Matt Wolsfeld - CFO

Tim Clarkson - Van Clemens Charlie Pine - Van Clemens Greg Weaver - Invicta

Good day, ladies and gentlemen and welcome to the NTIC Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [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 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’ll 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 the 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 the NTIC is actively expanding beyond our traditional corrosion protection markets. As part of this effort, we’ve been leveraging our technologies, experience and knowhow 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’re 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 at 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 products -- our 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 three 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 continues to convert customers from our 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 in the 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 re-filed our case in Federal Court in the state of Ohio and have been granted a trial start date of this coming September 18th. We look forward to having our date 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 nine months ended May 31, 2016. However, for the September 2018 trial date, we anticipate higher fourth quarter legal expenses than what has 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 significant fluctuations in oil prices but we’re still encouraged by the long-term opportunities this market represents and believe that we have a strong portfolio of corrosion prevention products and solutions. We’re actively involved in expanding sales to current and new oil and gas customers and have experienced the 4.7% increase in year-to-date sales versus the same period in 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 is primarily 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 is relatively stable from second quarter levels. As we previously mentioned, we transitioned expenses that were formerly treated as R&D expenses to selling, general and administrative expenses, specifically as they relate to Natur-Tec and ZERUST oil and gas. Many of these expenses associated with these businesses 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 thus costs to support building NTIC China and Natur-Tec are absorbed by increase in revenues. We anticipate our financial model to produce strong operating cash flows going forward. On May 31, 2017, the Company had $18.9 million 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’re 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’re 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 risk 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’re encouraged by the direction we’re 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’ll now answer any questions that you might have.

[Operator Instructions] Our first question comes from the line of Tim Clarkson with Van Clemens. Your line is open.

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

I’d call one of them a general industrial business that we hadn’t been involved in before and another one is an automotive based business. And there was a kind of thing where we won the business 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 orders started shipping in June and July.

What percentage of the business kind of that you lost when the whole thing blew up, have you gotten back? Do you feel like you’ve gotten -- there is 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’re going after at this point in time is new business that we didn’t have before. There is a significant portion of business that over the past 10 quarters since we’ve been dealing with this 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’re seeing and what we’re looking for is the incremental business that we get now and new business that we get now to the 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 going to probably -- that’s what you’re most likely going to see in fourth quarter.

Okay.

You can already see from seeing one month’s results kind of where we are from the sales standpoint. And I think that’s fair to say that’s where the profitability breakeven is.

Okay. And 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’d 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 a certain period of time can have a dramatic impact from a revenue and from a profitability standpoint. We’re certainly looking to grow the business to get 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’re sitting on and looking to deliver on it 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 certainly not where we want to be and 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 is the average tank cost that you’re trying to protect? Is it a $2 million deal or a $5 million or a $1 million deal; what’s the average cost of 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 terms 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 size of it to where it’s been 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 kind of the model that we build as far as 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 five years or eight years up to 15 years to 20 years. It’s easy to show what the value is to the customer, but there is no set kind of formula that I can give you that says that it’s a -- we can provide 250% return over a period of time…

No, no, I get that but you’re still, you’re still -- I mean the cost of protecting these tanks is what, 1 to -- typically 1% to 2% the cost of the tank, right?

Yes. It’s a very small portion of the overall -- a very small portion of the overall tank cost.

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

It’s taken a little while to get into the market, to start getting these orders and we’re certainly encouraged by the number of companies that we’re 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 significantly multiples 40, 50, 60 times bigger than the industrial market. And it’s a market that we know the long-term provides a huge potential market that we want to be in. And along on the way we’ve invested money because we think ultimately this is where there is going to be huge return for the Company.

One last question on the compostables. Are we seeing any results you have from your relationship with Cargill or is that still developing?

No. We’re seeing a lot of developments. There is a significant number of business, significant amount of business that we’re kind of mutually going after and there is a significant amount of business that they’re turning over to us, to be -- to work with some of these customers on some of the specific resins that they need for their products. And so, the relationship with NatureWorks, Cargill NatureWorks has been very beneficial to both companies to really increase the amount of resins that they are selling, ultimately increasing the amount of how we’re able to modify those resins to provide a very specific tailored resin to these customers.

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

Correct. We’re able to take their resins and modify them to make them easy to use on any equipments, change some of the physical characteristics as far as how the end product will perform and ultimately make the resins better. And so that relationship is going 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.

[Operator Instructions] Our next question comes from the line of Scott Billeadeau with Walrus Partners. Your line is open. Our next question comes from the line of Jerry Well, a private investor. Your line is open.

Thank you. Hey, Matt. Good job on the quarter. It’s been a while you’ve been working on getting this turnaround, so, congratulations to you and the team. The questions, couple of questions I have. One is, in the tank business, Matt, is there certain like oil industry associations or anything like that where you’re kind of working to get some kind of endorsements or I mean is that a factor with some of these big companies or isn’t that something you’re really pursuing?

No. That’s definitely something that we’re pursuing. The industry groups, one of the big industry groups is inside of NACE, which is the National Association of Corrosion Engineers. We’re working on publishing papers, as far as getting industry standards, as far as getting the product out and these groups to understand, and it really shows that this is something that the industry can use and well be beneficial and things like that. That’s definitely something that we do. However, these groups, whatever industry groups we’re dealing with, and there is 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 to publish a paper and then make recommendations is something that takes place over a three or four-year time period. So that’s what we’re dealing with. And 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 -- in the coming let’s say 12 to 24 months but it’s a long process. It isn’t a kind of thing where you can show up to one of the industry groups, show them what’s going on and show them what you’re doing and if they’re going to somehow endorse it, it’s going to be a long drawn out testing where they test it and they’re going to validate all the data before they set any kind of standards. But we’re certainly in the process of doing that with these groups.

Sure. And then relating to that also when you’re getting these requests for bids, just kind of give us a flavor, if you will, how many competitors are in that oil and tank business, and if you think you’re getting 50% of the bids that are being requested or is there one main competitors that’s giving you a pricing trouble or just kind of give us an overall on that if you’re seeing a competitive level. I don’t have a great -- I mean, I don’t have a great answer, a great ability to kind of tell you how we’re doing from that standpoint or exactly who and where we’re running into with competitors. There certainly are 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 laws and certainly is in the complete solution but that is what has been the industry standards for years and years and years. And so, we’re really working to convince people to use our product injunction with or as a standalone away from cathodic but that’s traditionally what we hear when we’re looking at various proposals. I can tell you from meeting with different companies, when I was down in Texas a couple of months ago meeting with the very, very large oil companies and meeting with their asset integrity people, people understand what -- now understand what VCIs are and the potential benefit to the 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 all, oh, I heard the presentation at this conference; I have read your material here and talked to this company that has your tank protection and service, and let’s start moving forward with this, with the trial in this area. It’s a very different conversation than we were having just a couple of years ago. So, it’s moving forward. I can tell you first hand from seeing it on the ground in Texas, the market’s there and it’s just a very slow moving market.

Yes, great opportunity in the future. There should be a while 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…

It went well. We started shipping -- part of our -- we had an awful lot of conversations probably three or four years ago about resin sales in India and plastic bags being -- not in India, I’m sorry, in Italy and plastic bags being banned 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’re finally starting to see container loaded 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. And then, as you’re 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, we’re using -- having those of the resins that we’re using. I mean, Cargill is one of our main -- NatureWorks is one of our main resin suppliers as far as the base resin that we use for our compostable products that in the BASF ecoflex are some of the main base resins that we used to make our products.

So, they are in a position to help you on the sales side…

Yes.

Really kind of pull through method yes.

Correct.

Last thing is -- and I hate to spend money on the damn lawyers; I’m an investor; I get it over with, whether you got to drop that date when -- this September court date, I mean…

Well, 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 re-filed in Ohio, we went down and we met with the judge, both parties met with the judge and everything got fast tracked. Everybody agreed that all the work has been done and we’re basically ready for trial in Minnesota and basically everything moved forward and they said okay, we’re ready for trial in Ohio then. And so, we previously had a late August court date in Minnesota setup and now we’ve got a mid September court date in Ohio. So, regardless of how things play out, we’ll have our date 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’ll certainly have conclusion to this by the time we have our year-end earnings call and are able to put out in guidance for next year and then everything else. This matter will be behind us. And so, I’m -- 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’re just focused growing sales and profitability of the Company. But one way or another, everything will be concluded in September of 2017.

And our next question comes from the line of Charlie Pine with Van Clemens. Your line is open.

Congratulations on a great quarter. It was a bit of wait, but you finally pulled it out. I wanted to -- most of my questions have actually been answered. But I guess there is a one item I’d like to say. In the oil and gas area, as far as the installs that you’ve been getting right now, are they -- this is a two-pronged question. Are most of these still North American versus foreign? And in what segment of the market are you still or most of these companies that are getting you these orders, are they tank farms in the midstream area of the oil and gas industry?

I would say -- I mean the orders -- I guess it’s not that difficult to answer. But, I mean the main customers that we’re dealing with are going to be I mean midstream tank -- yes midstream tank farms, but they’re going to be tank farms, but they’re going to be farms, they’re going to be owned larger oil companies. As far as what’s taking place and 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, but Georgia obviously -- the one in Asia and that the United States. So it’s kind of all over the board.

Okay. But, one of the -- 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’s done in many cases to delayed and deferred maintenance budgets for these companies. That’s really what’s been the greatest impact in the last year you would say?

Well, that’s 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 put forward. So, yes.

Okay. One other thing that I’ve been reading about is that there has been a lot of increase with -- 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, et cetera that there’s been growth in a lot of -- that there has been like growth in a lot of new tanks that have been built to store especially with expanded pipeline projects also. 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 of the new tanks that we’re bidding on, our part of the tank development that you’re talking about. But I can tell you that there’s a significant portion of the tanks that we are working on our new tanks. It’s not necessarily -- it’s not specifically back to retro tanks or tanks that are getting repaired and replaced or the bottoms are getting repaired and replaced. It’s the full gamut. I mean it just depends on tanks, depends on the opportunities but it’s not one specific portion of the market that we’re currently seeing as the majority of our installations are going on. We’re also at a point Charlie where it’s -- with the number of tanks that we’re doing, small amount of tanks that we’re doing and the small amount of business that we currently have in the oil and gas market, we’re just not even close to being, like I said, we’ve 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. We’re still kind of at that stage.

Okay, understood. So that covers it. Thanks a lot and looking forward to how you finish off the year and the fourth quarter. Thanks a lot, Matt.

Thank you. And our next question comes from the line of Greg Weaver with Invicta. Your line is open.

You got most of them already, but just to circle back, on the resin, do you have much visibility? I mean, it’s taking 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. We’re starting to see and not just that, it’s -- we have a little bit of visibility into the people that we’re -- 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’re working with that are trying to figure out which specific resin they want to use. And they are in trials for resins so they can make their own product and things like that. We’re certainly seeing that, so that in fiscal 2018 our expectations are that a larger portion of business is going to move towards resin sales.

So, I mean, 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. So, 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 what 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 the next year. Our expectation is that we’re going to be able to put 25% to 30% growth on the table just as we have each of the last four or five years in Natur-Tec with normal end products that we’re selling and sales to the garment industry and different opportunities we’re 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. It’s just there are just a lot of opportunities. And 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 is demand there and we’re 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.

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?

Well, I don’t -- we don’t expect with a lot of our business lines Natur-Tec, and oil and gas, and kind of core business, we’re set up kind of from an operating expense standpoint where each of the different business units can support a significantly higher dollar amount of revenue sales. So, 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, our whole plan and our whole way that we’re going to show significant earnings growth is going to be by seeing these four different units, increasing revenue with all the gross margin dollars, the majority of the gross margin dollar following down to the operating income line. And so, our main goal over there a couple of year 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. And that’s what we want to do with Natur-Tec. We always struggle with Natur-Tec from that standpoint because the gross margin in Natur-Tec is smaller, but we’re now finally getting to a revenue level of Natur-Tec where it’s material. Our main customer right now in Natur-Tec is the biggest customer, and one of our distributors in the West Coast is the biggest customer that the Company has across all product lines. And so that’s something that Natur-Tec Group is pretty proud of and we’re starting to see how this works and we’re certainly starting to see the benefits of that and how it’s going to flow to the bottom line. Does that make sense?

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; this is a nonissue at this point for you?

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

So, mainly just the euro to keep an eye on?

That’s the main one I keep an eye on.

Thank you. And I’m 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.