Northern Technologies International Corp (NTIC) 2024 Q2 法說會逐字稿

As part of the discussion today, 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 protection of the Safe Harbor from 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 future filings that NTIC will make with the SEC.

NTIC disclaims any duty to update or revise its forward-looking statements.

I will now turn the call over to NTIC management.

Good morning.

I am Patrick Lynch, NTIC's CEO; and I'm here with Matt Wolsfeld, NTIC's CFO.

Please note that a press release regarding our fiscal 2024 second quarter 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 second quarter financial results, provide a brief business update and then conclude with a question and answer session.

When we discuss year over year performance, we are referring to our fiscal 2024 second quarter as compared to our fiscal 2023 second quarter.

NTIC set a series of new records in the second quarter, driven by robust demand across many parts of our business.

Most notable among these were record second quarter ZERUST Oil and Gas sales and record quarterly Natur-Tec sales.

I'm also particularly encouraged by the continued year over year improvement in our gross margin, demonstrating that our broad initiatives aimed at improving profitability are working as intended.

We anticipate that profitability will continue to improve, and then we will continue to generate positive operating cash flow throughout the second half of fiscal 2024.

Year over year, cash from operating activities improved by nearly 156% to $5.6 million, primarily due to higher net income and positive changes in working capital.

We intend to continue to allocate capital to support our growth initiatives and quarterly dividend payment, while using excess cash flow pay to down the balance on our existing line of credit.

As we look to the remainder of fiscal 2024, we believe we are well positioned for top line growth across our ZERUST industrial, ZERUST oil and gas and Natur-Tec product categories.

We also remain focused on the performance and profitability of our joint ventures across Europe and Asia.

As our team continues to navigate a fluid global economic environment.

I am pleased with NTIC's improving performance and believe fiscal 2024 will be another good year of growth and profitability.

So with this overview, let's examine the drivers for the second quarter ended February 29, 2024 in more detail.

For the quarter, our total consolidated net sales increased 14.1% to a second quarter record of $20.8 million as compared to the second quarter ended February 28, 2023.

Broken down by business unit this included a 47.5% increase in Natur-Tec net sales, a 20.1% increase in ZERUST oil and gas net sales and 3.1% increase in ZERUST industrial net sales.

Total net sales for the second quarter by our joint ventures, which we do not consolidate in our financial statements, decreased year over year by 7.9% to $23.5 million. EXCOR

Germany, our largest joint venture, experienced a 5.6% decrease in net sales compared to the prior fiscal year period, due primarily to a previously-disclosed loss of a customer and softer demand within the region related to higher energy prices and other externalities linked to the ongoing war between Ukraine and Russia.

Fiscal 2024, second quarter net sales by our wholly owned NTIC China subsidiary increased on a year over year basis by 20.3% to $3.5 million.

Most notably, this was the first year over year increase in quarterly sales in over two years as sales during this period have been impacted by prolonged COVID related lockdowns and overall weakness in the Chinese economy.

We remain cautiously optimistic that demand in China will continue to improve throughout the second half of fiscal 2024, helping to support higher incremental sales and profitability in this market.

While near-term economic conditions in China remain uncertain.

We are committed to the long-term opportunities the Chinese market provides our industrial and bioplastic segments, and we continue to take steps to enhance our operations in this geography.

As a result, we continue to believe China will likely become a significant geographic market for us in the future.

Now moving on to ZERUST oil & gas.

The second quarter of fiscal 2024 was the eighth consecutive quarter of ZERUST oil and gas sales over $1.5 million, reflecting the positive momentum within our oil and gas business.

For the fiscal 2024, second quarter US oil and gas sales were $2.2 million compared to $1.8 million for the same period last year.

A 20.1% year over year increase in ZERUST oil and gas sales was primarily due to the shift of certain oil and gas projects from the first quarter to the second quarter and positive overall demand for our oil and gas solution.

Our ZERUST oil and gas solutions are still focused primarily on protecting above-ground oil storage tanks and pipeline casings from corrosion.

As a result, we believe fiscal 2024 will be another good year of growth for ZERUST oil and gas has this business further scales and continues to contribute to our overall profitability.

Turning to our Natur-Tec bioplastics business.

Natur-tec sales were strong during the second quarter and increased 47.5% year over year to a quarterly record of $5.6 million. Natur-Tec

growth during the second quarter was a result of recent new customer wins in North America and India.

We expect Natur-Tec sales growth will continue throughout the second half of fiscal 2024.

Globally, we continue to see robust market demand for new applications of certified compostable plastic products and resin compounds.

As well as increased interest in commercial and municipal programs that use certified compostable plastics as alternatives to conventional plastics.

As a result, we believe we are well positioned for long-term sustainable growth within our Natur-Tec bioplastics business.

As you can see our fiscal 2024 second quarter financial results reflect the progress we are making towards growing our business and improving profitability.

We believe fiscal 2024 will be a strong year of sales growth and improved profitability.

We are excited by the positive momentum underway and the direction NTIC is heading.

With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2024 second quarter.

Thanks, Patrick.

Compared to the prior fiscal year period, NTIC's consolidated net sales increase 14.1% for the fiscal 2024 second quarter to a second quarter record because of the trends Patrick reviewed in his prepared remarks.

While sales across our global joint ventures declined 7.9% in the fiscal 2024 second quarter joint venture operating income increased 4.2% compared to the prior fiscal year period.

The year over year increase in joint venture operating income was primarily due to the efforts underway to enhance profitability at the company's joint ventures, partially offset by lower joint venture sales.

Total operating expenses for fiscal 2024 second quarter increased 9.4% to $8.6 million compared to $7.9 million for the same period last fiscal year.

Higher operating expenses were primarily due to increased personnel costs.

As a percentage of net sales operating expenses were 41.3% for the fiscal 2024 second quarter compared to 43.1% for the prior fiscal year period.

Gross profit as a percentage of net sales was 40% during the three months ended February 29, 2024, compared to 34.5% during the prior fiscal year period.

The 551 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures and in-sourcing of various production.

Net income attributable to NTIC was $1.7 million or $0.17 per diluted share for the fiscal 2024 second quarter compared to $411,000 or $0.04 per diluted share for the fiscal 2023 second quarter.

As of February 29, 2024, working capital was $24 million, including $4.8 million in cash and cash equivalents compared to $23 million, including $5.4 million in cash and cash equivalents as of August 31, 2023.

As of February 29, 2024, we had outstanding debt of $4 million.

This included $1.2 million in borrowings under our existing revolving line of credit compared to $3.6 million as of August 31, 2023.

We generated $5.6 million in operating cash flows for the six months ended February 29, 2024 compared to $2.2 million for the six months ended February 28, 2023.

The 156% year over year improvement in operating cash flow was driven primarily by higher net income and positive changes in working capital.

Throughout the second half of fiscal 2024, we expect to generate continued operating cash flows, which we plan to invest in the growth of our business, support our quarterly cash dividend and pay down the remaining balance on our existing revolving line of credit.

On February 29, 2024, the company had $23.5 million in investments in joint ventures, of which 55.7% or $13.1 million was in cash.

With the remaining balance primarily invested in other working capital.

During the fiscal 2024 second quarter, NTIC's Board of Directors declared a quarterly cash dividend of $0.07 per share that was payable on February 14, 2024, to stockholders of record on January 31, 2024.

To conclude our prepared remarks, our second quarter financial results reflect the progress we are making navigating a fluid business environment while successfully pursuing our product end market and geographical diversification strategies.

We're seeing stable North American demand trends had robust growth across our global oil and gas and bioplastic markets.

And we expect these trends to continue throughout the remainder of our fiscal year.

As a result, we believe our fiscal 2024 will be another good year of sales and higher profitability for NTIC, and we're excited about our long-term prospects.

With this overview, Patrick and I are happy to take your questions.

(Operator Instructions)

Gus Richard, Northland.

Yes, thanks for taking my questions and congratulations on strong results.

I was just wondering if you'd talk a little bit about the pipeline for ZERUST and Natur-Tec, you had to pull in, in the quarter for oil and gas.

Wondering if that growth is sustainable sequentially and just sort of your outlook on those two product lines moving forward.

I guess my question, Gus, just kind of asking the question back.

So your question is about what is the pipeline for ZERUST industrial business and the growth that we expect to see there oil and gas

--

Yeah, oil and gas.

I think oil and gas was pretty strong had a relatively strong Q2.

I think expectations are that we're going to see Q3 and Q4, they're going to surpass Q1 and Q2 expectations.

There's just a lot of projects that are -- that we've been working on for some time that are coming online and should likely be coming to fruition where we expect to see it in the current fiscal year.

And hopefully, that's going to build a base level of oil and gas revenue on a quarterly basis that we can see as stepping stone.

During the call, I know Patrick talked about the number of times we've exceeded $1.5 million in revenue.

My expectations and my hopes are that we're raising that number and saying the number of times we've been over $2 million from the number of times or $2.5 million.

We'd see it as more of a step function in growth.

And what's exciting for us is the repeat business that we're getting with existing customers, that's really showing that the products are working and that we're starting to see the penetration into the market.

And so we're certainly working to continue the investment in bringing new people on from a technical service and a technical service positions to help with installations and also from a sales standpoint to drive more business -- more top line oil and gas business around the world.

Got it.

Thanks.

And then sort of the same question for Natur-Tec.

Very strong quarter, is that new OEMs starting new projects or is it resin sales.

Can you put some arms and legs around what's going on in terms of the growth trajectory of Natur-Tec?

Yeah, it was obviously a strong second quarter, certainly when you're comparing Q2 to Q2.

Part of that is because our second quarter last year was not as strong.

I mean, if you look at the quarterly numbers, last year's second quarter was certainly off a little bit compared to the other three quarters.

However, it still was $5.6 million of revenue, which is significantly above any previous quarters that we've had.

There are new opportunities, selling, bin liners and cutlery, some traditional opportunities that we have been selling to for many years that are continuing to expand in North America.

As far as the opportunity that we have, there's also new projects coming online as far as increasing the amount of resin that we are selling as well.

At any time, there's a lot of projects in the pipeline from a Natur-Tec standpoint that we're working on and those are starting to kind of come to fruition as well.

Similar to the stuff that we're working on from an oil and gas standpoint, there's a lot of projects we're working on in Natur-Tec that are going to set themselves up as recurring monthly, recurring quarterly revenues that are going to continue to build on the nature -- total Natur-Tec sales.

And so I expect from what I look at as far as kind of a base level of business, the base level of Natur-Tec business is simply growing on a month to month basis, and we're starting to see those results.

So my expectations are that Natur-Tec is going to have a very strong second half of the year, I expect oil and gas to have a strong second half of the year.

And typically, our industrial business has a much stronger Q3 and Q4 than Q1 and Q2.

So we're pretty excited by the prospects right now.

Got it.

And then just do you have a target for gross margins going forward.

It's significantly above the run rate over the last five or six years.

Is 40 sort of a long term target or do you think how much higher do you think those can go as your revenue ramps and given the expected mix?

Well, I certainly think that there we've achieved some economies of scale as far as being able to harvest more of the gross margin dollars.

And obviously, our goal is to keep our fixed expenses as stable as possible.

And the variable cost components, the cost of goods sold is going to go up based on a function of revenues.

And so I think the gross margin we achieved in the quarter was obviously very good.

It certainly as a target, I don't know if it's completely that sustainable that I would target that number or higher number going forward.

But I can say that one of the objectives that we have as a company is to continue to work on improving gross margin for all the product lines.

And that's one of the reasons why we invested in the building that we have right next door to our Circle Pines facility that basically came online a few months ago.

We've been able to in-source certain production and certain -- the manufacturing of certain small light manufacturing items that we were previously outsourcing.

Additionally, there's going to be some investments that were going to be making in Natur-Tec where we can do some of the manufacturing of the resins and blending of the resins on our own.

These are the things that we're strategically doing to specifically work on improving gross margins and so the increase in gross margin we've seen over the past two quarters is exciting for us.

I think 40% is a good target.

We're -- I certainly think that's sustainable for the next few quarters.

But obviously, there's a lot going on from a global standpoint, energy prices, things like that, that could have an impact on some of the base materials and cost unit based materials that we have.

Does that makes sense?

Yeah, that does.

And then last one for me and I'll turn it over.

China was strong up for the first time in a very long time.

Could you provide a little bit of color on is that the automotive sector in China, internal combustion engines, is it industrial.

What sort of -- what is leading to the improvement in your China operations?

I think there's some new opportunities in new markets that we've been going after.

I think there has been a slight -- at least compared to what we're seeing, we're starting to see some of the signs of a -- I don't want a fair recovery because obviously not all macro environmental factors are pointing that way.

But certainly with the customers that we're going after, we're seeing some rebound in the volumes that they're ordering from us.

And so there's been some positive signals that we've seen specifically in our second quarter that give us a little bit more hope that third and fourth quarter will continue to see some improvements.

Additionally, we've made some, let's say, cost cutting, we've made some cost cutting efforts in China to increase their profitability.

So there will be a contribution coming from China this year from our subsidiary in China this year compared to the contribution that we saw last year, which was basically breakeven, so with no contribution.

And so I think that as that economy recovers more and as the we see some of the opportunities we're going after come to fruition, I think we're going to see a recovery in China.

I don't know when you get back to the kind of growth rates that we're expecting several years ago or if we do.

But clearly the market there, we've continued to see a lot of opportunity there, both from an auto sector and from other new markets that we're going after.

Got it.

All right.

That's enough from me.

Thanks so much.

Yep, thanks.

Tim Clarkson, Van Clemens & Co.

Hey, guys, obviously a great quarter.

Just a couple of questions on the stuff that's working here.

What percentage of the oil and gas business at this point would you say is repeatable.

So you did what $2.2 million, what percentage of that was kind of repeat stuff?

Well, it's kind of -- I mean, technically, it's all repeatable.

It's all business with customers that have larger opportunities.

There's certainly no markets in oil and gas that we're in that are saturated.

We're still at a point where the customers that we're dealing with, we are making up very small portions of their typically -- their repair and maintenance budgets that are utilizing VCI technology to protect their infrastructure.

So the expectations are that on a specifically on a tank bottom there's certainly recurring revenue after a period of time when you need to recharge the tank bottom.

But typically the fields and where these installations are taking place, there's usually hundreds of tanks.

And we have a single digit number of tanks and in different facilities.

So we feel that as the technology becomes more mainstream as it becomes more accepted has further standards or past in dealing with the API and other regulatory bodies that it still continues to be a very, very big market opportunity for us.

Right.

So obviously, you guys have only exploited a small percentage of that market like less than 2% or something like that.

[I'd say near two tenths of a percent. I mean, it's a very big market compared to the revenue growth].

Well, let me ask you this.

I mean, do these guys ever get excited about the fact they can take a tank and make it last 30 years versus having to replace it 10 years.

To me, that would be pretty exciting, I mean, just as a technological feat.

I mean, it's really breakthrough technology, I mean, is there any kind of like keywords this is wonderful stuff?

Well, I mean, in general, people are really excited about rust in general, Tim.

No, I get your point it's the kind of thing where when our salespeople are in the field and they're meeting with people that are protecting the infrastructure and a charge or protecting the infrastructure.

I think the wheels are starting to turn in people's heads about potentially the cost savings that they would see on a long-term basis from these use using our products to protect the infrastructure.

And you can see that with the people that we're dealing with.

You can see that as you go up the chain of command inside of the company that we're dealing with, that people are starting to understand the value added component to using these products.

And the oil and gas market industry in general is known for being relatively slow when it comes to embracing new technologies.

But we're blocking and tackling and going after business and moving ahead as quickly as we can, I mean, I can say we are starting to see some things accelerate a little bit.

And it's part of the reason why we are looking to hire, as I mentioned before, looking to hire and looking to make investments in this business because we are starting to see some of the milestones and some of the things happen where we're now comfortable with how the growth is going.

And we want to make sure that as that business increases, we're able to support it and able to take advantage of take advantage of -- advantage of it.

Right.

Okay, let's switch to the compostable a little bit now.

Does that product really differentiate itself against the competition.

I mean, can you find specific applications where somebody says, yeah, we want to do business with this Natur-Tec stuff rather than the competition because of A, B and C I mean, does that show up or is it just another compostable product?

No, that definitely shows up.

I mean, we certainly sell commodity products that are -- some of the Natur-Tec products certainly are commodity products as far as selling certain bin liners and things like that.

But the majority of our business and some of the larger projects that we've rolled out, we've developed proprietary resins for these companies to be able to manufacture successfully manufacture the products that they want to be compostable on their own manufacturing equipment.

And that's something when they've tried either competitors or tried just base resins or try to develop something internally they have been able to do.

And so really the value add and the benefit that the Natur-Tec group is providing is the ability to tailor something specifically to a customer that ultimately leaves us in a position where we're able to supply them with a product and develop a longer-term partnership with companies where they want to make compostable products.

And so I think the growth that we're going to see in the coming 12 months, 24 months is going to be -- are going to be these opportunities where the product that we're selling is not replaceable by other compostable resin.

It's going to be specifically developed by us in partnership with some of these main suppliers.

Right, super.

And would you say at this point, Natur-Tec is profitable on a standalone basis?

Natur-tec is definitely profitable on a stand-alone basis.

That's been the -- one of the most exciting things for us over the past six quarters really is seeing the growth and the profitability of Natur-Tec and the contributions that we're seeing from the overall Natur-Tec business to the bottom line profitability.

Certainly one of the key things that I think people that really follow the company have a difficult time understanding is that the over the past four, five quarters, we've seen the joint venture contribution be relatively flat or even down some.

And we talked a little bit about how the big joint venture that we have in Germany, the amount of income coming from that joint venture has gone down significantly over the past two or three years because of some of the difficulties with the overall German economy.

And the growth that we've seen from a profitability standpoint has been a total company has been where the Natur-Tec is making us giving contribution oil and gas is profitable, making a contribution.

So certainly my -- certainly what I hoped for and what I'm -- is that as we see the tailwinds as far as what's going on with some of the joint ventures.

Hopefully, that turns around a little bit and we get back to the point where we're seeing the growth of the joint venture level that, that's going to be an additional tailwind where you really be able to see the earnings acceleration.

Right.

Well, great, I mean, I'm pleased obviously pleased with how things are gone and I expect things to continue.

And I mean, one thing I'll make I don't know why I'm saying this, but I mean, this is unbelievable how long it takes people to be convinced of technologies.

Everybody thinks people want to change to do innovative stuff, but the experience that Northern Technologies historically just shows that it takes 10 years sometimes for people to see the obvious and start to change their behavior.

So I'm glad you guys are hanging in there on everything you're doing is clearly not only making money but it's also helping the environment even the tank technology, obviously, so great quarter.

Thanks, bye.

I agree, Tim, thanks.

John Bair, Ascend Wealth Advisors.

Thank you.

Excuse me.

Thank you for taking my questions.

In looking at your slide deck, the slide with your joint venture operating income has been relatively steady in that 10% to 11% range over the past few years.

So I'm wondering if there's opportunities there to expand that segment of your business.

And you just referenced hoping that overall things might increase would prevent or provide a good tailwind.

You did in your prepared remarks mentioned that China has shown some improvement.

Didn't really mention anything about India, I'm just kind of wondering what you're seeing there.

Sure.

As far as far as what we're seeing in India, the see investment that we made to acquire the additional 50% of HNTI, which we can call ZERUST India was made at the end of 2001.

So the impact started coming in in 2002.

We saw a pretty dramatic drop-off in our 2000 -- after the acquisition, we saw a drop-off in the expected contribution.

They were contributing about $1.2 million to our total profit and fiscal 2023, this contributed about $1.5 million.

And this year, we expect them to contribute close to $2 million of total operating bottom line net income contribution.

So the Indian business has been strong there we're seeing there the growth in sales growth and overall profitability and so it's been very positive.

The investment that we made in regulatory made the investment we saw a little bit of a decline.

But we're certainly at a point now where the $2 million of operating profit that we're taking in is making a contribution.

And the Indian market in general, is a strong market for us, both in Natur-Tec and for the ZERUST industrial.

Specifically, if I talk about the Natur-Tec business, which isn't included any of the numbers that I just mentioned about the $2 million contribution.

The Natur-Tec business that we have there as a separate company, they too have been seeing significant growth, significant contribution that similar to the growth rates we've been seeing in Natur-Tec in North America.

And so that continues to be a big market just because of all of the opportunity that they have there in supplying various compostable materials.

We're also seeing as I kind of alluded to, the need to make an investment in China because we now have the opportunity to do some production of Natur-Tec resins at the facility or at what will be a new facility in India for the Natur-Tec group that should continue to increase or help us increase the gross margins that we're seeing we're achieving across all of Natur-Tec.

So we look at India as a very key contributor to us, both from a Natur-Tec and from ZERUST industrial standpoint.

Touching on the other, your other question about the joint venture contributions.

The joint venture percentage contribution that you mentioned and reference from the slide deck of about 10% to 11% of top line revenue going to our bottom line income has been pretty consistent for a while.

It's gone up a little bit down a little bit by a few tenths of a percent, but it's been pretty consistent.

So I don't think that we have a -- typically the joint venture, the subsidiaries that we have around the world are servicing all the industrial markets that are out there.

I don't anticipate any new joint ventures from the standpoint of a new geographic region.

We would go after that isn't currently serviced by one of the entities that we have.

I know that the joint ventures certainly work together and see what's working for each joint venture.

And hopefully they can have various meetings, various technical meetings to understand what's working and how they can further develop and further push products out through that distribution network that we have.

Patrick right now is calling in from Europe at a joint venture partners meeting where they come together and basically talk about what's going well, what's not going well, what's different, what changes we need to make, how do we -- what business do we need to go after and how can we accelerate revenue.

That's a normal function, that's something that takes place on a very consistent basis.

So I would expect that as we kind of go forward into Q3 and Q4 and then into our fiscal 2025, that we're going to see a rebound and see the joint venture contributions and joint venture sales increase on their own, given the efforts that they're doing right now.

Okay.

Is there much opportunity in acquiring 100% of some of these JVs like you did with the India operation.

And is that something that you kind of look at as those are kind of more long-term relationship kind of things and the right situation occurs as it did was with your India operation.

But what's kind of the backdrop, I guess in that situation, are there many similarities, are there other ones that are kind of similar to that situation specifically?

I would say that we deal with that more on a case-by-case basis.

There are -- there's roughly 10 or 11 European, I'll say European joint ventures are in that region and 4 or 5 in Asia.

We kind of handle on a case by case basis as far as how transitions occur, what regions make the most sense for us to potentially acquire ownership interest, if that's something that becomes available.

We're not actively going out and looking to buy out partners or push partners out.

But if the opportunity comes up and it's a region that we feel we could effectively control or own more of then certainly we look at taking over that, we look at taking advantage of that opportunity.

Right.

Yeah, that's kind of where I was -- what I was looking to hear, is whether it's an active pursuit or whether if the operator ends up saying, okay, I'm willing to give up my ownership or whatever so.

Well, certainly the ownership percentage that the other shareholders have, we view as part of the succession planning of the joint ventures, what are our opportunities for acquiring that or does it make more sense to look for a different strategic partner that we think could add more value than if NTIC were to just purchase it.

And so it's -- our joint ventures, our partnerships that we've had for a long period of time where we've developed very long trusting relationships with the individuals.

And so there's a lot more to it than just the what it looks like on a balance sheet or what it looks like from an operating income contribution standpoint.

And so we're certainly aware of that and we certainly appreciate our joint venture partners and want to work to make sure that we're doing the right thing and working together, that's going to be in the best interest of all the joint ventures and kind of the entire NTIC federation.

Sure.

One last question you did indicate the third and fourth quarter should be stronger with the ZERUST oil and gas.

Do you still feel that, that's as much a function of the higher oil prices that we're seeing right now?

Or is it a combination of that plus a greater adoption of your technology to be used in their infrastructure.

I think it has more to do with the adoption of the technology than the oil price volatility.

There certainly is a correlation between oil prices and what I'd say are repair maintenance budgets, some of the companies that we're working with.

But typically these companies that we're working with, they've been trailing things for a period of time, they've been gathering data for a period of time.

And as we're able to show that, we're able to protect the infrastructure.

That's what we used to kind of roll out and try to expand a program inside of a company.

And so I would like to think the increases that we're going to hopefully see and likely see in oil and gas for the next.

If I look out three to five years are going to be based off of the adoption of the technology, not the volatility of the oil prices.

And does that have application to other infrastructure outside of the tank -- holding tanks.

Yeah, there are applications dealing with pipeline casings.

There's applications dealing with just protecting the infrastructure with some of our existing industrial products.

So there's certainly are lots of other applications that we're looking at other than just the tank bottom solution.

Yeah, reducing, say, emissions and so forth along pipelines or pipeline repair, perhaps?

Yeah, exactly.

You're looking at protecting the infrastructure to make it safer and less likely to have leaks or anything else that would potentially be hazardous from an environmental standpoint.

Would that have application in water infrastructure as well?

Possibly but it's not an area that we're targeting right now.

I mean, I think the potential risk and the amount that people are willing to look at from a water standpoint, I just don't think it's comparable to what we've seen from oil and gas standpoint.

Okay.

Very good.

I appreciate your taking my questions, taking time.

Yep, thank you.

Good results.

Thank you.

Walter Ramsley, Walrus.

Thank you.

Congratulations really good quarter.

Couple of follow-ups, I guess Patrick is in Europe.

Can you give us a idea that the economy over there has begun to improve or is it still kind of flatlining or getting worse, I mean, what's the story in Europe nowadays?

According to what I've been hearing the last couple of days, it's just holding steady.

Okay.

And in the United States, can you give us an update on how the automobile part of the business is doing and maybe just overall US ZERUST industrial in general.

ZERUST industrial in general is doing okay.

But there isn't a -- I don't have anything big to report in terms of any significant growth we're expecting in the near future.

Okay.

All right.

And then I guess just one other thing.

The last couple of days, there's been economic reports about inflation increasing again, has that begun to affect your company?

Not that I'm aware of.

Okay, sounds good.

Congratulations, thanks for answering the questions.

Thank you.

And I'm not showing any further questions this time.

I'd like to turn the call back over to Matt and Patrick for any closing remarks.

I'd like to thank everybody for -- oh sorry, go Patrick.

No go ahead, you go ahead.

Just want to thank everyone for participating and enjoy the rest of day.

Thanks.

Ladies and gentlemen, that's conclude today's presentation.

You may now disconnect, and have a wonderful day.