Northern Technologies International Corp (NTIC) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NTIC third-quarter 2017 earnings conference call. (Operator Instructions) As a reminder, this conference call is being 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 also 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 these reports and other 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 your host for today's conference, Mr. Matt Wolsfeld. Sir, you may begin.

Good morning. I am Matt Wolsfeld, NTIC's CFO, and I will be leading today's call as Patrick Lynch, NTIC's CEO, is currently traveling internationally. Please note that our financial results for our fiscal 2017 third 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 2017 third-quarter financial results, give a brief business update and comment on our net sales and earnings guidance for the remainder of fiscal 2017, and then conclude with a question-and-answer session.

For several years, we've stated that NTIC is actively expanding beyond our traditional corrosion protection markets. As part of this effort, we have been leveraging our technologies, experience, and know-how towards capturing large and compelling new market opportunities.

During the same period, we've also been aggressively transitioning away from our previous Chinese joint venture to a wholly owned NTIC China subsidiary. So we are very pleased to report that our emerging Natur-Tec business segment transitioned to profitability for the first time during our fiscal 2017 third quarter.

Profitability of Natur-Tec and NTIC China will have a profound impact on our financial model, which until now has been supported by our highly profitable core business in North America as well as our global joint venture network.

So with this overview, let's discuss the specific highlights of the most recent quarter. Global demand remained strong for our core ZERUST international product -- industrial products. For the third quarter ended May 31, 2017, total consolidated net sales increased 17.7% to a record $10.2 million as compared to the 3 months ended May 31, 2016.

Broken down by business units, this included a 21.3% growth in ZERUST industrial net sales, 13.3% growth in net sales from NTIC to our ZERUST joint ventures, 23.6% growth in our Natur-Tec net sales, as well as a 34.4% decline in our oil and gas net sales.

The total sales by our joint ventures, which we do not consolidate in our financial statements, grew to $25.6 million for the fiscal 2017 third quarter compared to $24.2 million for the same period last fiscal year. The 7.1% increase in JV sales was the result of improved global demand and increased market share. We continue to closely monitor our international markets and proactively work with our joint venture partners to strengthen global performance.

Sales by our wholly owned China subsidiary increased 64% to $1.7 million during the third quarter of 2017 compared to $1 million for the same period last fiscal year, as our strong China team continued to convert customers from a former joint venture while aggressively expanding into new market sectors.

During the third quarter of fiscal 2017, our Chinese subsidiary hovered just under breakeven and reported a small operating loss of $47,000 compared to a $235,000 operating loss incurred in the same period last fiscal year. We had planned to start shipping to several new NTIC China customers, but certain larger orders were pushed back into fourth quarter. Consequently, we expect NTIC China sales to be higher in fourth quarter than third quarter and are optimistic the fourth quarter will be NTIC China's first full quarter of profitability.

As we announced on our second-quarter call, our litigation against Cortec Corporation in Minnesota state court was dismissed without prejudice this past February 2017. We have since refiled our case in federal court in the state of Ohio and have been granted a trial start date of this coming September 18. We look forward to having our day in court and will update investors as the litigation proceeds to the extent it makes sense for us to do so without compromising our litigation strategy.

Year to date, NTIC has incurred legal expenses related to the Cortec litigation of $269,000 or approximately $0.06 per diluted share compared to $524,000 or approximately $0.11 per diluted share during the 9 months ended May 31, 2016. However, with a September 2018 (sic) trial date, we anticipate higher fourth-quarter legal expenses than what had been spent during the first three quarters.

Oil and gas sales in the third quarter of fiscal 2017 declined 34% compared to the same period in the prior fiscal year. However, when compared to the second quarter of fiscal 2017, sales did increase 63%. The pace of implementations in the industry remains challenging, with ongoing sufficient fluctuations in oil prices. But we are still encouraged by the long-term opportunity this market represents and believe that we have a strong portfolio of corrosion prevention products and solutions.

We are actively involved in expanding sales to current and new oil and gas customers and have experienced a 4.7% increase in year-to-date sales versus the same period from the prior fiscal year. We anticipate a strong fourth quarter and still plan to deliver the balance of installation orders needed to reach $2 million of sales in fiscal 2017, as we mentioned during our last quarter's earnings call.

Turning to our Natur-Tec bioplastics business, for fiscal 2017 third quarter, Natur-Tec sales reached a record of almost $1.9 million, an increase of approximately 24% over the same period last fiscal year. Natur-Tec has continued to achieve significant double-digit growth rates as a result of strong demand in North America through our domestic distribution network as well as higher sales of finished products by NTIC's majority-owned subsidiary in India.

With record third-quarter sales, Natur-Tec crossed an important milestone and produced a small operating profit in third quarter. With continued growth in Natur-Tec sales and stable costs within the business segment, we expect improving profitability for Natur-Tec going forward.

At this point, let me quickly summarize our financial results for the fiscal 2017 third quarter. Net sales of NTIC's ZERUST products increased 16.5% in the fiscal 2017 third quarter as a result of a 21.3% increase in sales of ZERUST industrial corrosion-inhibiting products, a 13.3% increase in sales to our joint ventures, and growth in NTIC China, partially offset by the 34.4% decrease of our oil and gas market.

Income from joint venture operations increased by 3.7% to $3.1 million during the fiscal 2017 third quarter compared to the same quarter the prior fiscal year. This increase was primarily a result of higher sales and profitability across many of our joint ventures. Our total operating expenses increased 3.2% to $4.8 million during the fiscal 2017 third quarter compared to the same period last fiscal year and was relatively stable from second-quarter levels.

As we previously mentioned, we transitioned expenses that were formally treated as R&D expenses to selling, general, administrative expenses, specifically as they relate to Natur-Tec and ZERUST oil and gas. Many of these expenses associated with these businesses have transitioned from development stage expenses to regular operating expenses. And we expect to invest between $2.7 million and $2.9 million in fiscal 2017 on R&D activities.

Year to date, we invested $2.1 million in R&D activities.

NTIC reported net income of nearly $1.4 million or $0.30 per diluted share for the fiscal 2017 third quarter compared to net income of $917,000 or $0.20 per diluted share for fiscal 2016 third quarter. As of May 31, 2017, working capital was almost $19.9 million, including $3.5 million in cash and cash equivalents and $3.8 million in available for sale securities compared to $16.9 million, including $3.4 million in cash and cash equivalents and $2.2 million in available for sale securities as of August 31, 2016.

NTIC's business model does not require significant capital and those costs to support building NTIC China and Natur-Tec are absorbed by increase in revenues. We anticipate our financial model will produce strong operating cash flows going forward.

On May 31, 2017, the Company had $18.9 million in investment in joint ventures, of which approximately 49% or $9.3 million is in cash with the remaining balance invested in current working capital.

Turning now to NTIC's annual guidance for the fiscal year ended August 31, 2017. We are increasing our annual sales guidance to range between $39 million and $40 million from a previous net sales guidance of $37.5 million to $39 million.

We are maintaining our net income attributable to NTIC guidance and expect net income will range between $3.4 million and $3.9 million or between $0.75 and $0.85 per diluted share for fiscal 2017. These are wide guidance ranges, and due to the significant risks and uncertainties facing our business, including, without limitation, the risks and uncertainties related to our China operations, pending litigation and our legal strategy relating to such litigation, and other risks and uncertainties.

As expected, third-quarter sales and profitability expanded significantly year over year and sequentially. Third-quarter results demonstrated a solid foundation of our business plan and financial model. And most importantly, we are encouraged by the direction we are headed.

As we enter the last quarter of fiscal 2017, our business is on track to achieve our annual financial expectations and we look forward to completing our litigation against Cortec in September.

I will now answer any questions that you might have.

(Operator Instructions) Tim Clarkson, Van Clemens.

Great results. Just a couple questions on the new stuff. With China, you mentioned that you had a couple of big orders got pushed from third to fourth quarter. Are these applications in the automobile industry or are they new applications or what kind of business is it?

I'd call one of them our general industrial business that we hadn't been involved in before. And another one is an automotive-based business.

And it was the kind of thing where we won the business a few months ago, but there is a time lag that took place where we thought initial orders were going to start shipping in third quarter. And instead, the orders are getting pushed off to start the entire process from winning the business that the order started shipping in June and July.

What percentage of the business that you lost when the whole thing blew up have you gotten back? Do you feel like there's still a pretty big opportunity out there? Or what kind of low-hanging fruit is still out there?

I would say that the majority of the business we are going after at this point in time is new business that we didn't have before. There was a significant portion of business that over the past ten quarters since we've been dealing with the situation in China, a significant amount of business that we have gotten back but obviously at lower margins. And what we had to do from a competition standpoint to get the business, that certainly hurt the market in China.

What we are seeing and what we are looking for is the incremental business that we get now in new business that we get now to be additional incremental business on top of that. Hopefully it will be at a more profitable gross margin level, but we will see.

So if I remember the number right, so your breakeven is about $2 million a quarter. Is that it? In China?

Correct. And I think that's what you're most likely going to see in fourth quarter. I can already see from seeing one month's results kind of where we are from a sales standpoint. And I think that's fair to say that's where the profitability breakeven is.

Okay. In terms of the oil and gas opportunity, just to kind of understand the basic value proposition, so what's the cost of the average tank that you're trying to prevent rust and corrosion on?

I would say the average opportunity we're probably looking at is probably close to $25,000 to $35,000 per tank, but it varies greatly. Meaning that you could have a small 5-meter tank that may only be a few thousand dollars compared to a tank that's the size of a football field that could be well over $100,000 in revenue.

So that's one of the things that from a Company standpoint, with having such a small base of business right now in oil and gas that just a few large tanks coming in at a certain period of time can have a dramatic impact from a revenue and from a profitability standpoint. We are certainly looking to grow the business to get to a base of business that's predictable, stable, and profitable. We're just not there yet.

And I know that with the orders that we are sitting on and looking to deliver on and do installations on in fourth quarter that fourth quarter will be a good quarter from an oil and gas standpoint, which means that it's better than the first three quarters. But it's certainly not where we want to be and it's certainly not where the goal is. The goal is to dramatically ramp up business to where it's a very stable and much more predictable business unit.

I guess what I'm asking is what's the value proposition on this. I mean, if a tank costs -- what does the average tank cost that you are trying to protect? Is it a $2 million deal or a $5 million deal or a $1 million deal? What's the average cost of the tank?

Well, I don't have a great answer because that's also the kind of thing with the size of the tank. A tank can be measured in tens of thousands of dollars. If it's a smaller tank, it can be measured in the -- from the standpoint of $10 million, $15-million-plus tank depending on the size of it, where it's being located, the volume of it, what they need to do to the preparation of the tank bottom, different things like that.

So it's easy to show with each individual model and the model that we build as far showing what the return is to the customer and saying we can extend the life of your tank bottom from X number of years, whether it's 5 years or 8 years, up to 15 to 20 years. It's easy to show what the value is to the customer, but there's no set formula that I can give you that says that it's we can provide a 250% return over a period of time.

No, no, I get that. But you're still -- the cost of protecting these tanks is what? Typically 1% to 2% the cost of the tank, right?

Yes, it's a very small portion of the overall tank cost. Correct.

Yes. And it's not a big capital expenditure for these oil companies. So it's not like there's a big cost disincentive to do it. It's just more a question of just it's a new technology that they have to get their hands around.

It has taken a little while to get into the market, to start getting these orders. And we are certainly encouraged by the number of companies that we are working with and the number of proposals that are going out.

But just from experience, it's moving -- the oil and gas market is a slow market and it's certainly slow to adapt new technologies. But it's a very, very big market. It's significantly multiples: 40, 50, 60 times bigger than the industrial markets.

And it's a market that we know that long term provides a huge potential market that we want to be in. And along the way, we've invested money because we think that ultimately this is where there's going to be a huge return for the Company.

Sure. One last question. On the compostables, are we seeing any results yet from your relationship with Cargill or is that still developing?

No, we are seeing a lot of developments. There's a significant number of business -- significant amount of business that we are mutually going after. And there is a significant amount of business that they are turning over to us to work with some of these customers on some of the specific resins that they need for their products.

And so the relationship with Cargill NatureWorks has been very beneficial to I think both companies to really increase the amount of resins that they are selling. And ultimately increasing the amount of how we are able to modify those resins to provide a very specific tailored resin to these customers.

Yes. And the advantage of your proprietary product is that it typically makes it stronger and a more durable product.

Correct. We are able to take their resins and modify them to make them easier to use in equipment, change some of the physical characteristics as far as how the end product will perform, and ultimately make the resins better.

So that relationship has gone very well so far. And I expect that in the coming years that's going to be -- a lot of that relationship is going to help drive our business and continue to make it more profitable and drive more dollars to the bottom line.

Great. I'm done. Thank you.

(Operator Instructions) Scott Billeadeau, Walrus Partners.

Jerry Well, Private Investor.

Thank you. Matt, good job on the quarters. It's been a while. You've been working on getting this turnaround, so congratulations to you and the team.

The questions -- couple questions I have. One is in the tank business, Matt, is there certain like oil industry associations or anything like that where you are working to get some endorsements? Or is that a factor with some of these big companies? Isn't that something you're really pursuing?

No, that's definitely something that we are pursuing. There are industry groups -- one of the big industry groups is inside of NACE, which is the National Association of Corrosion Engineers. We are working on publishing papers as far as getting industry standards, as far as getting the product out and these groups to understand and really show that this is something that the industry can use and will be beneficial and things like that. That's definitely something that we do.

However, these groups, whether it's -- whatever industry group we are dealing with, and there's a few of them, they are slow. It's slow to adopt, it's something that takes place over where they meet quarterly to put a group in place and then to start reviewing data and then to publish a paper and then to make recommendations. It's something that takes place over a three- to four-year time period.

So that's what we are dealing with. And we've started a lot of these -- we started a lot of this groundwork a while ago. And we think that certain industry standards and what have you are going to come along in the next coming, let's say, 12 to 24 months.

But it's a long process. It isn't the kind of thing where you can show up at one of these industry groups, show them what's going on, show them how it's -- what you are doing and they are going to somehow endorse it. It is going to be a long drawn-out testing where they test it and they are going to want to validate data before they set any kind of standards. But we are certainly in the process of doing that with these groups.

Sure. And then related to that also, when you are getting these requests for bids, give us a flavor, if you will, how many competitors there are in that oil and tank business. And if you think you are getting 50% of the bids that are being requested. Or is there one main competitor that's giving you pricing trouble. Or just kind of give us an overall on that if you are seeing a competitive level.

I don't have a great answer or great ability to tell you how we are doing from that standpoint or exactly who and where we are running into which competitors. There certainly are a couple other competitors that have competing technologies.

I'd still say the main obstruction, the current main solution for tank bottom protection is cathodic protection and that's a solution that certainly has flaws. It certainly isn't a complete solution, but that is what has been the industry standard for years and years and years.

So we are either working to convince people to use our product in conjunction with or as a standalone away from cathodic, but that's traditionally what we hear when we are looking at various proposals.

But I can tell you from meeting with different companies -- I was down in Texas a couple months ago and meeting with the very, very large oil companies and meeting with their asset integrity people, people now understand what VCIs are and the potential benefit to these huge assets that they have in place that they want to protect for a long period of time. Compared to three or four years ago, when we would go into meetings and you'd have to start from scratch of explaining what a VCI is.

Now it's you can go in there and it's, oh, I heard your presentation at this conference. I've read your materials here, I talked to this company that has your tank protection and service, and let's start moving forward with this -- with a trial in this area. It's a very different conversation than what we were having just a couple of years ago.

So it's moving forward. I can tell you firsthand from seeing it on the ground in Texas, the market is there and it's just a very slow-moving market.

Yes, great opportunity in the future. But it's going to be awhile to develop. On the Natur-Tec, I think you had mentioned you had a large European extruder who was trying your product more on a larger scale. And I'm just wondering how that testing went on the extrusion -- European extruder that was [put in].

It went well. We started shipping -- we had an awful lot of conversations probably three or four years ago about resin sales in India and plastic bags being -- or not in India, I'm sorry -- in Italy and plastic bags being banned in Italy and across the EU. And there was an awful lot of discussion about how quick that was going to be implemented and what was going to happen.

It took several years in order for this to move forward, but we are finally starting to see container-load quantities of resin sales to European companies that are transitioning from traditional plastics to a fully compostable-certified plastic. And so we are shipping more container loads of resin, specifically in second quarter, third quarter, and now we're looking in fourth quarter and going forward than we have before.

As you are well aware, this was part of the main market that we wanted to have when we got into the business was to sell large amounts of resin rather than finished products. It just didn't develop that way. However, we certainly see a big market for selling container-load quantities of resin, both in North America and overseas, kind of going forward.

Is that in conjunction with your partnership with Cargill? Or is that more just independent on your own?

No, no, no. We are using -- those are the resins that we are using. It isn't -- Cargill is one of our main -- NatureWorks is one of our main resin suppliers as far as the base resins that we use for our compostable products. That and the BASF Ecoflex are some of the main base resins that we use to make our products.

So they are in a position to help you on the sales side, really, kind of a pullthrough method.

Correct.

The last thing is I hate you spending money on the damn lawyers. I am an investor. Get it over with. You got a drop-dead date, this September court date? I don't know; it just --

The nice thing, Jerry, is that when we switched from being in Minnesota court to Ohio court, the concern was that this was going to start the entire process over again. And ultimately, when we refiled in Ohio, we went down and met with the judge, both parties met with the judge, and everything got fast track.

Everybody agreed that all the work had been done and we were basically ready for trial in Minnesota. And basically everything moved forward and they said, okay, we are ready for trial in Ohio then. So we previously had a late August court date in Minnesota set up and now we've got a mid-September court date in Ohio.

So regardless of how things play out, we'll have our day in court in September. We'll have the whole matter, regardless of how things play out, completed in our -- very close to our fiscal 2017 year. We will certainly have a conclusion to this by the time we have our year-end earnings call and are able to put out guidance for next year and everything else. This matter will be behind us.

And so from my standpoint, I'm looking forward to a fresh year, where next year, where it's not a discussion of litigation throughout the fiscal year. And where we are just focused on growing sales and profitability of the Company. But one way or another, everything will be concluded in September of 2017.

All right, great. Thanks a lot. Congratulations, great quarter.

Appreciate it, Jerry. Take care.

Charlie Pine, Van Clemens.

Congratulations on a great quarter. It was a bit of a wait, but you finally pulled it out. Most of my questions have actually been answered, but I guess there is one item I'd like to raise.

In the oil and gas area, as far as the installs that you've been getting right now -- this is a two-pronged question -- are most of these still North American versus foreign? And in what segment of the market are you? Are you still -- on most of these companies that they are giving you these orders, are they tank farms in the midstream area of the oil and gas industry?

I would say the orders -- I guess not that difficult to answer. But the main customers that we are dealing with are going to be -- I mean, midstream tank -- yes, midstream tank farms, but they are going to be tank farms that are to be owned by larger oil companies.

As far as what's taking place in -- as far as the number of tanks, the majority of them are in North America. But we have had tanks that we worked on in this fiscal year in India and in Georgia. And by Georgia, obviously, the one in Asia, not the United States. So it's kind of all over the board.

Okay. But probably one of the biggest pushbacks apparently besides just the reluctance early on to embrace the technology has been the effect of spot pricing on the market and what it has done in many cases to delayed and deferred maintenance for these companies. That's really what's been the greatest impact in the last year, you would say?

Well, that is certainly what I'm hearing from our oil and gas team is with the volatility in oil. Pricing, as far as how budgets are fluctuating and how things are getting pushed forward. So yes.

Okay. One other thing that I've been reading about is there's been a lot of increase -- a lot of the growth in areas in North American because of tight oil drilling in places like the Permian and of course North Dakota, etc., that there's been growth in a lot of -- that there has been growth in a lot of new tanks that have been built to store, especially with expanded pipeline projects that have also (sic).

Are you getting any of these companies that are doing some of these projects to start using your solution on brand-new tanks? Or is it mainly going back to -- is it primarily almost all just legacy tanks?

No. I can't tell you if the new tanks that we are bidding on are part of the tank development that you're talking about. But I can tell you that there is a significant portion of the tanks that we are working on are new tanks. It's not necessarily -- it's not specifically going back to retro tanks or tanks that are getting repaired and replaced, where the bottoms are getting repaired and replaced. It's the full gamut.

It just depends on the tanks, depends on the opportunity. But it's not one specific portion of the market that we are currently seeing as the majority of our installations are going on.

But, I mean, we are also at a point, Charlie, where with the number of tanks that we are doing, the small amount of tanks that we are doing and the small amount of business that we currently have in the oil and gas market, we are just not even close to being -- like I said before, we aspire to be a rounding error with some of these repair and maintenance, the size of the repair and maintenance opportunities that are out there.

It has more to do with just the slowness of adoption of the technology, I think, compared to any kind of macro movements of tanks being built or tanks being repaired. It's we are still at that stage, if that makes sense.

Okay, okay, understood. That covers it. Thanks a lot and looking forward to how you finish out the year in the fourth quarter. Thanks a lot, Matt.

Greg Weaver, Invicta.

Nice job. I think you got most of them already, but just to circle back. On the resin, do you have much visibility? I mean, it's taken a long time to get to the point where these guys are starting to pull quantity. Do you have visibility to say, okay, this program is cranking up in Italy or whatever and I can see where the guy is going to start ramping up his delivery schedule?

Yes. Yes, we're starting to see -- and not just that. We have a little bit of visibility into the people that we just started working with over the past three and six months as far as people that are going to be looking for quantities of resin. Or people that we are working with that are trying to figure out which specific resin they want to use and [delivering] trials for resins so they can make their own products and things like that.

We are certainly seeing that. So that in fiscal 2018, our expectations are that a larger portion of the business is going to move towards resin sales.

So if you can frame it for us a little bit in terms of -- I'm assuming the core business in the garment industry and things like that is continuing to grow. You're getting new business there. But what's the bigger-than-a-breadbox kind of size if some of this resin stuff gets going in terms of dollars potential with just raw resin sales?

I don't have a good number for you as far as just looking at our strategic plan as far as which portion of our growth for next year is based on resin sales. I can tell you from looking at going through our strategic planning process for next year, our expectations are that we are going to be able to put 25%, 30% growth on the table just as we have each of the last 4 or 5 years in Natur-Tec with normal end products that we are selling and sales to the garment industry and different opportunities we are looking at there. So a lot of the increases in sales that we expect from resin should be incremental on top of that.

So we still expect to see a pretty heavy portion of -- a pretty heavy growth rate coming out of Natur-Tec for some time. There's just a lot of opportunities. We're always cautious with resin sales and how they scale up because they tend to work in spikes. But we certainly can see that there's demand there and we are happy to fill it. It's easier to sell a container-load quantity of resin than a lot of pallets of waste bags or trash bags.

Absolutely. So given we've gotten past the -- and congrats -- magic breakeven point in Natur-Tec here, the incremental dollar in business there, do you have any sense of what the flow-through is of that to the bottom line?

We don't expect -- with a lot of our business lines, Natur-Tec and oil and gas and the core business -- we are set up from an operating expense standpoint where each of the different business units can support a significantly higher dollar amount of revenue sales. So that the expectations are that 95% of each incremental gross margin dollar is going to flow directly to the bottom line.

We don't need any significant increase in operating expenses to support a significant ramp up in Natur-Tec, oil and gas, or what's going on in China or what's going on in North America. So the whole -- our whole plan and our whole way that we are going to show a significant earnings growth is going to be by seeing these four different units increase in revenue with all the gross margin dollars -- the majority of the gross margin dollars following down to the operating income line.

So our main goal over the next couple years is how do you keep your expenses as tight as you can so that all those dollars are falling to the bottom line and you get some significant leverage out of it.

That's what we want to do with Natur-Tec. We have always struggled with Natur-Tec from that standpoint because the gross margin in Natur-Tec is smaller. But we are now finally getting to a revenue level of Natur-Tec where it is material.

Our main customer right now in Natur-Tec is the biggest customer and one of our distributors on the West Coast is the biggest customer that the Company has across all product lines. And so that's something that the Natur-Tec group is pretty proud of. And we are starting to see how this works, and we are certainly starting to see the benefits of it and how it's going to flow to the bottom line. Does that make sense?

No, that's helpful, thank you. And just last on a smaller side here. So from an FX foreign exchange impact, we've kind of anniversaried a lot of the craziness, right. This is kind of a nonissue at this point for you?

Obviously, over the past eight quarters of going from mostly a euro-denominated FX impact of going from 1.4 down to 1.05 had a pretty significant impact. We are starting to see a little bit of a turnaround, but still going from 1.05 to 1.13 -- while that's nice and provides a little bit of a benefit, we are not really going to see the -- until it turns around more, we are not going to see a significant benefit from a turnaround an FX. But we are -- hopefully, it's turned around a little bit and the dollar is going to start to weaken a little bit, but we'll see.

Okay. So mainly just the euro to keep an eye on?

That's the main one I keep an eye on.

Okay, great. Thank you.

Thank you. And I am showing no further questions at this time. I'd like to turn the call back to Mr. Wolsfeld for closing remarks.

I'd just like to thank everybody for participating in the call today and for your interest in NTIC. Have a good week.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.