Q1 2025 Northern Technologies International Corp Earnings Call
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 Bioplastics 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 onto zeros to oil and gas.
U S oil and gas had a solid first quarter with sales reaching $1.5 million.
As anticipated first quarter sales were below fourth quarter levels because of the previous quarter had benefited from the timing on several large orders and seasonality.
Okay.
Looking at zero to oil and gas on a trailing 12 month basis sales were $9.2 million, a 23% increase over $7 $7 million for the trailing 12 month period ended November 30th 2023.
Okay.
Demand continues to grow among both new and existing customers of our <unk> oil and gas solutions, which today still focused 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 the U S 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 U S oil and gas sales that we expect to occur in the second half of fiscal 2025.
Turning to our nature take Bioplastics business.
Nature Tech sales remained strong during the first quarter and increased 22, 8% year over year to a quarterly record of $5 $9 million.
<unk> 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 nature Tech sales growth to remain strong in fiscal 2025.
Globally, we continue to see robust market demand for new applications are certified compostable plastics products and resin compounds as well as increased interest in commercial and municipal programs that use certified compostable plastics has alternatives to conventional plastics.
As you can see fiscal 'twenty 'twenty five 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 first quarter.
Thanks, Patrick compared to the prior fiscal year period, and Trc is consolidated net sales increased five 7% in the first quarter of fiscal 'twenty 'twenty five to a quarterly record of $21 $3 million because of the positive trends Patrick.
Viewed in his prepared remarks.
Sales across our global joint ventures increased one 2% in the first quarter compared to the prior fiscal year period.
Joint venture operating income increased two 7% primarily due to higher sales.
An increase in net income and Ntic's joint ventures.
Total operating expenses for the fiscal 2025 first quarter increased 14%.
Compared to the prior fiscal year period to $95 million, primarily due to increased personnel costs and strategic investments were making to support expected growth in the second half of the year within our oil and gas business.
On a sequential basis first quarter operating expenses were in line with fourth quarter.
As a percentage of net sales operating expenses were 44, 4% for the first quarter 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.
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 $561000 or six cents per diluted share for the first quarter compared to $896000 or nine cents per diluted share for the first quarter of fiscal 2024.
The first quarter.
non-GAAP adjusted net income was $667000 or seven cents per diluted share compared to the non-GAAP adjusted net income of $1 million or 10 cents per diluted share for the first quarter 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 'twenty, 'twenty, four 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 31, 2024.
As of November 30th 'twenty 'twenty, four 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 31 2024.
Producing threat, reducing debt through positive operating cash flow.
And improving working capital efficiencies will be a strategic focus in fiscal 'twenty five.
We generated $1 $4 million in operating cash flow for the three months ended November 30th 'twenty 'twenty four on November 30th 2024, the company had $25 $5 million of investments in joint ventures of which 54, 6% or $13 $9 million within cash with the remaining balance prime.
Barely invested in other working capital.
During fiscal 'twenty twenty-five first quarter Ntic's board of directors declared a quarterly cash dividend of seven cents per common share. It was payable on November 13th 2024 to stockholders of record on October 30th 'twenty 'twenty four.
To conclude our prepared remarks, our first quarter fiscal 2025 financial results are off to a solid start reflecting rec.
Our record consolidated 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 bioplastic markets.
We're expecting 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.
Speaker Change: We're excited by our long term prospects with this overview, Patrick and I are happy to take your questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please stand by while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Tim Clarkson from Van Clemens, Inc.
Tim Clarkson: Hey, guys good quarter I've got a few more questions I missed the last one sorry.
So.
Tim Clarkson: At this point what percentage of the the new tanks that are have a potential to best potential juices are zero stripping what percentage of those tanks are being treated.
Tim Clarkson: With northern Technology technology.
Tim Clarkson: I'm not sure I understand your call.
Tim Clarkson: To your question.
Tim Clarkson: Well you know Theres not yeah, you got it.
Tim Clarkson: The total number of tanks out there, okay and your best opportunity to use your treatment of course is when.
Tim Clarkson: Theyre, putting up new tanks, right. So I dunno, how how much those of the total tanks out there what percentage turnover per year, where they have to be replaced so I guess I'm looking at that the replacement market. The ones that are being replaced because they arrested out or are you putting up new tanks, because they're putting.
Tim Clarkson: Up new capacity those are probably your best opportunities to use your treatment. So all of those best opportunities the new tanks and the replacement takes what percentage of that market do we have right now.
Say it's.
Tim Clarkson: Not even 1%.
Tim Clarkson: At this point in time, if you look at the amount of tanks that are out there.
Tim Clarkson: And what traditionally used as the solution to protect the infrastructure, where we're not even a rounding error yet even though the revenues that we have the tanks that are out there the available markets.
Tim Clarkson: We're not at a point, where it's even even measurable.
Tim Clarkson: The expectation is that you get to a point, where it's obvious that you're here.
Tim Clarkson: Taking over market.
Tim Clarkson: That you're hoping to take over existing technology.
Speaker Change: Right, what what's the cost of the existing technology versus your your option.
Tim Clarkson: Our option.
Roughly a third of the cost of the traditional solution, which is the cathodic protection.
Okay, So and and you know what when you do your treatment how much of it let's say that a car what would be a typical cost on the front end for our for our treatment sort of half a million carve a million.
Tim Clarkson: I mean, if youre talking about a standard tank.
We might charge the chemistry portion that we charge, maybe anywhere from 25% to $50000 per standard sized tank it can be okay.
Tim Clarkson: Several hundred thousand dollars.
Tim Clarkson: Okay.
Tim Clarkson: One of the larger tanks.
Tim Clarkson: Football fields.
Tim Clarkson: But there's also smaller 50 meter tanks that where the revenue generated from it is very small, but obviously depends on the square the square footage of protection that you are providing.
Tim Clarkson: Sure now what percentage of it once you do an installation is there ongoing revenues that flow from that installation theres ongoing revenues typically five plus years. After you recharge the.
Tim Clarkson: Recharge the infrastructure.
Tim Clarkson: Okay, Okay, and then in and are they I mean, it's it would be would it be 10% of the original treatment or or is it or is it more than that or less than that or about about that.
Tim Clarkson: Yes, I mean thats.
Tim Clarkson: Kind of what we're seeing where we're getting to a point now where we're starting to do some of the recharge work.
Tim Clarkson: 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 schedule and what the requirements are for them too.
Tim Clarkson: We would expect their tax rate.
Tim Clarkson: Right.
Tim Clarkson: Right and I'm guessing those are good opportunities to continue to sell and market for additional installations at that point when you're when you're out there certainly.
Tim Clarkson: Certainly okay.
Tim Clarkson: And.
Tim Clarkson: On the compulsive ball in you know what what's new that's going on there is there are there I mean, it was really good growth, 20% plus what's going on there that's exciting.
Tim Clarkson: Okay.
Tim Clarkson: I'd say the biggest.
Tim Clarkson: The excitement from the proposal space I think continues to be the company that we're kind of working with the coordinating with too.
Tim Clarkson: Yeah.
Tim Clarkson: Develop.
Tim Clarkson: Specialized rather is to manufacture their products.
Tim Clarkson: There are some nice opportunities that we're working on that.
Tim Clarkson: Should see success from over the next 612 18 months.
Tim Clarkson: And.
Tim Clarkson: But I think we will.
Tim Clarkson: Continue to accelerate the growth from nature Tac you certainly still have the existing growth kind of from the normal distribution sales.
Tim Clarkson: Bin liners, cutlery and things like that but there is also kind of things going on in the background.
Tim Clarkson: Selling resin to to companies to manufacture their own products.
Tim Clarkson: Which we're certainly working so I think that's probably the most exciting thing that we're going to see over the next six to 18 months and we're certainly going to drive the nature Tac revenue going forward.
Sure.
Just one last question on the tanks deal I mean, its thorough potential for you guys to have a <unk>.
Tim Clarkson: $3 million to $4 million quarter. This year or is that is that too ambitious inside of nature Tech no inside of the Tam I'm I'm I'm flip it back to the to the oil tank business.
Tim Clarkson: I certainly hope so I mean, we if you look at from a revenue standpoint in the fourth quarter of last year, we did $4 2 million.
Tim Clarkson: There are some sizable opportunities that we're working on in oil and gas one of the part of the expectations we have at it.
Tim Clarkson: The oil and gas work is a bit seasonal because you get the.
Tim Clarkson: A lot of the work, we're doing and stuff like that with some of the pipe casing pipe protection and things like that doesn't happen in the winter, but certainly some of the expectations that 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 third and fourth quarter of this year. So I don't expect typically companywide.
Tim Clarkson: Our second quarter has historically if you go back.
Tim Clarkson: 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 our for the current year certainly based on what I'm seeing as far as the backlog in projects from.
Tim Clarkson: In industrial standpoint in oil and gas standpoint, and an after tax standpoint.
Tim Clarkson: That's what I would expect to see kind of the acceleration in sales. So I do think that the.
Tim Clarkson: Growth of 4 million plus dollar quarter is certainly doable.
The other thing I'll say is that over the past 12 to 16 months, we have dramatically accelerated the investments that we've made into the oil and gas space specifically to develop a global sales team.
Tim Clarkson: And.
Tim Clarkson: 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.
Tim Clarkson: To develop but that's something that we expect to see the results on in the back half of our fiscal 'twenty four or I'm, sorry, the back half of our fiscal 'twenty 5 million third and fourth quarter and then beyond.
Tim Clarkson: So we're kind of gearing up for bigger and better things.
Tim Clarkson: It kind of developing the internal infrastructure to be able to handle the increase in revenue from from those groups.
So.
Tim Clarkson: That's really what gets me excited from a company standpoint.
Tim Clarkson: Sure sure.
Tim Clarkson: Switching to China, how come China's doing better.
Tim Clarkson: I wish I could answer all the questions on what's going on in China I can tell you that there is.
Tim Clarkson: Just in general from a Chinese standpoint, we saw a slight recovery.
Tim Clarkson: If you look at kind of what's going on in China. We saw it we're not selling a huge amount in China compared to kind of where we were where we expected to be I mean, so you are talking about a $4 million in revenue in our Q1 compared to $3 $6 million of revenue in our Q4. So there is.
Tim Clarkson: That's almost a 10% increase in.
Tim Clarkson: In sales I think there are certain things that are starting to kind of accelerate and recover a little bit there I think.
Tim Clarkson: There's also our team there is also working on.
Tim Clarkson: Domestic.
Tim Clarkson: Sales in China, and protecting things in China compared to in solely focused on.
Tim Clarkson: Exports before so I think there is markets that we're going after that we haven't gone after before.
Tim Clarkson: And there's a bit of a recovery starting to happen and not in China.
Tim Clarkson: Some of it might be temporary and.
Tim Clarkson: There's obviously a lot going on from a geopolitical standpoint between the countries.
Tim Clarkson: I know that right now.
Tim Clarkson: There is a huge increase in.
Tim Clarkson: Activity in China, specifically because of.
Tim Clarkson: The changing of.
President's and E.
Tim Clarkson: Uncertainty of what's going to have with tariffs and things like that so.
Tim Clarkson: What kind of see how things change in China going forward, but our expectations are that.
Tim Clarkson: We're going to see a decline in Q2 in China, regardless, just because thats when Chinese Chinese new year's is mid January and so we're going to see a slowdown that we always see in second quarter from China.
Tim Clarkson: Expectations are that Q3, and Q4 will be similar or slightly better than in Q1. So.
Tim Clarkson: All in all our expectations are that China is going to grow from last year during $2014 2 million to $15 million.
Tim Clarkson: And beyond this year.
Tim Clarkson: Great. One last question is there anything in your R&D, that's particularly exciting and that you can talk about no I think I think from an R&D standpoint.
Tim Clarkson: The blocking and tackling in the work we're doing in nature Tac is what's exciting from my standpoint.
Tim Clarkson: The additional let's say that the rollout of <unk>.
Tim Clarkson: And seeing kind of the adoption of the technologies in oil and gas has seen the projects that we're working on they're starting to get put into company's budgets and start as.
Tim Clarkson: 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: Great Alright, good good quarter. Thanks, Thanks for answering my questions.
Tim Clarkson: Thank you one moment for next question.
Speaker Change: Our next question comes from the line of Gus Richard from Northland Capital markets.
Gus Richard: Good morning, Thanks for taking the questions.
Speaker Change: <unk> Z rust.
Gus Richard: It looks like that business has stabilized.
Speaker Change: And I was just wondering if you could give a little bit of color.
Gus Richard: All.
Gus Richard: On that market do you expect it to remain stable going forward or could there be some growth.
Gus Richard: Right now we're looking at more of a stability in the market right now, we're so proud to see what's going to happen with the German economy.
Gus Richard: Understood.
Gus Richard: Paying with their automotive industry right now.
Gus Richard: Got it.
Gus Richard: I'm, just going to follow up with Europe, and the JV is sort of a similar question.
Gus Richard: Do you expect.
Gus Richard: Yes, do you expect.
Gus Richard: Given what's going on in Germany.
Gus Richard: Can you hold pullback JV revenue flat or.
Gus Richard: We're going to continue to be pressure.
Gus Richard: Well, it really depends on which country you're talking about I mean for example in Finland.
Gus Richard: The fantastic quarter.
Gus Richard: Versus Germany, where they are feeling a more pain.
Gus Richard: Folks wagon Audi.
Gus Richard: <unk> situation.
Gus Richard: So I think for most part.
Gus Richard: Aside from Germany that joint venture to Needham Jefferies is doing fairly well.
Gus Richard: Sure they were worried about.
Gus Richard: Got it and then.
Gus Richard: No.
Gus Richard: Oil and gas business is still pretty lumpy.
Gus Richard: Yeah.
Gus Richard: Can you sort of give a sense too.
Gus Richard: First half second half.
Gus Richard: You know.
Gus Richard: Relative seasonality is it like 50 50, not 50 50, but maybe one third first half two thirds second half for for oil and gas in terms of how that would would wait.
Gus Richard: Second half over first half.
Gus Richard: Yes, I mean, if I look at it.
Gus Richard: <unk>.
Gus Richard: I think youre looking at something close to 60 40, or one third two thirds as far as first half second half.
Gus Richard: Got it got it.
Gus Richard: Super helpful.
Gus Richard: Last one for me and do you feel like at this point makes that can sort of sustain roughly 20% growth this year.
Gus Richard: Overall as a total company 20% growth.
Gus Richard: No no no no just thanks for Teck.
Gus Richard: If I look at from an expectation standpoint, yet right its right around that number as far as as far as expectations for nature take yes.
Gus Richard: Got it alright very helpful. Thank you so much thanks guys.
Speaker Change: Thank you one moment for our next question.
Joe Vintage: Our next question comes from the line of Joe Vintage from Modelo Pan Oracle Capital Management LLC.
Joe Vintage: Yes, good morning, Patrick and Matt.
Joe Vintage: Yeah.
Joe Vintage: Great to see the progress.
Joe Vintage: And the outlook.
Joe Vintage: I'm just wondering if you could just.
Joe Vintage: Regarding nature Tech.
Joe Vintage: Whether you consider the sales to be recurring one once you started.
With a customer whether that's something we could look forward to as a.
Joe Vintage: Basically building upon.
Joe Vintage: If that is the exactly how nature Tac 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.
Joe Vintage: Fine.
Joe Vintage: Step function, adding to that to that revenue. So its nature tech lends itself to typical.
Joe Vintage: Kind of.
Forecastable.
Joe Vintage: By month growth.
Joe Vintage: Which is which is what we've seen in the past if you discount out.
Joe Vintage: What happened during during Covid, which obviously had a major impact nature given given the.
Joe Vintage: The nature of how that impacted everybody's daily life.
Joe Vintage: That's typically what we see is as you work on a project or you sign up a distributor.
Joe Vintage: Get them working on projects and you ramp up from from there with consistent growth.
Joe Vintage: Great great great.
Joe Vintage: And then just with.
Speaker Change: With regard to the oil and gas business I was wondering if you know.
Joe Vintage: What.
Joe Vintage: You talked about the timeframe in terms of getting a new sales person up and running I was wondering if you could also talk about just what the sale cycle is and then also talk about your.
Joe Vintage: Sales pipeline and how that's.
Joe Vintage: Progressed over time.
Joe Vintage: Alright.
Joe Vintage: Your question please.
Joe Vintage: Hello.
Joe Vintage: Hello could you repeat your question please.
Joe Vintage: Sure Yes.
Joe Vintage: So with regard to the oil and gas business.
Joe Vintage: <unk> oil and gas.
Joe Vintage: Yes.
Joe Vintage: Was wondering if you could talk about your sales pipeline and how the sales pipeline has.
Joe Vintage: Progressed over time, and then also regarding the.
Joe Vintage: The new salespeople.
Speaker Change: Roughly over what period of time do you see them becoming.
Joe Vintage: Really adding to the.
Speaker Change: The sale.
Speaker Change: Yes.
Speaker Change: With any sales person we've ever hired in this recovery and it takes them six months to a year to really learn the business.
Speaker Change: And it's starting to be effective so we'll start to see a pickup from the people we hired referred to see some pick up probably by the end of this fiscal year.
Speaker Change: I see the major impact until the next fiscal year.
Speaker Change: Great and in terms of just your sales pipeline I was just wondering if you could talk a little bit about it are you.
Speaker Change: Are you seeing.
Speaker Change: Repeat customers is that where are you seeing.
Speaker Change: <unk> customers come who are new and some.
Size of the potential size of orders.
Speaker Change: And also maybe globally to talk about where youre seeing the.
Speaker Change: The sales.
In North America were primarily were now seeing repeat sales from existing customers.
Speaker Change: But obviously, we're also adding new customers as they come along but figure so steady repeat business.
Speaker Change: Internationally, we're still building that up over time, we will see we'll know more on how that's going to pan out. Once we have these 10 people who have to speak.
Speaker Change: And the 10 people.
Speaker Change: Is that 10, new people on top of whatever existing sales staff.
Speaker Change: This is effect.
Speaker Change: I'm not saying, it's 10 salespeople there is probably six salespeople and for technical or other people that are associated with the oil and gas.
Speaker Change: Right right right.
Speaker Change: And my final question is.
Speaker Change: In terms of the Chinese sales I was just wondering.
Speaker Change: Hmm.
Speaker Change: Could you break that down between nature Tech and Xerox and first oil and gas do you break it down at all like that sure.
Speaker Change: This is very much in oil and gas, but in terms of the mix.
Mitch: Hey, Mitch.
Speaker Change: That's really to help you out with that.
Speaker Change: So if I'm looking at the historical China sales.
Speaker Change: I would say that we are at roughly you're at about 10% sales, 10% of the China sales number is nature Tac and the rest being.
Speaker Change: The North America and outside of outside of China.
Speaker Change: Business in North America the business.
Speaker Change: And India and other parts of southeast.
Speaker Change: Southeast Asia.
Speaker Change: Right right right right.
Speaker Change: Okay.
Speaker Change: Anyway.
Speaker Change: All I got guys.
Speaker Change: I appreciate your taking my questions. Thanks, Joe.
Speaker Change: Thank you one moment for next question.
Speaker Change: Our next question comes from the line of Don Hall.
Don Hall: Good morning, gentlemen, just one simple question.
Speaker Change: Yes.
Speaker Change: Your expenses increased in the last quarter.
Speaker Change: And the reason why I'm quoting because you've expanded your sales infrastructure.
Speaker Change: And I wanted to elaborate on that a little more although I've been listening to all of your previous conversation. So youre hiring a number of salespeople and sales support people.
Can you say where or how are these brand new territories can you.
Speaker Change: And describe that a little more please.
Speaker Change: <unk> relief.
Speaker Change: I'm sorry.
Speaker Change: Asia and Middle East.
Okay.
I missed I am sorry, I Didnt pick up your comment I'm, sorry, South East Asia, and the Middle East is primarily where these people are motivated.
Speaker Change: Southeast Asia and these are brand new territories that are there.
Speaker Change: Yes.
Speaker Change: I see southeast Asia and Middle East.
Speaker Change: Well I hope, it's got great promise I assume it does.
Speaker Change: I think so.
Speaker Change: Alright, Thank you very much.
Speaker Change: Sure.
Speaker Change: Thank you.
Patrick Lynch: This time I would now like to turn the conference back to Patrick Lynch for closing remarks.
Speaker Change: Okay. Thank you everybody for.
Patrick Lynch: Participating on the call today and Richard Nice thing.
This concludes today's conference call. Thank you for participating you may now disconnect.
Patrick Lynch: Okay.
Patrick Lynch: [music].