Northern Technologies International Corporation Price & Performance (NTIC)

NTIC disclaims any duty to update or revise its forward looking statements I will now hand the conference over to your speaker for today, Mr. Patrick Lynch, MTIC Chief Executive Officer. Please go ahead, sir. Good morning. I'm Patrick Lynch, NTIC's CEO.

And I'm here with Matt Wolfsfeld, NJC's CFO. Please note that a press release regarding our second quarter fiscal twenty twenty five financial results was issued earlier this morning. And is available at njc.com. During today's call, we will review various key aspects our second quarter fiscal twenty twenty five financial results provide a brief business update and then conclude with the question and answer session. Please note that when we discuss year over year performance, we are referring to the second quarter of our fiscal twenty twenty five comparison to the second quarter of the last fiscal year. Our fiscal twenty twenty five second quarter performance demonstrates the increasing intensity of the headwinds we are currently facing. Including recent unprecedented changes in U. S. Trade and economic policies, the seasonality of our industrial and oil and gas business, and the timing of certain nature check orders. Furthermore, regardless of this considerable uncertainty, we believe we are poised for a rebound in Natur Tec and The U. Oil and gas sales in the second half of the fiscal year. These expectations are supported by our current sales pipeline and demand from new and existing customers within our Natur Tec and ZERUST Oil and Gas segments.

NTSC and our joint venture partners, have successfully navigated difficult economic cycles before and we believe we entered this period from a position of strength as a result of our acid light and profitable business model experienced leadership team, and size, scale and diversity of our business. In addition, it is also important to note that we continue to have a solid cash position with over $5,000,000 in cash and cash equivalents and available for sale securities in The U. S. As well as $13,000,000 of additional cash at our international joint ventures. Our disciplined approach to managing cash including adjustments to our quarterly dividend and prioritizing debt reduction, are intended to position us to seize future growth opportunities in our oil and gas and compostable plastics businesses. We believe that our strategic growth priorities and financial discipline will drive sustainable growth and long term shareholder value. So with this overview, let's examine the drivers for the second quarter in more detail. For the second quarter ended 02/28/2025, our total consolidated net sales decreased 8.5% to $19,100,000 as compared to the second quarter ended 02/29/2024. Broken down by business unit, this included a 28.5% decrease ZERUST oil and gas net sales and 11.8% decrease in Natur Tec net sales and a 3.7% decrease in ZERUST industrial net sales.

Turning to our joint venture sales. Which we do not consolidate in our financial statements, After a year over year increase in the fiscal twenty twenty five first quarter, total net sales for the fiscal twenty twenty five second quarter by our joint ventures decreased year over year by 15.7%. To $19,800,000 We believe this year over year decline in joint venture sales reflects the continued impacts of high energy prices and regional economic pressures in the European economy. As well as increased uncertainty related to U. S. Trade and economic policies and the potential disruptive impacts these will have on global supply chains. I am encouraged by the continued improvement of sales trends at our wholly owned NTSC China subsidiary, Fiscal twenty twenty five second quarter net sales at NTSC China increased by 8.1% to $3,700,000 The slight decline compared to first quarter sales levels was due to the seasonal impacts of Chinese New Year, Overall, sales in this geography continued to stabilize and are approaching quarterly sales levels that we last experienced in fiscal twenty twenty one and 2022. The majority of NTSC China's production and sales are for local consumption And therefore, we believe NCHC China's exposure to tariffs including those recently imposed by The U. S. Is limited We expect demand in China will continue to improve in fiscal twenty twenty five helping to support higher incremental sales and profitability in this market.

In addition, we are committed to the long term opportunities Chinese market provides for our industrial and bioplastic segments. And we continue to take steps to enhance our operation 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 sales were $1,500,000 in the second quarter of fiscal twenty twenty five compared to $2,200,000 in the same period last year. Please remember, however, that last fiscal year's second quarter benefited from certain oil and gas customers shifting deliveries from the first quarter to the second quarter. Seasonality and the timing of orders can impact quarterly comparisons. Which is why we encourage investors to look at ZERIS oil and gas sales on a trailing twelve month basis. On a trailing twelve month basis, ZERUST oil and gas sales were $8,600,000 a 7.2% increase from $8,000,000 for the trailing twelve month period at 02/29/2024. Our sales pipeline continues to grow among both new and existing customers for our ZERIS oil and gas solutions. Which 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 zero soil and gas sales, we believe we are well positioned for compelling growth in this sector through fiscal twenty twenty five and beyond. As I mentioned on prior calls, we made strategic investments to expand our oil and gas sales infrastructure during the first quarter to support accelerated ZIUS oil and gas sales that we expect to start occurring the second half of fiscal twenty twenty five. Turning to our Natur Tec bioplastics business. Natur Tec sales were $5,000,000 in the second quarter of fiscal twenty twenty five, compared to $5,600,000 in the same period a year ago. We believe the 11.8% year over year decline in Natur Tec sales was due to a couple of factors, including order timing and seasonal variation.

Why we are assessing the near term impact tariffs recently imposed by The U. S. And those that may be imposed by other countries in response may have on Natur Tec sales we believe our long term market opportunities remain strong In addition to US organic waste diversion mandates and waste management rules are created at the local municipality and state levels. So we don't expect changes to federal priorities to impact local US demand for our compostable solutions. We are also working on several large opportunities [indiscernible] that we believe could help to reaccelerate our growth in the coming quarters. As we navigate dynamic global and economic uncertainty, please consider that NTSC's longstanding leadership team has previously navigated several challenging economic periods including the great recession, 02/2008 and 02/2009, and more recently the COVID nineteen pandemic. Since then, the size, scale and diversity of our business has increased. Finally, the strength of our balance sheet and benefits of our asset light business model provide us with significant flexibility resources to navigate this type of economic and business uncertainty. We remain confident in the direction we are headed and that our strategic growth priorities and financial discipline will create sustainable growth and long term value for our shareholders.

Before I turn the call over to Matt, I want to acknowledge and the hard work and dedication of our global team of both employees and joint venture partners. Our success and our ability to navigate more complex economic periods are direct result of their efforts. With this overview, let me now turn the call over to Matt Woolsfield. To summarize our financial results for the fiscal twenty twenty five second quarter. Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales decreased 8.5% in the second quarter of fiscal twenty twenty five to $19,100,000 because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures decreased 15.7% in the second quarter compared to the prior fiscal year period. Joint venture operating income decreased 31.8% compared to the prior fiscal year period primarily due to a decrease in equity income from joint ventures and fees for services provided to joint ventures. Both of which were primarily driven by lower sales at many of NTIC's joint ventures. Total operating expenses for the fiscal twenty twenty five second quarter increased 2.4% compared to the prior fiscal year period. To $8,800,000 primarily due to strategic investments we're making to support expected growth in the second half of the year within our Oil and Gas business and to a lesser extent increased personnel costs across the company.

On a sequential basis, second quarter operating expenses were down 6.9% from the first quarter. As a percentage of net sales, operating expenses were 46.2% for the second quarter compared to 41.3% for the prior fiscal year period. Gross profit as a percentage of net sales was 35.6% during the three months ended February 28, 2025, compared to 40% during the prior fiscal year period. The four forty basis point decline was primarily a result of a less profitable mix of sales. NTIC reported net income of $434,000 or $04 per diluted share for the fiscal twenty twenty five second quarter compares to $1,700,000 or $0.17 per diluted share for the fiscal twenty twenty four second quarter. NTIC recognized other income of $1,100,000 during the three and six months ended 02/28/2025, due to the receipt of the employee retention Credit Payment. For the fiscal twenty twenty five second quarter NTSC's non GAAP adjusted income was a loss of $300,000 or $03 per diluted share compared to non GAAP adjusted income of $1,800,000 or $0.19 per diluted share for the fiscal second quarter. Of 2024. A reconciliation of GAAP to non GAAP financial measures is available on our second quarter fiscal year twenty twenty five earnings press release that was issued this morning.

As of February 28, 2025, working capital was $21,400,000 including $5,100,000 in cash and cash equivalents compared to $23,700,000 including $5,000,000 cash and cash equivalents as of 08/31/2024. As of 02/28/2025, we had outstanding debt of $8,100,000 This included $5,400,000 in borrowings under our existing revolving line of credit compared to $4,300,000 as of 08/31/2024. Reducing debt through positive operating cash flow and improving working capital efficiencies will be a strategic focus in the remainder of fiscal twenty twenty five. We generated $3,200,000 in operating cash flows for the six months ended 02/28/2025, At quarter end, the company had $25,000,000 in investments in joint ventures, of which 52% or $13,000,000 was in cash, with the remaining balance primarily invested in working capital. During fiscal twenty twenty five second quarter, NTIC's Board of Directors declared a quarterly cash dividend of $07 per common share that was payable on 02/12/2025, stockholders of record on 01/29/2025. As Patrick commented earlier in the call, to manage our cash position, reduce debt and add flexibility, we're taking a disciplined approach to capital allocation and temporarily adjusting our quarterly dividend to $01 per share effective with our next quarterly dividend. To conclude our prepared remarks, we're committed to our long term growth opportunities We're confident that our strategic priorities and financial discipline will drive sustainable growth and create value for our shareholders.

With this overview, Patrick and I are happy to take your questions. [indiscernible] To withdraw your question, you may press 11 again. Please stand by while we compile the candidate roster. First question coming from the line of Tim Clarkson with Vansklemens. Your line is now open.

Hey, guys. Obviously, a tough, environment to do business Just wanted to ask, know we're making some pretty big investments on the oil and gas on the sales team. How are those working out? I mean, how many people have we hired? Are we changed out any of those people yet? Are they all performing the way we expected? Well, it's an extended question. Yes, we hired I believe, it was eight people, Some of them did not work out, and we had and they have left the company since then. Expecting the impact to start showing in the second half of this year, And other than that, it's going ahead full steam. Okay. Good. And in terms of the compulsable, you you you mentioned that there's some potential deals in that area that could reignite business there. Are those in new areas or what's the dynamic behind those? One of the opportunities is just a large distributor in The United States that we've which is going to add significant business for us. And also, there's a new line of technology in food packaging that we're currently building the trial results are looking good, and if it works out, it should be a significant opportunity for Okay, good.

Good. In terms of I see that you got this, employee retention payment. Was that an actual cash payment? Or was that just an accounting adjustment? That was an actual cash payment. Okay. Good. Alright. Well, in turn it looks like your is your is how's your core business doing right now? Is it still de accelerating or is business about the same, slightly worse or what what are your expectations for this quarter with your core business?

It's going to be flat Okay. Flat might be good. So, all right.

You. I'm done with my questions.

Thanks, Tim.

Thank you. And our next question coming from the line of Gus Richard with Northland Capital Markets. Your line is now open.

Yes. Thanks for taking the questions. Just on the gross margin, it was down fairly significantly year over year. Natur Tec actually was down as a percentage of revenue. And I'm just sort of wondering, dollars $05,000,000 of oil and gas was the loss of that was that the pressure in gross margin? Or a little bit of color there would be helpful. Yes. There's two main impacts from our gross margin. Standpoint. The gross margin across the traditional ZRS Industrial business has remained relatively steady. And we haven't seen significant deviations there. I'll say that there was increased pricing pressures from competitors in the Natur Tec business. And so we have decreased our top line sales price probably on an average of anywhere from four to 6%, even up to 8% in some areas. Maintain competitive and to kind of compete keep that business. So that's been of the impacts to gross margin. You'll note that over the past two years, we've been able to increase that gross margin you know, from the lower 20% up into the higher you know, [indiscernible] So we saw a little bit of pullback on the gross margin at the Natur Tec business to, you know, what I'd say is more of a mean level.

And then additionally from the oil and gas business, gross margins remain flat, but obviously with gross margin sales being down you know, year over year, that's just the weighted average of the of the product.

Got it. Very helpful. Thank you. And then just on the next check opportunity that you talked about is can you add a little bit more color what the might be? Is it resin versus finished product? Is it cutlery or some other other you know, product category?

Food packaging.

I'm sorry? It's in food packaging.

Okay. Got it. Got it. Very helpful. Alright. That's it for me. Thank you.

Thank you. And as a reminder, if you'd like to ask a question, please press Our next question coming from the line of [indiscernible] Desmond Wealth Advisors. Your line is now open.

Hey. Good morning. Thank for the question. Could you give us some more color on XCore and what's happening there and what levers you have to affect change? I appreciate macro is very difficult, but any color on levers you have to affect change and the outlook for dividends to improve from those joint ventures? Thank you. You've been mentioning Export Germany specifically the problem is that the German economy and more broadly the European economy has been suffering from the fact that with Ukraine crisis, the cost of energy has gone up dramatically in Europe. So much so that certain certain plants that are high energy users, let's say, foundries, steel mills, etcetera, are not profitable to operate at all.

And so a lot of these manufacturing plants are actually shutting down and laying off their workers. And that's an ongoing situation that's not going to change very soon in Germany. So X4 I hope that the decline is going to level off at some point. [indiscernible] But for right now, it's going to be more of the same for for the foreseeable future.

Okay. Thank you.

Thank you. And our next question coming from the line of Gregory Beaver with Invecta Capital Management. Your line is now open.

Hey, good morning, guys. Could you give a little more color about the second half ramp you're expecting in oil and gas in terms of applications and maybe some chunky customers ordering? It's going to be again, the oil storage tank bottoms in pipeline casings. [indiscernible] In various geographies around the world.

And in terms of lumpy customers, I mean, we are working closely with some very large companies that are obviously looking into a number of, quite a large number of tanks and bombs and pipeline casings I'm not exactly sure how many in total but it should be a decent pickup.

Alright. And in terms of the sales guys that you hired, is that geographic or any segment or how do you divide that up? [indiscernible] We added in North America in The Middle East, Asia, and in Europe Has anything come out of the BP relationship in terms of other customers or other geographies in which they're interested? [indiscernible] targeting in various locations, but nothing that's anything that's come out of it yet, no.

Okay, and lastly, how about Brazil in terms of, I guess, that kind of getting straightened out back on track and you were had some pretty good activity there?

Yes, Brazil's actually doing very well with the oil and gas industry. They're picking up some significant business, and the sales are ramping up very nicely.

Okay. Well, sounds like this is the business that's going to make the difference here. Terms of the the numbers in the second half anyway. So hopefully, we can get some deals closed Yes, I agree.

Okay. Thanks, guys. Good luck.

Thank you. And I am showing no further questions in the queue at this time. I will now turn the call back over to mister Patrick Lynch for any closing remarks.

Thanks again for everybody for calling in this morning. I hope you have a nice rest of the week.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.