period last fiscal year.

JV sales were negatively impacted by $1.2 million, in part as a result of a stronger US dollar in comparison to a number of key currencies including the euro. Additionally, we believe that JV sales were also affected by weaker trends in the overall economy, specifically in Europe. We are closely monitoring our European markets and proactively working with our European joint ventures to improve performance in the face of a more challenging economy in this region.

After a sluggish first quarter, sales of ZERUST products in North America rebounded in the second quarter. We experienced improvements among some of our largest customers, including customers in the automotive industry. Sales of new liquid and powder-based corrosion preventative products enhanced our penetration at existing customers while also increasing our ability to acquire new customers. Sales at our wholly-owned NTIC China subsidiary have shown sequential improvements in each quarter since starting operations in January 2015. Despite this growth, it is taking us longer than originally expected to reach certain milestones in China as a result of competition and a cooling of the Chinese economy. We have a very strong team in place that is working its way through these issues. The market potential in China is immense, so we believe NTIC China will become a major contributor to NTIC's long-term growth and profitability.

NTIC China sales and corresponding gross profits have helped offset some operating expenses related to our Chinese operations. Nevertheless, year to date, we have incurred a $1.4 million negative impact related to the termination of our JV license agreement with Tianjin Zerust and the formation and operation of NTIC China. We anticipate that NTIC China will rise to profitability during the remainder of fiscal 2016. We also believe that our future variable expenses related to China will be primarily dependent on the cost of our ongoing related litigation in both the United States and China.

There has been no significant progress in the process we are going through to liquidate our former joint venture in China. While we are experiencing higher expenses as a result of these legal pursuits, we believe it is imperative to proactively defend our intellectual property around the world.

It is important to note that during the first six months of fiscal 2016, NTIC did not record any royalty or equity income from Tianjin Zerust. The net impact to NTIC after subtracting out the minority income was $376,000, and Tianjin Zerust contributed over $626,000 of royalties and equity income to NTIC during the first half of fiscal 2015, prior to the termination of a license agreement compared to no royalties or equity income to NTIC during the first half of fiscal 2016.

The pretax impact on NTIC's earnings for the second quarter and first half of fiscal 2016 of both the direct expenses associated with China and the absence of the royalty and equity income amounted to $556,000 or $0.12 per share and $1.4 million or $0.31 per share respectively. This obviously caused a very significant impact to NTIC's earnings for the second quarter and first half of fiscal 2016. All said, NTIC lost $0.08 per share during the first half of fiscal 2016 compared to earnings of $0.19 per share -- per diluted share during the first half of 2015.

Regarding our oil and gas business, during the second quarter of fiscal 2016, our North American oil and gas team continued to focus its sale efforts primarily on protecting the bottom plates of oil storage tanks in North America from corrosion. As we stated in our first-quarter call, customers have revised their infrastructure expansion and maintenance budgets to address the dramatic fluctuations in global oil prices we've seen over the last 12 months. As a result, our oil and gas net sales were flat in the fiscal 2016 second quarter and down 18.3% for the first half of fiscal 2016 compared to the same periods last fiscal year.

Despite such a challenging industry backdrop however, our oil and gas team continues to receive orders. We remain optimistic that net sales for fiscal 2016 will be higher than they were in fiscal 2015 as we believe the number of scheduled installations will significantly increase during the third and fourth quarters of fiscal 2016. As we already stated in our press release this morning, we had our best month for oil and gas ever in March as we sold $300,000 of tank bottom corrosion prevention solutions to oil and gas customers on several continents. Our technology and brand are becoming well known in the industry, and we are excited about the long-term potential of this marketplace regardless of the current oil price.

Nevertheless, we continue to anticipate our financial results from our sales of ZERUST corrosion-inhibiting products into the oil and gas industry will not be immediate and may be choppy with spikes in sales as opportunities are converted and revenue is recognized over the next few years.

Now turning to our Natur-Tec bioplastics business, net sales of Natur-Tec products increased 39.7% during the second quarter of fiscal 2016 compared to the same prior fiscal year quarter to a record of $1.3 million. This increase was due to higher sales of finished products to NTIC's majority-owned subsidiary in India, as well as increased sales in North America through our domestic distribution network. We continue to see strong demand for finished products such as compostable bags and cutlery in North America as a direct result of increases in zero waste initiatives, as well as favorable local and state level waste management regulations.

We anticipate further adoption of our product lines by key customers in India and also several new customers coming online in North America in fiscal 2016. We expect both regions to continue to be strong growth areas, and we intend to continue to target and convert additional manufacturers through the use of Natur-Tec sustainable packaging solutions in Asia and worldwide.

I will now turn the call over to Matt Wolsfeld to summarize in more detail our financial results for the second quarter of fiscal 2016.

Thanks, Patrick. Net sales of NTIC's ZERUST product increased 10.4% across our industrial market and oil and gas market segment during the second quarter of fiscal 2016 compared to the same period in fiscal 2015. This increase was due to higher demand in North America by existing customers and improved sales at NTIC China.

Net sales of ZERUST oil and gas solutions were flat in the second quarter of fiscal 2016 and up 11% from our fiscal 2016 first quarter. Oil and gas net sales were $377,000 through the second quarter of fiscal 2016 compared to $376,000 in the three months ended February 28, 2015.

When evaluating this result, it's important to remember that current global oil prices, coupled with the local turmoil and a deep recession in Brazil, as well as the management restructuring in Brazil's state-owned oil company, Petrobras, resulted in NTIC recognizing only $116,000 in ZERUST oil and gas solutions sales in Brazil during the second quarter of fiscal 2016 and only $118,000 during the fiscal year to date. The majority of oil and gas sales during the current fiscal year quarter and expected sales for the rest of the current fiscal year are anticipated to be for our tank bottom products.

Net sales of ZERUST corrosion inhibiting products to our joint ventures increased over 7% during the second quarter of fiscal 2016 compared to the same quarter in fiscal 2015.

Income provided by our joint venture operation decreased 28% to $1.9 million during the second quarter of fiscal 2016 compared to the nearly $2.5 million in the prior fiscal year quarter. This decline was mostly attributable to the decrease in equity income from joint ventures that resulted from a general weakness of the economy, as well as to a lesser extent the weakening of various foreign currencies, including the euro compared to the US dollar. We estimate that the pretax impact of the foreign currency exchange rate shift of the euro and other currencies compared to the US dollar on our joint venture operating income was approximately $85,000 or $0.02 per share in the second quarter of fiscal 2016.

Lastly, net sales of the Natur-Tec products increased 39.7% to $1.3 million during the second quarter of fiscal 2016 compared to the same quarter in fiscal 2015. Our total operating expenses were $4.4 million in the fiscal 2016 second quarter, down approximately 7% sequentially and flat compared to the second quarter of fiscal 2015, primarily due to flat selling expenses and general administrative expenses and lower expenses incurred in support of joint ventures, partially offset by higher R&D expense.

Overall, NTIC showed a net loss attributable to NTIC of $108,000 or a loss of $0.02 per share for the second quarter of fiscal 2016 compared to a net loss attributable to NTIC of $342,000 or a loss of $0.03 per share during the second quarter of fiscal 2015.

As of February 29, 2016, our working capital was $17.5 million, including $2.5 million in cash and cash equivalents and $2.7 million in available for sale security compared to $15.6 million, including $2.6 million in cash and cash equivalents and $2 million in available for sale securities as of August 31, 2015.

Now turning to NTIC's annual guidance. We are reaffirming our annual guidance for fiscal year ending August 31, 2016 and expect net sales to range between $34 million and $37 million and net income of between $2 million and $3.2 million or between $0.40 and $0.70 per diluted share. The large range of this guidance is due to significant risks and uncertainties facing our business, including without limitation, risks and uncertainties related to the change of our China operations, pending litigation, and other risks and uncertainties.

With that update, I will now answer any questions you may have.

(Operator Instructions) Tim Clarkson, Van Clemens.

Just a couple questions here. One a detail question, one more of a big picture question.

On the detail question, it says here that you had $2 million of cash that was provided by operating activities for the three months. Could you just explain how that occurred even though you guys lost money during the quarter -- during the first six months?

Yes. That occurs because of the dividends that are coming in from the joint ventures. Regardless of the profitability or net income, we still receive a significant amount of dividends from Germany and from other joint ventures that float through our operating income -- the operating section of our cash flow.

Okay. Obviously the balance sheet is not an issue at this point. On a bigger picture, now that the tank business seems like it's getting a little bit of power through here, do we have any sense of what percentage of the market you guys have penetrated so far? I know you've got one competitor in that business. I mean have you guys done less than 1% of the tanks? I mean what's the size of the opportunity out there?

I would say that we have not even managed to get to 1% market penetration, not even close.

Okay, okay. And so far, what's the response? How many customers are you guys working with now? 15 customers that you would say that are established customers or --

I would say that 15 is probably a good number. What's interesting to us is certainly -- and if you look at the number of tanks we did this year so far, probably 60% of the number of tanks was done through our primary distribution partner in North America. So we were certainly getting a lot of work, so they are aggressively helping us market in North America, and internationally our business is growing as well. We did a couple of events just in the last month in India, which are doing quite well for us.

And what's the scuttlebutt? Is there kind of a better realization that this technology is real, and it's working or -- is there are starting to get an acceptance that this should be the way things should go?

It's getting a lot of attention by the various tank farm operators, and while they are still somewhat cautious in certain respects, they are certainly taking a very hard look at broadening the debt implementation on a much wider scale in the next few years -- over the next few years, sorry.

Okay. One last question. With the increases on the compostable side, are we getting close to an operational breakeven on that now?

Yes, we definitely are very close.

And there is no expectation that's going to slow down?

No. Certainly everything right now with Natur-Tec, even with some of the opportunities we are looking at over the next six months specifically, I don't see any reason why it wouldn't be operating at a -- we are basically at a breakeven point right now, what we're doing on a monthly basis, and we would expect to see it actually generating profit in the fourth quarter.

Okay. And one last question. Is there -- what would you say is the price quality advantage you have on that product versus -- I know there's other competitive products out there?

Could you be a little bit more specific in your question?

Well, why are people buying your product versus some of the other starch-based products or other compostables? What is your -- why would someone want to use your product versus somebody else's? Is it cheaper or is it better or is it -- what are the advantages?

That's a very broad question. On the one hand, when you say like starch-based products, generally starch-based products have a bio-based component to them, but they are not biodegradable or compostable. So they are -- they have a bio component, but they are not entering the same waste stream as our products can. So the disposal issue it is one aspect that we can do that those kind of products can. For those products that are -- that claim to be compostable such as ours, we generally believe that we have a stronger mechanical strength to our products and easier processability so we can make better products more cheaply than our competitors can.

One last question. I apologize for hogging the deal, but one of my clients is convinced that this should be sold off to a bigger company that could really market it. Has that ever been in consideration?

We are not averse to considering any offer in that respect, but so far, quite frankly, nobody has come calling, and basically before we reached a certain level of profitability, there's no sense really in considering those kinds of overtures.

Right. You want to create something where you can get an attractive price for.

Exactly.

Right. Okay. I'm done. Thanks.

[Jerry Will], private investor.

Just a little bit more on China. Do you have any -- and I know it's -- dealing with the legal system there plus US, do you have any key dates, court dates or anything in the US or China? That's one question relating to China on the legal side.

And the second part is sounds like from an operational -- forget about the legal costs and all that -- operationally, you are a ways off than on a breakeven in China, so that's the second question related to that.

Well, let me address the first question. In the United States, I would say we've been told that discovery in the US case will not be concluded until August of this year. That puts you in any perspective of the timeline.

Regarding China, I would have to say I have very little transparency into their legal process. It goes for a while and then we hear something, and then we provide some more information, and then it goes a while and we hear again, but quite frankly, I have no feeling whatsoever in terms of how close we are to any specific resolution at this point.

And as far as the other question --

As far as the breakeven point in China, you said you don't feel like we're close to breakeven there. I would disagree with that.

Looking at the monthly sales, looking at the monthly expenses and looking at where we are, I can comfortably say that based on the projections that we have for third and fourth quarter, with where they are coming out from a sales standpoint and expense standpoint that they would be at a breakeven or better level within the next two months. So I think you are going to see a continued increase in sales in China during the third and fourth quarter.

Okay. Thank you. Then your attorneys are advising you -- relating to China to continue to press on with them. I mean obviously you have hired some attorneys of experience, whatever that is in Chinese law. So at this point, it is still worth your money to keep pursuing it if you will and not taking impairment and etc. So just give me your thoughts on that and I'm done.

Well, our legal expenses in China are substantially lower than our legal expenses in the United States, and certainly one of the key aspects that we are suing for in China is the liquidation of our previous joint venture company. We can't just leave that sitting out there, especially when we want half of it. So something has to be done about it. And certainly it's my understanding that in terms of timelines that, one way or another, that liquidation will start within the next 12 months.

Okay. Thanks, guys.

Charlie Pine, Van Clemens and Company.

Actually, most of my questions have been answered, so but I just would like to re-circle back on a question regarding the legal process and costs in China. You just stated a moment ago that you are spending less in China in legal expenses than you are in -- excuse me, you are spending less in China than you are in the United States. Over the course of the next six to 12 months, the sort of guidance that you are seeing from your legal team, how do you think those expenses are going to track?

It all depends on what stage of the lawsuit we are in, Charlie. I mean there are certain months where we get exceptionally large legal bills, and then the next month, it will be very minimal. It all depends on the process.

Let me color it this way. Generally speaking some of the larger legal expenses are associated with discovery, so certainly our expenses in the US until August I would expect to be reasonably high. They do not have a similar discovery process in China, so we won't see a similar trending expense over there at all. So China will be essentially the same or less going forward, while in the US I'm expecting it to be about the same, maybe slightly higher until August is over.

Okay. Let me see if I can just break it down a little bit more. So, on the $1.4 million hit that you had in the first half of the year due to China, how much of it was due to the -- legal expenses and that aspect of it, and how much would have been just startup costs and ongoing operational issues because you're just not profitable with your new venture?

I would say the legal expenses associated with the $1.4 million equate to probably $250,000 to $300,000.

Okay. All right. I will get back in queue. I might have another question, but thanks a lot.

Dick Feldman, Axiom Capital.

Getting back to China, you've talked about how revenues are rising. I wonder if you could give us a breakdown between how much of that increase is -- was customers you never dealt with at the joint venture and old joint venture customers.

I don't have that breakdown immediately in front of me. I would say that certainly the majority so far. Let's just for right now say that at least 80% of the business right now is from the old joint venture and that 20% is new business.

Generally speaking in our industry, conversion of a customer into a fairly long sales cycle, so it takes about six months from approach. So, as we've been building our distribution network in China, by the time you train the salespeople who then in turn train the distributors who then in turn visit the customers and then wind up with trials and implementations, you will start to see a shift going more to new customers probably within the next 12 to 18 months. But at least for the first year or so, the majority will be prior customers of a JV that we are assuming.

The gross margins in China, in order to obtain business as a startup company, in quotes, have you had to give price concessions?

Yes. And also, there is a shift in the business model where our prior JV was doing sales mostly direct, and we are working now primarily through distribution. So we have certainly needed to give up some of the margin to allow the distributor to make some money.

So for purposes of guidance, as Chinese sales rise, what type of gross margin should we think of?

At this point, I don't know that I can give you an exact amount. Because right now it's fluctuating -- for us, it's fluctuating significantly, and it's almost on a customer by customer bases. So I think we need to get a -- it's going to be pretty dependent on what happens in the third and fourth quarter as far as the sales increases go. Then I think I would have a better answer for you in a few months. I would say it's certainly not going to be at the same -- as we said, it's certainly not going to be at the same range of where we were or where the former joint venture partner was. But I would expect it to be close or a little bit lower than what we see in -- for the ZERUST business in North America. But I would have a better answer for you in a few months.

So what you're saying is margin should be healthy but not as good as they were in the past in both China and North American ZERUST.

Correct.

While we are on margins, as Natur-Tec ramps up, obviously you are getting to cover your fixed cost. Has there been any change in the gross margin percentage increases in volume?

Yes, there has. The -- we are seeing slightly better margins with Natur-Tec than we have in the past, specifically as volumes go up, specifically as we are buying larger amounts of the raw materials, and also as we are, let's say, developing better relationships with the key suppliers, and we start working with them more on specific deals, you will remember the -- you remember the agreement we put in place and how we started working with NatureWorks. That has worked very well from us from the standpoint of getting a slight discount on the base raw material that we use in the majority of our products, and also it has helped us get into various new opportunities to develop new customer relationships that Natur-Tec has really instigated. So it helps from both sides. But yes, the margins are getting -- they are not going up to the ZERUST level of margins, but they are getting better than what they were a year or two ago.

Are we talking a couple of points of gross margins?

I want to say in the past we were at 22%, 23%, and now we're getting up into the 25%, 26%.

Okay.

Thank you. (Multiple speakers)

Okay. That does it for my questions.

(Operator Instructions) Jerry Will, private investor.

A follow-up call on the tank business. Two questions. One is, how seasonal are you seeing that business? It's primarily in North America obviously relating to the weather, and then the second part of it is capacity. You have been able to meet the demands. I know you've been using this partner in North America to help you sell it and install it. So if you give me a little feedback on that, it would be appreciated.

Sure. Second quarter for us obviously, November, December, January, especially in North America, (inaudible) over the last two years, a bit of a slowdown during those times for installation simply because of one of those issues. It's hard to do -- get people to work outside and dig in the ground if necessary.

In terms of capacity, we are not really getting any capacity constraints at this point. We have sufficient numbers of installation supervisors, and we are recruiting or we are using the installation labor of our distribution partner as needed. So technically, we have the ability to leverage that going forward where we need to really increase our staffing requirements.

Okay. Thanks a lot, guys. Keep up the good work.

Charlie Pine, Van Clemens and Company.

I just want to circle back and ask a couple questions on the oil and gas segment. Out of the roughly 15 total customers that you have now, have you -- that sounded to me like kind of close to what you had six months ago, or have you actually added any new with -- with the relationship with this new -- with your new partner, have you added new customers in the first half of the year, even though things have been slow in the oil path?

I thought I mentioned earlier I don't have an exact number of customers, so I'm kind of guessing at this point. So don't hold me to that specific number.

Yes, we are -- our distribution partner is bringing us new customers. At the same time, we are doing repeat business with a number of clients. The installations we just did in India, for example, where the follow-on -- it was follow-on business to a project we've done a year ago. That customer specifically was so pleased with the results, they actually published a technical paper and presented it at a conference -- at a corrosion conference just recently touting how well the product had worked for them and that also encouraged them to do this repeat installation just last month.

I think, Charlie, it's also important to consider the amount of opportunity just inside of the clients and customers that we have relationships with now is significant. Just being able to -- it would make much more sense for the -- as a company standpoint from an ease of selling and increasing revenue and whatnot associated with oil and gas to put much more effort on further penetrating the customers that we have given the huge opportunity that exists inside of them rather than signing up new customers. (multiple speakers) Not that we are not aggressively going after new customers, but we are very aggressively going after repeat business with the existing customers, if that makes sense.

Yes, that's understood, and judging by the -- some of the names that we've been provided in the past, these are very, very large enterprises that have very expansive installed bases of tanks so I can understand that.

Just to kind of take it one step further on that, of those that you have, are there -- would you -- have there been a few that have really embraced it where you have more concentration of tank installs out of those 15-odd customers?

Certainly yes. As I mentioned, just as an example, the repeat business, while it hasn't been -- the number of tanks has not been that large yet in India, but certainly the financial value has been significant, and as I just mentioned, they were so pleased with the performance results that they were willing to publish papers in an industry conference touting the results that they were getting.

Likewise, in the United States, we are getting repeat business. We've gotten a number of repeat business in the Caribbean. We've gotten a number of repeat business in Canada, as well as the United States.

So I would venture to say that those customers who have worked with us and used our technology and have seen the results are sufficiently pleased with it that they're coming back to us as opportunities arise within their installations to further expand their implementation of this technology.

Okay. Let me ask one last thing. You had mentioned in the past about getting a certification -- industry certification. I can't remember if it was from the American Petroleum Institute or what it was, but you had talked about efforts for certification. Do you have anything more that you can provide as far as how that process is working?

Nothing officially from the American Petroleum Institute as of yet, but certainly there are a number of US states that have recognized this technology as acceptable forms of protection.

Yes, I guess that's what I -- now that you bring it up, that you had mentioned before. I think one of them had been explored it, wasn't that correct?

Yes.

And Florida was supposed to be, if I recall, a bit of a thought leader in bringing a lot of other states along with them. Have you been seeing some of that over the last six months at all?

I'm not current on the various efforts in that regard. So, quite frankly, we've been focusing more of our efforts on selling rather than doing the legislative change. I would have to get more up to speed on what's going on there right now.

Okay. All right. Well, thank you very much, Patrick and Matt.

Share. Happy to help.

Walter Ramsley, Southwest Capital.

Thank you. Congratulations, Patrick, Matthew. Got a couple of final questions. The expected tax rate for the year, assuming the Company hits that 40% to 70%, you have an idea of what that might be -- $0.40 to $0.70?

I think will be pretty consistent with before. I want to say it's right around the -- hovering around 20%.

And for the last quarter, do you have a number for what the stock option expense was?

Yes. I want to say it was from $200,000 and -- I don't know if I want to say $200,000, $220,000, right around there. I can send you an exact number. Actually when the -- also when the cash flows published in the Q on Monday, obviously the stock option expense is a component of the cash flow, and it's listed there. But I want to say for the year, it was at about $450,000 for the year and $425,000 by quarter.

Okay. That sounds good. Now the business in Europe, in the second quarter, did that really take a nosedive, or -- can you spend a minute or two and kind of explain what happened there and what the prognosis is in Europe?

I don't really claim to have a prognosis. I can only say that we were seeing consistently a slowdown in turnover in a number of key countries in Europe, including Germany, France, Sweden and Finland, and generally there has just been less volume from their existing customers. So that is about the extent of the information I have.

Just to, Walter, give you a little more flavor on the impact because obviously the -- overall, we saw a nice rebound in North America from a gross margin standpoint, operating expenses were slim, and then you look at it and say, well, what happened with the joint ventures? A key component of that is, if I look at -- take Germany, for example, which is our largest joint venture and largest contributor, for the six months in fiscal 2016, we took in about $480,000 less equity income than we did last year during the first six months or $271,000 over the last -- than we did in the three months.

We saw a lot of volatility in the sales and income of our German joint venture in second quarter, which is something we hadn't seen in the past. Overall, the sales at the German joint venture are down in euros. They are down by about 4.6% for the six months ending compared to prior year. We've had in-depth conversations with the individuals that run the German joint venture and Patrick also just over at a European partners meeting to get the flavor for what's going on through all of Europe. A lot of them are down roughly -- anywhere from 4% to 8% on the six-month numbers compared to prior year, which obviously has a pretty big impact on our financials. We were watching it very closely. We are working on ways to fix that, but that is certainly a concern.

We are not seeing -- we are not seeing 15%, 20% -- huge percentages that these companies are off, but we are certainly closely monitoring it because even being a couple percent down compared to previous year has a dramatic impact on our operating income. I can't say based on conversations that we've had with the foreign partners that nobody's panicking at this time. Some of it appears to be normal volatility, and the indications that we have from the majority of them are that they are still on track of where they expect to be at year-end. I don't see any reason why there wouldn't be a bounce back in third and fourth quarter from what they were doing before.

So we expect to -- similarly to how we had a little bit of a hiccup in the first quarter, I think a lot of the joint ventures felt that in the first and second quarter, but it looks like think should be hopefully back on track or at least not seeing any kind of continued downward pressure in third and fourth quarter.

Okay. Well, thanks, that's very helpful. And just one last thing earlier in the call, you mentioned that there were a couple of new products that apparently have gained pretty good acceptance coming out of the gate. Can you describe them a little further and maybe talk about what the potential is over the next year or two for them to really contribute?

Well, the products themselves are giving us entry to new applications. At least right now I prefer not to publicly announce what those are just for competitive purposes. The sale of the individual products we are talking about themselves are not that large, but they add a certain aspect to our product portfolio, allowing us to capture additional business with our existing products. So it is the combined solution that we are now able to provide that is helping us grow our sales.

Okay. Well, that sounds good. Sounds like that is a lot of opportunity. Thank you taking the questions.

Dick Feldman, Axiom Capital.

Today you released some patent information. The product -- a tank patent. How does that compare with what you are currently introducing, and will that have any -- that patent be something you will actively market or what is the status in that?

I'm sorry. Could you repeat that question, please?

You made a -- in one of your -- you had a press release about patents issued -- let me pull it up.

I'm pretty sure we did not mention any patents in the quarterly earnings press release.

Oh, here it is. I'm not crazy. It may not have been your -- it may be a new service. Patent number -- the patent covers system for corrosion detection of storage tanks soil side bottoms. The patent number was 9,303,380, and it was issued to you on April 5.

Okay. That is one of the patents that covers the technology we are currently implementing to protect tank bottoms.

Okay. So it's already in use.

Yes. Okay. That's all I had. Thank you.

That just means that the patent was issued, but we've been operating under patent pending for quite some time with that one.

I understand.

Jerry Will, private investor.

Relating to -- and I know you announced in the past -- allocated so much capital for stock repurchase, give us an update on what your plans are there, if you would, and by the way, nice to see additional cash coming in from your partners from overseas. So --

At this point time, we have purchased -- we've repurchased several thousand shares as you know. There certainly isn't a tremendous amount of liquidity in the stock, and what we've done over the past two quarters is we put a repurchase plan in place during the times when we are not blacked out from repurchasing stock. When we do stock repurchases, we operate under the same blackout periods that we would have from an insider trading standpoint.

So we did a stock repurchase a few quarters ago just below 2015. Last quarter we had a stock repurchase in place that was, I want to say, just under -- right around $10. We are able to buy certain shares usually during the first few weeks of -- when we have open training, and then what we saw was a slight rebound in the stock price. We certainly have the ability to repurchase stock where it is, and we tend to adjust that on a quarterly basis as we are not in a blackout period.

I want to say in total it's been probably $100,000 worth of working capital spent on stock repurchase. We haven't had any large block volumes or anything like that come to our attention or come in as an offer. So it is something that we put in place to kind of support this stock, if you will, given what we think is a very low stock price given what the Company is looking at for future potential, future earnings, current valuation on the Company. So that's where we are.

I would anticipate continuing to do that going forward until we see a rebound in stock price, which obviously we anticipate happening once we see an increase in the earnings and show some trends of sales and earnings going up, which is certainly the focus of the Company. But it's going to take a couple of quarters of consistency I think before people see what the -- how we should start trending going forward.

All right. Thanks for the update, guys. I'm done.

Okay and I'm showing no further questions. I would now like to turn the call back to Patrick Lynch for any further remarks.

I would just like to thank everyone for participating today and for your interest in NTIC. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.