Q2 2025 Northern Technologies International Corp Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Northern Technologies International Corporation's second quarter, 2025, Ernie Wisconsin's call and webcast.
Speaker Change: At this time, we'll participants on a listen-only mode. After this biggest presentation, there'll be a question-an-answer session. To ask a question during the session, you'll need to press star 111 on your telephone. You will then hear an automated message advising your hand is raised.
Please note that today's conference is being reported.
Speaker Change: As part of the discussions today, the representative from NTIC will be making certain fold-looking statements regarding NTIC's future financial and operating results, as well as their business plans, objectives and expectations.
Speaker Change: Please be advised at this point. I've covered under the safe harbor provisions of the private security litigation reform act of 1995, and that NTIC desires to avail itself of the protections of the safe harbor for these statements.
Speaker Change: Please also be advised the actual results could differ materially from those stated or implied by the portal statements to discern risks and uncertainties, including those described in NTIC's most recent annual report on 10K, such as when quarterly reports on from 10K and recent press releases.
Speaker Change: Please support these reports and other future filings that NTIC will make with the SEC.
Speaker Change: NTIC, this claims any duty to update or advise its royal statements. I will now hand a conference over to you speaker for today, Mr. Patrick Lynch, NTIC to Executive Officer. Please go ahead, sir.
Speaker Change: Good morning, I'm Patrick Lynch, NTAC's CEO , and I'm here with Matt Wolsfeld, NTAC's CFO .
Speaker Change: Please note that a press release regarding our second quarter fiscal 2025 financial results was issued early in this morning and is available at ntac.com.
Speaker Change: During today's call, we will review various key aspects of our second quarter fiscal 2025 financial results, provided brief business update, and then conclude with the question in an intercession.
Speaker Change: Please note that, when we discuss year-over-year performance, we are referring to the second quarter of our fiscal 2025 if you compare us into the second quarter of the last fiscal year.
Speaker Change: Our fiscal 2025 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 stakeholders.
Speaker Change: Furthermore, regardless of the disconcerted rule and uncertainty, we believe we are poised for a rebound in the mid-second half of the fiscal year.
Speaker Change: These extrotations are supported by our current sales pipeline and admin from new and existing customers within our nature tech and zero-score-the-gas segments.
Speaker Change: NTSC and our joint venture partners have successfully navigated difficult economic cycles before.
Speaker Change: 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, skill, and diversity of our business.
Speaker Change: In addition, he is also important to note that we continue to have a solid cash position with over $5 million in cash and cash equivalence and available for sale securities in the U.S.
Speaker Change: as well as $13 million of additional cash at our international joint ventures.
Speaker Change: 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.
Speaker Change: We believe that our strategic growth priorities and financial discipline will drive sustainable growth and long-term share of older value.
Speaker Change: So with this overview, let's examine the drivers for the second quarter in more detail.
Speaker Change: Broken down by a business unit, this included a 28.5% decrease in zero soil and gas net sales and 11.8% decrease in nature tech net sales and a 3.7% decrease in zero industrial net sales.
Speaker Change: Turning to our joint venture sales, which we do not consolidate in our financial statements.
Speaker Change: After a year-over-year increase in the fiscal 2025 first quarter, total net sales for the fiscal 2025 second quarter by our joint ventures decreased year-over-year by 15.7 percent to 19.8 million dollars.
Speaker Change: We believe this year, over a 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 potential disruptive impacts these will have on global supply chains.
Speaker Change: I have encouraged by the continued improvement of CL's trends and our holy own NTSC China subsidiary.
Speaker Change: fiscal 2025, 2nd quarter, net sales at NTSC China, increased by 8.1% to $3.7 million.
Speaker Change: The slight decline compared to first quarter sales levels was due to the seasonal impacts
Speaker Change: Overall, sales in this PRV continue to stabilize in our approaching quarterly sales levels that we last experienced in fiscal 2021 and 2022.
Speaker Change: The majority of NTSC China's production and sales are for local consumption and therefore we believe NTSC China's exposure to tariffs, including those recently imposed by the U.S. is limited.
Speaker Change: We expect demand in China will continue to improve in fiscal 2025, help them to support higher incremental sales and profitability in this market.
Speaker Change: In addition, we are committed to the long-term opportunities Chinese market provides are industrial and bioplassic segments, and we continue to take steps to enhance our operation in this
Speaker Change: As a result, we continue to believe China will likely become a significant geographic marker for us in the future.
Now, moving out to zero soil and gas.
Speaker Change: 0-1 gas sales were 1.5 million dollars in the second quarter of fiscal 2025, compared to 2.2 million dollars in the same period last year.
Speaker Change: Please remember, however, the last fiscal year's second quarter, benefited from certain corner gas customers shifting deliveries from the first quarter to the second quarter.
Speaker Change: Seasonality and the timing of orders can impact quarterly comparisons, which is why we encourage investors to look at zero-swirling gas seals on a trailing 12-month basis.
Speaker Change: On a trailing 12-month basis, zero-storling gas seals were $8.6 million, a 7.2% increase from $8 million for the trailing 12-month period at February 29, 2024.
Speaker Change: Our sales pipeline continues to grow among both new and existing customers for our serious oil and gas solutions, which still focus primarily on protecting above ground oil storage tanks and pipeline casings from corrosion.
Speaker Change: As I mentioned on prior calls, we made strategic investments to expand our oil and gas seals infrastructure through the first quarter to support accelerated zero oil and gas seals that we expect to start occurring in the second half of this 2025.
Turning to our nature-deck bioplastics business.
Speaker Change: The Interject sales were $5 million, the second quarter of fiscal 2025, compared to $5.6 million in the same period a year ago.
Speaker Change: We believe the 11.8% year-over-year decline in H Tech Seals with due to a couple of factors including order timing and seasonal variation.
Speaker Change: While 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 nature tech sales, we believe our long-term on-market opportunities remain strong.
Speaker Change: In addition, U.S. organic waste diversion mandates and waste management rules are created at the local municipality and state loans.
Speaker Change: So we don't expect changes to federal priorities to impact local U.S. demand for our composable solutions.
Speaker Change: We are also working on several large opportunities for our HDEC solutions that we believe could help to re-accelerate our growth in the coming quarters.
Speaker Change: As we navigate dynamic global and economic uncertainty, please consider that NTSC's long-standing leadership team has previously navigated several challenging economic periods, including the Great Recession, 2008 and 2009, and more recently the COVID-19 pandemic.
Speaker Change: Since then, the size, scale, and diversity of our business has increased.
Speaker Change: Finally, the strength of our balance sheet and benefits of our asset-like business model, Vidich with significant flexibility and resources to navigate this type of economic and business uncertainty.
Speaker Change: 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.
Speaker Change: Sure, I turn the call over to Matt. I want to acknowledge and have the hard work and dedication of our global team of both employees and enjoying venture partners. Our success and our ability to navigate for more complex economic periods are direct result of their efforts.
Speaker Change: With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2025 second quarter.
Thanks, Patrick.
Matt Wolsfeld: Compared to the prior fiscal year period, NTSC's consolidated net sales decreased 8.5% in the second quarter of fiscal 2025 to 19.1 million dollars because of the trends Patrick were read and is prepared remarks.
Matt Wolsfeld: Sealed across are global drain ventures, decreased 15.7% in the second quarter, compared to the fire fiscal period.
Matt Wolsfeld: 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.
Matt Wolsfeld: Both of which were primarily driven by lower sales at many of NTSC's joint ventures.
Matt Wolsfeld: Total operating expenses for the fiscal 2025 second quarter increase 2.4% compared to the prior fiscal year period to 8.8 million dollars.
Matt Wolsfeld: 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 do a lesser extent, increase personnel costs across the company.
Matt Wolsfeld: 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% to the second quarter paired to 41.3% for the prior fiscal year period.
Matt Wolsfeld: Gross profit as a percentage of net sales was 35.6% during the three months ended February 28th, 2025, compared to 40.0% during the prior fiscal year period.
Matt Wolsfeld: The 440 basis point decline was primarily a result of a less profitable mix of the sales.
NTSC reported net income of $434,000.
Matt Wolsfeld: or 4 cents per deluded share for the fiscal 2025 second quarter compares to $1.7 million for 17 cents per deluded share for the fiscal 2024 second quarter.
Matt Wolsfeld: for the fiscal 2025 second quarter and TSU's non-GAAP adjusted income was a loss of $300,000 per 3 cents per diluted share compared to non-GAAP adjusted income of $1.8 million, a 19 cents per diluted share for the fiscal second quarter of 2024.
Speaker Change: For reconciliation of gap to non-GAAP financial measures is available on our second quarter fiscal year 2025 earnings press release was issued this morning.
Speaker Change: As of February 28th, 2025, working capital was $21.4 million, including $5.1 million in cash and cash equivalents, compared to $23.7 million, including $5.0 million, cash and cash equivalents, as of August 31st, 2024.
Speaker Change: As of February 28th, 2025, with outstanding debt of $8.1 million.
Speaker Change: This included $5.4 million in borrowings under our existing revolving line of credit compared to $4.3 million, as of August 31st, 2024. Reducing debt through positive operating cash flow and approving working capital efficiencies will be a strategic focus.
in the Reender of Fiscal 2025.
Speaker Change: We generated $3.2 million in operating cash flows for the six months ended February 28, 2025.
Speaker Change: At quarter-end, the company had $25.0 million in investments in joint ventures, of which 52% or $13 million was in cash with the remaining balance primarily invested in working capital.
Speaker Change: During fiscal 2025, second quarter, NTIC's Board of Directors declared a quarterly cash dividend of seven cents per time and share, that was payable on February 12, 2025 to stockholders of record on January 29, 2025.
Speaker Change: We'll drive sustainable growth and create value for our shareholders. With this overview, Patrick and I are happy to take your questions.
Thank you.
Speaker Change: Thank you. As I'm minded to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: to withdraw your question. You may press star one one again.
Please stand by when we compile the canner roster.
Speaker Change: Now first question coming from Delina, Tim Clarkson with Ben's Climben-Skyline is now open.
Tim Clarkson: Hey guys, obviously a tough environment to do business. Just wanted to ask I 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 or have we changed out any of those people yet? Are they all performing the way we expected?
Tim Clarkson: Well, it's an exciting question. Yes, we hired it, I believe. Oh, it's so...
Tim Clarkson: Eight people. Some of them did not work out and we have let the company since then. We're expecting the impact to start showing in the second half of this year, and other than that, the 3rd is going ahead for steam.
Speaker Change: in terms of the compostable, you mentioned that there are some potential deals in that area that could reignite a business there. Are those in new areas or what's the dynamic behind those?
Speaker Change: I think the trial results are looking good and it works out it should be a significant opportunity for us.
Speaker Change: Okay, good. Good. In terms of, you know, I see that you got this employee retention payment. Was that an actual cash payment or was that just an accounting adjustment? That was a natural cash payment.
Speaker Change: Okay, good. All right. Well, it looks like you're, is your, is how is your core business doing right now? Is it still de-accelerating or is business about the same slightly worse or what are your expectations for this quarter with your core business? It's going to be flat.
Tim Clarkson: Okay, flat might be good. So all right. Thank you. I'm done with my questions. Thanks, Tim.
Thank you.
Speaker Change: Our next question, coming from the line of, Auguste Richard, with Nordland Capital Park
Yelena Smallpin: Yes, thanks for taking the questions. Just on the Grumps margin, you know, it was down in the trailer significantly year over year. Nature Tech actually was down as a percentage of revenue. And I'm just...
Sort of wondering
Yelena Smallpin: You know, half a million dollars of oil and gas was the loss of that, was was that the pressure and gross margin or a little bit of color there would be help.
Yelena Smallpin: Yeah, there's there's there's two main impacts from a gross margins standpoint. The gross margin across the, you know, the traditional zero industrial businesses remained.
Yelena Smallpin: Relatively steady, and we haven't seen significant deviations there. I'll say that there was...
Yelena Smallpin: Probably on an average of anywhere from 4% to 6%, even up to 8% in some areas to maintain competitive and to kind of keep that business. So that's been one of the...
Yelena Smallpin: Impact to Gross Margin. You'll note that over the past two years we've been able to increase that gross margin from the lower 20% up into the higher 30 plus 35%. So we saw a little bit of pullback on the gross margin at the Nature Tech business.
to, you know, what it says more of a mean level.
and then, additionally, from the oil and gas business.
Yelena Smallpin: Gross margins, remained flat, but obviously with Gross margins sales being down, you know, year over year, that's just the weighted average of the of the product sale.
Speaker Change: Got it. Very helpful. Thank you. And then, just on the Nish Tech opportunity that you talked about is, you know, can you add a little bit more color what the application might be? Is it resin versus finished product? You know, is it cutlery or some other other, you know, product category?
The Food Packaging.
I'm sorry, it's from the packaging.
Okay, got it.
Speaker Change: God, it's very helpful. Alright, that's it for me. Thank you.
Thank you.
Speaker Change: And as our mind, if you'd like to ask a question, please press star 111 and wait for your name to be announced.
Our next question, coming from Delina, exactly get with Desmond Ligate, Walt Advicer,
Speaker Change: You know, 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.
Speaker Change: The problem is that the German economy and more broadly the European economy has been suffering from the fact that the majority of the Ukraine crisis.
Speaker Change: and certain plants that are high on your users, let's say foundries, steel mails, etc. are not profitable to operate at all. And so a lot of these manufacturing plants are actually shutting down and laying off their workers.
Speaker Change: and that's an ongoing situation that's not going to change very soon in Germany. So, I hope that the decline is going to level up at some point in that to this future, but for right now it's going to be more of the same for the foreseeable future.
Okay. Thank you.
Thank you.
Speaker Change: In our next question, coming from the line of Gregory, you beaver with Invector Capital
Speaker Change: It's going to be the oil storage tank bottoms in pipeline casings primarily in various
Speaker Change: A number of quite a large number of tanks and bombs and pipeline gavelings, I'm not exactly sure how many in total, but it should be a decent pickup.
Speaker Change: That Geographic, or any segment, or how do you divide that up?
Speaker Change: We had it in North America in the Middle East, Asia and in Europe .
Has anything come out of...
Speaker Change: BP relationship in terms of other customers or other geographies in which they're interested.
Speaker Change: and B.P. were targeted in various locations, but nothing that's hidden, let's come out of it yet now.
Speaker Change: Okay, and lastly, how about Brazil in terms of, I guess, that kind of getting straightened down back on track, and you were, you know, 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 wrapping up a great nice thing.
Speaker Change: Okay, well it sounds like this is the business that's going to make the difference here in terms of the numbers in the second half anyway, so hopefully we can get some deals close.
Yes, well, I agree.
Okay, thanks guys, good luck.
Thank you.
Operator: And I am sure I know for the questions in the queue at this time, I will not turn the call back over to Mr. Patrick Lynch for any closing remarks.
Operator: Thank you again for everybody for probably in this morning. I hope you have a nice rest of the week.
Speaker Change: Ladies and gentlemen, that doesn't got conference for today. Thank you for your participation and you may now disconnect.