Northern Technologies International - Earnings Call - Q1 2025

Executive Summary

• Record Q1 revenue of $21.338M (+5.7% y/y) driven by Natur-Tec (+22.8% y/y to $5.863M) and stable ZERUST industrial and oil & gas; gross margin expanded 200 bps to 38.3%, but EPS fell to $0.06 on higher OpEx tied to oil & gas sales investments.
• Management reiterated expectation for a second-half acceleration in oil & gas, with seasonality and expanded sales infrastructure likely to skew revenue to H2; Natur-Tec demand remains robust across North America and India.
• No numeric guidance was issued; tone remained cautiously optimistic on FY25 sales growth and improved profitability, with China demand stabilizing and Europe mixed (Germany headwinds).
• Street consensus (S&P Global) was unavailable at time of request; beat/miss vs estimates cannot be assessed. This reduces near-term “surprise” clarity, but H2 oil & gas ramp and sustained Natur-Tec momentum are catalysts to watch [GetEstimates error].

What Went Well and What Went Wrong

• What Went Well

  • Natur-Tec achieved an all-time quarterly sales record ($5.863M, +22.8% y/y) on new wins and expanding relationships; management expects growth to remain strong in FY25.
  • Gross margin rose 200 bps to 38.3% on quality system-improvement initiatives and insourcing, demonstrating structural margin progress.
  • China subsidiary sales rose 8.6% y/y to $3.995M, reaching the highest quarterly level in nearly three years; management is cautiously optimistic on continued improvement.

• What Went Wrong

  • EPS declined to $0.06 (vs $0.09 y/y) as OpEx rose 14% to $9.470M (44.4% of sales), largely due to strategic hiring and expansion in oil & gas sales infrastructure.
  • ZERUST oil & gas net sales were $1.514M (down from $4.200M in Q4 due to timing/seasonality), underscoring lumpiness and seasonal patterns.
  • Europe remains mixed; Germany is pressured by auto headwinds (e-vehicle transition, Volkswagen/Audi), weighing on some JV contributions despite strength elsewhere.

Transcript

Operator (participant)

Please be advised that today's conference 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 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 extend the conference over to your speaker today, Patrick Lynch, NTIC's CEO. Please go ahead.

Patrick Lynch (CEO)

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. A press release regarding our first quarter fiscal 2025 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 Q1 financial results, provide a brief business update, and then conclude with a question-and-answer session. Please note that when we discuss year-over-year performance, we are referring to the Q1 of our fiscal 2025 in comparison to the Q1 of our last fiscal year. NTIC's record Q1 consolidated sales were driven by Natur-Tec all-time record quarterly sales, as well as stable Zerust oil and gas and Zerust industrial sales. Furthermore, NTIC China enjoyed its highest quarterly sales in nearly three years, while we also saw improved sales trends across several important geographies and at NTIC's joint ventures.

I believe these top-line results demonstrate the efficacy of our strategic planning, the value we bring to our global customers, and NTIC's resilience amidst ongoing economic complexities. Thanks to the continued successful execution of certain quality system improvement initiatives, NTIC was able to achieve another quarter of gross margin growth on a year-over-year basis. We have also been investing in expanding our oil and gas sales infrastructure due to increased customer activity, which in turn should accelerate Zerust oil and gas sales in the second half of fiscal 2025. Overall, our first quarter was an encouraging start to fiscal 2025. Although the economic environment remains fluid, we anticipate fiscal 2025 will bring further sales growth and improved profitability. So, with this overview, let's examine the drivers for the first quarter in more detail.

For the first quarter ended November 30th, 2024, our total consolidated net sales increased 5.7% to a Q1 record of $21.3 million as compared to the first quarter ended November 30th, 2023. Broken down by business unit, this included a 22.8% increase in Natur-Tec net sales, a 0.7% increase in Zerust oil and gas net sales, and a 0.4% increase in Zerust industrial net sales. Total net sales for the fiscal 2025 first quarter by our joint ventures, which we do not consolidate in our financial statements, increased year-over-year by 1.2% to $23.8 million. Stabilizing sales trends at our joint ventures are encouraging since we have been navigating challenging market conditions for the past several years at our European joint ventures due to higher energy prices, as well as regional, political, and economic uncertainties. I am also encouraged by improving sales trends at our wholly owned NTIC China subsidiary.

Fiscal 2025 first quarter net sales at NTIC China increased by 8.6% year-over-year to nearly $4 million. Sales in this geography continue to stabilize and are approaching quarterly sales levels that we last experienced in fiscal 2021 and 2022. We remain cautiously optimistic that demand in China will continue to improve in fiscal 2025, helping to support higher incremental sales and profitability in this market. 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 and gas. Zerust oil and gas had a solid first quarter with sales reaching $1.5 million.

As anticipated, Q1 sales were below fourth quarter levels because the previous quarter had benefited from the timing on several large orders and seasonality. Looking at Zerust oil and gas on a trailing 12-month basis, sales were $9.2 million, a 20.3% increase over $7.7 million for the trailing 12-month period ended November 30th, 2023. Demand continues to grow among both new and existing customers of our Zerust oil and gas solutions, which today still focus primarily on protecting above-ground oil storage tanks and pipeline casings from corrosion. While we continue to expect seasonal ordering patterns to drive fluctuations in Zerust oil and gas sales, we believe we are well-positioned for compelling growth in this sector through fiscal 2025 and beyond.

As I mentioned earlier, we made strategic investments to expand our oil and gas sales infrastructure during the first quarter to support accelerated Zerust oil and gas sales that we expect to occur in the second half of fiscal 2025. Turning to our Natur-Tec bioplastics business, Natur-Tec sales remained strong during the first quarter and increased 22.8% year-over-year to a quarterly record of $5.9 million. Natur-Tec's growth during the quarter was a result of continued new customer wins in North America and India, as well as expanding relationships with existing customers. We expect Natur-Tec sales growth to remain strong in fiscal 2025. Globally, we continue to see robust market demand for new applications of certified compostable plastics 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 you can see, fiscal 2025 is off to a solid start. We are excited by the positive momentum underway and the direction NTIC is headed. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our recent success and the opportunities we are pursuing are a direct result of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2025 Q1.

Matthew Wolsfeld (CFO)

Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 5.7% in the Q1 of fiscal 2025 to a quarterly record of $21.3 million because of the positive trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures increased 1.2% in the Q1 compared to the prior fiscal year period. Joint venture operating income increased 2.7%, primarily due to higher sales and an increase in net income at NTIC's joint ventures. Total operating expenses for the fiscal 2025 first quarter increased 14% compared to the prior fiscal year period to $9.5 million, primarily due to increased personnel costs and strategic investments we're making to support expected growth in the second half of the year within our oil and gas business. On a sequential basis, Q1 operating expenses were in line with Q4.

As a percentage of net sales, operating expenses were 44.4% for the Q1 compared to 41.2% for the prior fiscal year period. Gross profit as a percentage of net sales was 38.3% during the three months ended November 30th, 2024, compared to 36.3% during the prior fiscal year period. The 200 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures. Net income attributable to NTIC was $561,000, $0.06 per diluted share for the first quarter, compared to $896,000, $0.09 per diluted share for the Q1 of fiscal 2024. For the Q1, NTIC's non-GAAP adjusted net income was $667,000, $0.07 per diluted share, compared to the non-GAAP adjusted net income of $1,000,000, $0.10 per diluted share for the Q1 of last year.

A reconciliation of GAAP to non-GAAP financial measures is available in our earnings press release that was issued this morning.

As of November 30th, 2024, working capital was $22.2 million, including $5.6 million in cash and cash equivalents, compared to $23.7 million, which included $5 million in cash and cash equivalents as of August 31st, 2024. As of November 30th, 2024, we had outstanding debt of $7.3 million. This included $4.5 million in borrowings under our existing revolving line of credit, compared to $4.3 million as of August 31st, 2024. Reducing debt, reducing debt through positive operating cash flow, and improving working capital efficiencies will be a strategic focus in fiscal 2025. We generated $1.4 million in operating cash flow for the three months ended November 30th, 2024. On November 30th, 2024, the company had $25.5 million in investments in joint ventures, of which 54.6% or $13.9 million was in cash, with the remaining balance primarily invested in other working capital.

During fiscal 2025 first quarter, NTIC's board of directors declared a quarterly cash dividend of $0.07 per common share that was payable on November 13th, 2024, to stockholders of record on October 30th, 2024. To conclude our prepared remarks, our first quarter fiscal 2025 financial results are off to a solid start, reflecting record consolidating sales, consolidated sales, expanding gross margin, and planned investments to support expected growth in the second half of the year. We're seeing stable North American trends and robust growth across our global oil and gas and bioplastics markets. We expect these trends to continue. As a result, we believe our fiscal 2025 will be another good year of sales and higher profitability for NTIC, and we're excited by our long-term prospects. With this overview, Patrick and I are happy to take your questions.

Operator (participant)

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tim Clarkson from Van Clemens & Co. Inc.

Tim Clarkson (Stock Broker)

Hey, guys. Good quarter. I got a few more questions. I missed the last one, sorry. So at this point, what percentage of the new tanks that have a potential, best potential to use this Zerust treatment, what percentage of those tanks are being treated with Northern Technologies?

Matthew Wolsfeld (CFO)

I'm not sure I understand your question, Tim.

Tim Clarkson (Stock Broker)

Well, you got the total number of tanks out there, okay? And your best opportunity to use your treatment, of course, is when they're putting up new tanks, right? I don't know how much of the total tanks out there, what percentage turnover per year where they have to be replaced. I guess I'm looking at that of the replacement market, the ones that are being replaced because they are rusted out or you're putting up new tanks because they're putting up new capacity. Those are probably your best opportunities to use your treatment. Of those best opportunities, the new tanks and the replacement tanks, what percentage of that market do we have right now?

Matthew Wolsfeld (CFO)

I would say it's not even 1%. I mean, at this point in time, if you look at the amount of tanks that are out there and what's traditionally used as the solution to protect the infrastructure, we're not even a rounding error yet. Even the revenues that we have, the tanks that are out there, the available markets, we're not at a point where it's even measurable.

Tim Clarkson (Stock Broker)

Right. Now, the expectation is that you get to a point where it's obviously you're taking over market. You're essentially hoping to take over existing technology. Right. What's the cost of the existing technology versus your option?

Matthew Wolsfeld (CFO)

Our option is roughly a third of the cost of the traditional solution, which is the cathodic protection.

Tim Clarkson (Stock Broker)

Okay. And when you do your treatments, how much of it, let's say that it cost, what would be a typical cost on the front end for our treatment? Say $500,000, $250,000?

Matthew Wolsfeld (CFO)

I mean, if you're talking about a standard tank, we might charge the chemistry portion that we charge maybe anywhere from $25,000 to $50,000 for a standard-sized tank. It can be upwards of several hundred thousand dollars if it's a tank that's one of the larger tanks, ones that are the size of football fields. But there's also smaller 15-meter tanks where the revenue generated from it is very small. So it obviously depends on the square footage of protection that you're providing.

Tim Clarkson (Stock Broker)

Sure. Now, what percentage, once you do an installation, is there ongoing revenues that flow from that installation?

Matthew Wolsfeld (CFO)

There's ongoing revenues typically five-plus years after as you recharge the tank or recharge the infrastructure.

Tim Clarkson (Stock Broker)

Okay. Okay. And are they, I mean, would it be 10% of the original treatment, or is it more than that or less than that or about that?

Matthew Wolsfeld (CFO)

Yeah. I mean, that's kind of what we're seeing. We're getting to a point now where we're starting to do some of the recharge work. And we're starting to kind of gather more data on that to figure out what percentage we should expect going forward, what the timelines are, how that fits into their schedules, and what the requirements are for them to inspect their tanks. There's kind of a lot of questions.

Tim Clarkson (Stock Broker)

Right. And I'm guessing those are good opportunities to continue to sell and market for additional installations at that point when you're out there.

Matthew Wolsfeld (CFO)

Certainly.

Tim Clarkson (Stock Broker)

Certainly. Okay. And on the compostable end, what's new that's going on there? I mean, it's really good growth, 20% plus. What's going on there that's exciting?

Matthew Wolsfeld (CFO)

I'd say the biggest, the excitement from the compostable space, I think, continues to be the companies that we're kind of working with and coordinating with to develop, let's call them specialized resins to manufacture their products. There's some nice opportunities that we're working on that we should see success from over the next six, 12, 18 months that I think will continue to accelerate the growth from Natur-Tec. You certainly still have the existing growth kind of from the normal distribution sales of the bin liners, of cutlery, of things like that. But there's also kind of things going on in the background of selling resin to companies to manufacture their own products, which we're certainly working on.

I think that's probably the most exciting thing that we're going to see over the next six to 18 months and what's certainly going to drive the Natur-Tec revenue going forward.

Tim Clarkson (Stock Broker)

Sure. Going back, just one last question on the tank still. I mean, is there a potential for you guys to have a $3 million-$4 million quarter this year, or is that too ambitious?

Matthew Wolsfeld (CFO)

Inside of Natur-Tec?

Tim Clarkson (Stock Broker)

No, inside of the - I'm flipping back to the oil tank business.

Matthew Wolsfeld (CFO)

Yeah, I certainly hope so. I mean, if you look at from a revenue standpoint, in fourth quarter of last year, we did $4.2 million. There are some sizable opportunities that we're working on in oil and gas. Part of the expectations we have is that some of the oil and gas work is a bit seasonal because you get a lot of the work we're doing and stuff like that with some of the pipe casings and pipeline protection and things like that doesn't happen in the winter. But certainly, some of the expectations and some of the larger projects that we saw in our third and fourth quarter of last year, we expect to kind of repeat and grow in the Q3 and Q4 of this year.

So I don't expect typically, company-wide, our second quarter has historically, if you go back 10, 15 years, our second quarter is historically not the strongest quarter. And typically, the third and fourth quarter is kind of where things accelerate. I would expect that to be kind of a similar trend for the current year, certainly based on what I'm seeing as far as the backlog in projects from an industrial standpoint, an oil and gas standpoint, and a Natur-Tec standpoint. That's when I would expect to see kind of the acceleration in sales. So I do think that the growth, the $4 million-plus quarter is certainly doable. The other thing I'll say is that over the past 12, 16 months, we have dramatically accelerated the investments that we have made into the oil and gas space specifically to develop a global sales team.

For us, hiring the 10-plus people that we've hired in that space to go after that market, it takes a little time for the, let's say, the traction, the opportunities to develop. But that's something that we expect to see the results on in the back half of our fiscal 2024, or I'm sorry, the back half of our fiscal 2025, meaning third and fourth quarter, and then beyond. So we're kind of gearing up for bigger and better things and kind of developing the internal infrastructure to be able to handle the increase in revenue from those groups. And so that's really what gets me excited from a company standpoint.

Tim Clarkson (Stock Broker)

Sure. Sure. Switching to China, how come China's doing better?

Matthew Wolsfeld (CFO)

I wish I could answer all the questions on what's going on in China. I can tell you that there is, just in general, from a Chinese standpoint, we saw a slight recovery. If you look at kind of what's going on in China, we saw we're not selling a huge amount in China compared to kind of where we were or where we expected to be. I mean, so you're talking about $4 million in revenue in our Q1 compared to $3.6 million of revenue in our Q4. So there is that's almost a 10% increase in sales. I think there's certain things that are starting to kind of accelerate and recover a little bit there. I think there's also our team there is also working on some domestic sales in China and protecting things in China compared to being solely focused on exports before.

I think there's markets that we're going after that we haven't gone after before. There's a bit of a recovery starting to happen in China. Some of it might be temporary. There's obviously a lot going on from a geopolitical standpoint between the countries. I know that right now there's a huge increase in activity in China, specifically because of the changing of presidents and the uncertainty of what's going to happen with tariffs and things like that. We'll kind of see how things change in China going forward. Our expectations are that we're going to see a decline in Q2 in China regardless, just because that's when Chinese New Year is mid-January. We're going to see a slowdown that we always see in second quarter from China.

But then our expectations are that Q3 and Q4 will be similar or slightly better than Q1. So all in all, our expectations are that China is going to grow from last year doing $14.2 million to +$15 million and beyond this year.

Tim Clarkson (Stock Broker)

Great. One last question. Is there anything in your R&D that's particularly exciting that you can talk about?

Matthew Wolsfeld (CFO)

No. I think from an R&D standpoint, the blocking and tackling and the work we're doing in Natur-Tec is what's exciting from my standpoint. The additional, let's say, the rollout of and seeing kind of the adoption of the technologies in oil and gas and seeing the projects that we're working on there starting to get put into companies' budgets and start, as we look at our planning for our third and fourth quarter and beyond, is what kind of gets me excited from an oil and gas standpoint.

Tim Clarkson (Stock Broker)

Great. Great. All right. Good quarter. Thanks for answering my questions. I'm done.

Matthew Wolsfeld (CFO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Gus Richard from Northland Capital Markets.

Good morning. Thanks for taking the questions. Just on Zerust, it looks like that business has stabilized. And I was just wondering if you could give a little bit of color on that market. Do you expect it to remain stable going forward, or could there be some growth?

Patrick Lynch (CEO)

Right now, we're looking at more of a stability in the market. For now, we're still trying to see what's going to happen with the German economy once they're feeling some pain with their automotive industry right now.

Got it. And I was going to follow up with Europe and the JVs, sort of a similar question. Do you expect, do you expect Europe, given what's going on in Germany, can you hold that JV revenue flat, or is there going to continue to be pressure?

It really depends on which country you're talking about. I mean, for example, in Finland, we're having a fantastic quarter versus in Germany, where they're feeling more pain because of the Volkswagen-Audi situation. So I think for the most part, aside from Germany, the joint ventures in Europe are still doing fairly well. It's just Germany that we're worried about.

Got it. And then I know that the oil and gas business is still pretty lumpy. Can you sort of give a sense to first half, second half, relative seasonality? Is it like 50/50? Not 50/50, but maybe one-third first half, two-thirds second half for oil and gas in terms of how that would weight second half over first half?

Matthew Wolsfeld (CFO)

Yeah. I mean, if I look at it, I mean, I think you're looking at something close to 60/40 or one-third, two-thirds as far as first half, second half.

Got it. Got it. Super helpful. And the last one for me, and do you feel like at this point, Natur-Tec can sort of sustain roughly 20% growth this year?

Overall, as a total company, 20% growth?

No, no, no. Just Natur-Tec.

If I look at from an expectation standpoint, it's right around that number as far as expectations for Natur-Tec, yes.

Got it. All right. Very helpful. Thank you so much.

Yep. Thanks, guys.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Joe Vidich from Manalapan Oracle Capital Management, LLC.

Joe Vidich (Managing Member)

Yes. Good morning, Patrick and Matt. Great to see the progress and the outlook. I was wondering if you could just, regarding Natur-Tec, whether you consider the sales to be recurring once you've started with a customer, whether that's something we could look forward to as basically building upon?

Matthew Wolsfeld (CFO)

That is exactly how Natur-Tec has worked in the past and the expectations kind of going forward. It's a matter of signing up distributors, starting to sell product, and then typically what you have is repeat business that you keep on a step function adding to that revenue. So Natur-Tec lends itself to typical kind of forecastable month-by-month growth, which is what we've seen in the past if you discount out what happened during COVID, which obviously had a major impact on Natur-Tec given the nature of how that impacted everybody's daily life. But that's typically what we see is you work on a project or you sign up a distributor, you get them working on projects, and you ramp up from there with consistent growth.

Joe Vidich (Managing Member)

Right. Great. And then just with regard to the oil and gas business, I was wondering if what you talked about the timeframe in terms of getting a new salesperson up and running? I was wondering if you could also talk about just what the sales cycle is and then also talk about your sales pipeline and how that's progressed over time?

Patrick Lynch (CEO)

Hi. Could you repeat that question, please? Hello?

Joe Vidich (Managing Member)

Hello?

Patrick Lynch (CEO)

Could you repeat your question, please?

Joe Vidich (Managing Member)

Oh, yeah. Sure. Yeah. So with regard to the oil and gas business, Zerust oil and gas, I was wondering if you could talk about your sales pipeline and how the sales pipeline has progressed over time. And then also regarding the new salespeople, roughly over what period of time do you see them becoming really adding to the sales?

Patrick Lynch (CEO)

With any salesperson we've ever hired in the history of the company, it generally takes them about six months to a year to really learn the business and start to be effective. So we'll start to see a pickup from the 10 people we hired. We'll start to see some pickup probably by the end of this fiscal year. But you're really not going to see the major impact until the next fiscal year.

Joe Vidich (Managing Member)

Right and in terms of just your sales pipeline, I was just wondering if you could talk a little bit about it. Are you seeing repeat customers? Is that where the, or are you seeing customers come who are new and the potential size of orders, and also maybe globally too, talk about where you're seeing the sales?

Patrick Lynch (CEO)

In North America, we're primarily now seeing repeat sales from existing customers. But obviously, we're also adding new customers as they're coming along. But yes, we're getting some steady repeat business. Internationally, we're still building that up over time. We'll know more how that's going to pan out once we have these 10 people fully up to speed.

Joe Vidich (Managing Member)

The 10 people, is that 10 new people on top of whatever existing sales staff you add?

Patrick Lynch (CEO)

Yes. That's correct.

Matthew Wolsfeld (CFO)

I'm not saying it's 10 salespeople. There's probably six salespeople and four technical or other people that are associated with oil and gas.

Joe Vidich (Managing Member)

Right. Right. Right. My final question is, in terms of the Chinese sales, I was just wondering, could you break that down between Natur-Tec and Zerust and Zerust Oil and Gas? Do you break it down at all like that?

Patrick Lynch (CEO)

Sure. They're not doing much in oil and gas, but in terms of Natur-Tec and Zerust Industrial, we can help you out with that.

Matthew Wolsfeld (CFO)

So if I'm looking at the historical China sales, I would say that we are at roughly, you're at about 10% sales. 10% of the China sales number is Natur-Tec and the rest being the North American outside of China, meaning it's the business in North America, the business in India, and other parts of Southeast Asia.

Joe Vidich (Managing Member)

Right. Right. Right. Right. Okay. Anyway, that's all I got, guys. I appreciate your taking my questions.

Matthew Wolsfeld (CFO)

Yep. Thanks, Joe.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Don Hall.

Good morning, gentlemen. Just one simple question. Excuse me. Your expenses increased in the last quarter, and the reason was, as I'm quoting, because you expanded your sales infrastructure, and I wanted to elaborate on that a little more, although I've been listening to all of your previous conversation, so you're hiring a number of salespeople and sales support people. Can you say where or how? Are these brand new territories? Can you describe that a little more, please?

Patrick Lynch (CEO)

Southeast Asia and the Middle East, primarily.

I'm sorry?

Southeast Asia and the Middle East.

I missed. I'm sorry. I didn't pick up your comment.

Oh, sorry. Southeast Asia and the Middle East is primarily where these people are located.

Southeast Asia and Middle East—and these are brand new territories, are they?

Yes.

I see. Southeast Asia and Middle East. Well, I hope it's got great promise. I assume it does.

We think so.

Yeah. All right. Thank you very much.

Sure.

Operator (participant)

Thank you. At this time, I would now like to turn the conference back to Patrick Lynch for closing remarks.

Patrick Lynch (CEO)

I'd like to thank everybody for participating in the call today and wish you a nice day.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.