Northern Technologies International Q3 2025 Earnings Call Transcript

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July 10, 2025

Key Takeaways

  • Positive Sentiment: Consolidated net sales rose 4% year-over-year to $21.5 million in Q3, while gross margin improved to 38.4% on both a sequential and annual basis.
  • Negative Sentiment: Joint venture net sales declined 12.9% to $2.3 million amid European economic pressures, weighing on consolidated equity income from these partnerships.
  • Positive Sentiment: NTSC China delivered a 27.4% revenue increase to $4.5 million—the second-highest quarterly total since 2015—with limited exposure to U.S. tariffs.
  • Positive Sentiment: ZERUST Oil & Gas trailing-12-month sales grew 15.4% to $8.6 million; management expects sequential sales and profitability gains in Q4 as recent sales-team investments mature.
  • Neutral Sentiment: Natur Tec bioplastics sales edged down 1.2% year-over-year but rebounded 16.5% sequentially, and the company is developing improved compostable packaging with potential revenue in the next 1–2 years.
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Earnings Conference Call
Northern Technologies International Q3 2025
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Operator

Good day, and thank you for standing by, and welcome to the NTIC Third Quarter twenty twenty five Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand is raised.

Operator

To withdraw your question, please press 11 again. 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 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 and annual report on Form 10 ks, subsequent quarterly reports on Form 10 Q, and recent press releases.

Operator

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 would now like to hand the conference call over to your speaker today, Patrick Lynch. Please go ahead.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolfsfeldt, NTIC's CFO. Please note that a press release regarding our third quarter fiscal twenty twenty five 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 third quarter fiscal twenty twenty five 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 third quarter of our fiscal twenty twenty five in comparison to the third quarter of last fiscal year.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

For the third quarter of fiscal twenty twenty five, we delivered both sequential and year over year growth in consolidated net sales, reflecting strength across many aspects of our business despite ongoing global economic uncertainty. This performance underscores the dedication of our team and our continued focus on supporting existing customers, expanding global relationships, and scaling in high growth markets. Gross margin was a particular highlight in the quarter, reaching 38.4, an increase on both a sequential and year over year basis, which reflects the differentiated value we provide our global customer base. At the same time, macroeconomic pressures, especially in Europe, continue to weigh on the profitability of many of our joint ventures. Additionally, as part of our long term growth strategy, we continue to make planned investments in our oil and gas business, which contributed to higher operating expenses.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

While macroeconomic pressures and higher operating expenses have impacted third quarter and year to date profitability, we expect improvements in the fourth quarter and continued progress in fiscal twenty twenty six. So with this overview, let's examine the drivers for the third quarter in more detail. For the third quarter ended 05/31/2025, our total consolidated net sales increased 4% to $21,500,000 as compared to the third quarter ended 05/31/2024. Broken down by business unit, this included a 7.1% increase in Xerus Industrial's net sales, partially offset by a 5.3% decrease in ZERUST Oil and Gas net sales and a 1.2 decrease in Natur Tec net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Total net sales for the fiscal twenty twenty five third quarter by our joint ventures decreased year over year by 12.9% to 2,300,000 We believe the third quarter 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 US trade and economic policies and the potential impacts this will have on global supply chains. We are closely monitoring trends across our European markets for signs of stabilization following years of subdued demand as governments begin to implement targeted economic stimulus packages. We expect any economic recovery these stimulus packages may lead to, especially in Germany, to have a positive impact on our joint venture operating income in future periods. Improving sales trends at our wholly owned NTSC China subsidiary continue. Fiscal twenty twenty five third quarter net sales at NTSC China increased by 27.4% to $4,500,000 the second highest quarterly revenue NTIC has achieved since we transitioned to a wholly owned subsidiary in fiscal twenty fifteen.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Recent NTIC China sales demonstrate growing demand in this geography. The majority of current NTSC China sales are for domestic Chinese consumption, and therefore, we believe NTSC China's exposure to U. S. Tariffs 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.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

In addition, 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 a significant geographic market for us in the future. Now, moving on to Zeros Oil and Gas. Zeros Oil and Gas sales were $1,300,000 compared to $1,400,000 in the same period last year. Seasonality and the timing of orders can impact quarterly comparisons, which is why we encourage investors to look at Cerus oil and gas sales on a trailing twelve month basis.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Cerus oil and gas sales were $8,600,000 for the trailing twelve month period ended 05/31/2025, a 15.4% increase from $7,400,000 for the trailing twelve month period ended 05/31/2024. As we continue to invest in building our ZERUST oil and gas sales team and other resources to support future growth, the size and number of opportunities continue to expand among both new and existing customers, which today still focus primarily on protecting above ground oil storage tanks and pipeline casings from corrosion. The nature of this industry will always cause certain fluctuations in ZERUST oil and gas sales. Nevertheless, we still expect to see ZERUST oil and gas sales and profitability to improve sequentially in the fourth quarter of fiscal twenty twenty five and improve significantly next fiscal year as we leverage these investments and rein in operating expense growth. Turning to our Natur Tec bioplastics business.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Natur Tec sales were $5,800,000 representing a 1.2% year over year decline in Natur Tec sales. As expected, Natur Tec sales rebounded sequentially and increased 16.5% over the fiscal twenty twenty five second quarter. While we continue to monitor the near term impact tariffs may have on our Natur Tec sales, the long term market opportunities remain strong. In addition, US organic diversion mandates and waste management rules are created at the local municipality and state levels. We do not expect changes in US federal priorities to impact local US demand for our compostable solutions.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

We are also working on several larger opportunities for our Natur Tec solutions that we believe hold significant promise to significantly benefit our sales in the coming quarters. While fiscal twenty twenty five has been more challenging than we expected at the beginning of the fiscal year, we remain steadfast on pursuing a profit focused multi year strategic growth plan. We are confident in the direction we are 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 success and our ability to navigate more complex economic periods are a direct result of their efforts.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

With this overview, let me now turn the call over to Matt Woolsfield to summarize our financial results for the fiscal twenty twenty five third quarter.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 4% in the third quarter of fiscal twenty twenty five to $21,500,000 because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures decreased 9.3% in the third quarter. Joint venture operating income decreased 12.9% compared to the prior fiscal year period, primarily due to a decrease in equity income from joint ventures, which was primarily driven by lower sales at most of NTIC's joint ventures. Total operating expenses for fiscal twenty twenty five third quarter increased 7.6% compared to the prior fiscal year period to $9,700,000 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.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

As a percentage of net sales, operating expenses were 44.9% for the third quarter compared to 43.4% for the prior fiscal year period. Gross profit as a percentage of net sales was 38.4% during the three months ended 05/31/2025, compared to 38.2% during the prior fiscal year period. The 20 basis point increase was primarily a result of a more profitable mix of sales and our ongoing efforts to improve gross margin. NTIC reported net income of $122,000 or $01 per diluted share for the fiscal twenty twenty five third quarter compared to $977,000 or $0.10 per diluted share for the fiscal twenty twenty four third quarter. For the fiscal twenty twenty five third quarter, NTIC's non GAAP adjusted net income was $228,000 or $02 per diluted share compared to the non GAAP adjusted income of $1,100,000 or $0.11 per diluted share for the fiscal twenty twenty four third quarter.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

A reconciliation of GAAP to non GAAP financial measures is available in our third quarter fiscal year twenty twenty five earnings press release that was issued this morning. As of 05/31/2025, working capital is 21,700,000 including $6,800,000 in cash and cash equivalents compared to $23,700,000 including $5,000,000 in cash and cash equivalents as of 08/31/2024. As of 05/31/2025, we had outstanding debt of $10,100,000 This included $7,400,000 in borrowings under our existing revolving line of credit compared to $4,300,000 as of 08/31/2024. Despite the recent increase in our revolving line of credit from 8,000,000 to $10,000,000 to allow for future flexibility, reducing debt through positive operating cash flow and improving working capital efficiencies will be a strategic focus for the remainder of fiscal twenty twenty five and into fiscal twenty twenty six. We generated $3,800,000 in operating cash flow for the nine months ended 05/31/2025.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

At quarter end, the company had $27,100,000 of investments in joint ventures, of which 49.7% or $13,500,000 was in cash, with the remaining balance primarily invested in other working capital. During the fiscal twenty twenty five third quarter, NTIC's Board of Directors declared a quarterly cash dividend of $01 per common share that was payable on 05/14/2025, to stockholders of record on 04/30/2025. Recall, we temporarily adjusted our quarterly dividend to $01 per share as a part of our disciplined approach to managing our cash and navigating through this dynamic global environment. To conclude our prepared remarks, we remain committed to our long term growth opportunities. We are confident that our strategic priorities and financial discipline will drive sustainable growth, improving profitability and value for our shareholders.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

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

Operator

Our first question will be coming from Tim Clarkson of Van Clemens. Your line is open Tim.

Tim Clarkson
Stock Broker at Van Clemens & Company

Hey guys, improved quarter. It's sometimes hard to tell with when you're focused just on net earnings. So I was looking at the pretax operational profits from the previous quarter versus this and there's a significant improvement from second quarter, obviously.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

Yes. No, it certainly was better, and I certainly think we're trending now and headed in the right direction. I mean, looking across kind of all the different business units, just about every business unit took a step forward going from Q2 to Q3.

Tim Clarkson
Stock Broker at Van Clemens & Company

Good. Hey, so just on a big picture basis, when you look at this oil and gas thing, when you're trying to get one of these guys to switch from the older technologies to your newer technology, Now on the front end, is your technology cheaper on the front end?

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Compared to traditional methods, yes.

Tim Clarkson
Stock Broker at Van Clemens & Company

Yeah. Yep. You know, the electrolysis stuff.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

I'm sorry. I didn't understand what you were saying there.

Tim Clarkson
Stock Broker at Van Clemens & Company

Yeah. So I mean, if it you know, let's say that you're a customer and you're looking to switch, you know, from the older technology, which uses the, you know, the electricity deal. Yeah. Yeah. Or and and you're gonna switch to this new technology I mean on just on the front end is it is it cheaper or more expensive or about the same on the on the front end when you're trying to treat the tanks

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

it's much easier installation and it's much easier installation and basically you're spending a lot less money and it's getting the protection and you're getting and ours works better for a longer period of time.

Tim Clarkson
Stock Broker at Van Clemens & Company

Oh sure, mean there's no question about the long term but you're dealing with you know humans have a tendency to be kind of insect like and you know if the benefits are in ten years for all these people, know that's just an eternity, but at least if on the front end it's easier and you save money, you know that's a that's a benefit immediately that they can, justify the switch and and then of course you know the longer term benefits are way more significant, but that's important. Now, what's the in general on a quarter to quarter basis, what's the additional spending that you're doing on sales this year versus last year? What's what's the additional amount of money you guys are spending per quarter on on on the sales effort for the for the oil and gas?

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

You're you're talking primarily about personnel, really, in terms of that staff in various

Tim Clarkson
Stock Broker at Van Clemens & Company

Yeah.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Regions around the world that have experience in the oil and gas industry and in the kinds of areas that we like, and that should basically make our customer conversion happen faster.

Tim Clarkson
Stock Broker at Van Clemens & Company

Right. But what would be the total incremental cost that we're putting up front, the investments we're making right now per quarter versus what we're doing a year ago before we started making this big rollout with the sales expense?

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

Well, Timothy, if you look at it, if you look back to like our fiscal 'twenty three, fiscal 'twenty four from an oil and gas standpoint, in North America, we averaged about $4,000,000 In the current year, we're projected to spend about $5,300,000 So we've got about $1,300,000 of additional, say, investment in personnel that we've done over the past twelve plus months.

Tim Clarkson
Stock Broker at Van Clemens & Company

So but that $1,300,000 that's over a twelve month period, not over a quarterly Correct. Right, so it'd be $3,400,000 maybe per quarter is the additional expenses on the oil and gas. Yes. Right, right. And then of course the other issue is there's a, you know, it's a business that's clumpy so that you'll see a lot of the results in one quarter versus another quarter.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

Yeah, and I think you'll certainly see a step up in revenue kind of going from Q3 to Q4 as well from an oil and gas standpoint, kind of where we are in the quarter so far and expectations of backlogs and things like that, certainly would expect Q4 to be stronger than Q3 from an oil and gas standpoint.

Tim Clarkson
Stock Broker at Van Clemens & Company

Right. Now switching to China, that was a strong quarter for those guys. I mean, China now profitable?

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

China is profitable and China has been profitable for some time. What's nice is that we're seeing, you know, China as a standalone. You know, if I look back over the past, you know, three years, it certainly is a nice trend line from a revenue standpoint. I mean, if I look back to kind of the lows that we saw kind of coming out of COVID in our fiscal twenty three, you know, first quarter, second quarter, third quarter, where we're at like, you know, $2.62800000.0 in revenue per quarter, you know, now putting forth a quarter of 4,200,000.0, you know, shows significant growth in that region. So it is profitable.

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

It is contributing. You know, and it looks like what the Chinese are doing from a, you know, stimulating their economy standpoint that we are, you know, kind of also increasing our revenues accordingly.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Yes. Remember, this is primarily domestic consumption in China, not for export.

Tim Clarkson
Stock Broker at Van Clemens & Company

Right. Right. Now the the electric cars, I mean, do they still need the some of the, technology you have to prevent rust and corrosion?

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Yes. Just less of it than the traditional combustion engine.

Tim Clarkson
Stock Broker at Van Clemens & Company

Yeah. Rust, but they're making a hell of a lot of electric cars.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

On a per far basis, yes, it's less, but if they're making a hell of lot of cars, you can use a lot more material obviously.

Tim Clarkson
Stock Broker at Van Clemens & Company

Yeah, yeah. Okay, well good. I'm good. Last question on the compostable stuff. What's new there?

Tim Clarkson
Stock Broker at Van Clemens & Company

Is business pretty much as usual? Or are there any exciting new areas you're seeing on the compostable side?

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Well, there's one project we're working on. It's a little too early to talk about revenues. I mean, historically, one of problems you had with the compostable packaging is the water vapor transmission rate is pretty high. I mean, the plastic is pretty permeable, so there's limits to what you can actually package in it on a convenient basis. Now say that we, at least in the laboratory, have managed to fix that problem, there is a possibility of scaling that up and finding significant applications in food packaging that way.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

We're right now looking to do some, soon start some scale up production in area. And we probably will see revenues if all works out in the next two years or so.

Tim Clarkson
Stock Broker at Van Clemens & Company

Great. Okay, thanks. I'm done. Thank you.

Operator

And one moment for our next question. Our next question will be coming from Gus Richard of Northland Capital Markets. Your line is open.

Gus Richard
Managing Director at Northland Capital Markets

Hey, good morning. I had a couple questions. I just want to walk through the strength in the gross margin. When I look at it on a sequential basis, mix really doesn't imply gross margin should be up as much year on year. It's right in the right ballpark.

Gus Richard
Managing Director at Northland Capital Markets

And I'm just wondering, was just Q2 a weak gross margin quarter? Or what were the drivers sequentially and the improvement?

Matthew Wolsfeld
Matthew Wolsfeld
CFO & Corporate Secretary at Northern Technologies International Corp

Yeah, I think you certainly saw Q2 as being a weak quarter. I think you also see kind of the continued improvement that we're making and trying to as efficient and effective as we can with the products that we're selling. So, it's kind of combination of both, Gus.

Gus Richard
Managing Director at Northland Capital Markets

Got it. And then it looks like you're hiring heavily for oil and gas. I'm just wondering, you know, is this to harvest new customers? Is it to service new regions? If you could explain sort of where you're going there, that'd be helpful.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

It's a combination of things. We're looking to cover broader geographies and also go after applications.

Gus Richard
Managing Director at Northland Capital Markets

Geographies and applications?

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Yes. I mean, we're now building up our presence in The Middle East specifically, but we're also getting, I mean, new opportunities in South America and Africa.

Gus Richard
Managing Director at Northland Capital Markets

Got it. And then the last one for me. You talked about Nature Tech some large opportunities, and I was just wondering if you could kind of give us a sense on relative size and timing of those opportunities.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

I was just mentioning with Tim a second ago, the project that we're working on right now is trying to find applications in compostable plastics in food packaging. And historically, it's been the problem is that the compostable plastics are too permeable, so it can't contain gases and liquids and still be compostable. We think we've found a way of solving that problem, and now we're trying to figure out can you scale it up, and if so, what food applications can you be going after? But we have some significant interest in that area, so we're very confident that we should be able to develop something interesting over the next year or two.

Gus Richard
Managing Director at Northland Capital Markets

Got it. Got it. Helpful. Thank you very much.

Operator

And I would now like to turn the conference back to Patrick for closing remarks.

G. Patrick Lynch
G. Patrick Lynch
President & CEO at Northern Technologies International Corp

Thank you very much for calling today. Hope you have a nice week.

Operator

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

Executives
    • G. Patrick Lynch
      G. Patrick Lynch
      President & CEO
    • Matthew Wolsfeld
      Matthew Wolsfeld
      CFO & Corporate Secretary
Analysts
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