Northern Technologies International Corporation

2025 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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 actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in NTIC's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements. I would now like to hand the conference over to your speaker today, Patrick Lynch, NTIC's CEO. Please go ahead.

Good morning. I'm Patrick Lynch. NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. A press release regarding our first quarter fiscal 2025 financial results was issued earlier this morning and is available at ntic.com. During today's call, we will review various key aspects of our first quarter 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 first quarter of our fiscal 2025 in comparison to the first quarter of our last fiscal year. NTIC's record first quarter consolidated sales were driven by NatureTech all-time record quarterly sales, as well as stable Xerox oil and gas and Xerox industrial sales. Furthermore, NTIC China enjoyed its highest quarterly sales in nearly three years, while we also saw improved sales trends across several important geographies and at NTIC's joint ventures. I believe these top-line results demonstrate the efficacy of our strategic planning, the value we bring to our global customers, and NTIC's resilience amidst ongoing economic complexities. Thanks to the continued successful execution of certain quality system improvement initiatives, NTIC was able to achieve another quarter of gross margin growth on a year-over-year basis. We have also been investing in expanding our oil and gas sales infrastructure due to increased customer activity, which in turn should accelerate Xerox oil and gas sales in the second half of fiscal 2025. Overall, our first quarter was an encouraging start to fiscal 2025. Although the economic environment remains fluid, we anticipate fiscal 2025 will bring further sales growth and improved profitability. So, with this overview, let's examine the drivers for the first quarter in more detail. For the first quarter ended November 30, 2024, our total consolidated net sales increased 5.7% to a first quarter record of $21.3 million as compared to the first quarter ended November 30, 2023. Broken down by business unit, this included a 22.8% increase in NatureTech net sales, a 0.7% increase in Xerost oil and gas net sales, and a 0.4% increase in Xerost industrial net sales. Total net sales for the fiscal 2025 first quarter by Arduin Ventures which we do not consolidate in our financial statements, increased year-over-year by 1.2% to $23.8 million. Stabilizing sales trends at our joint ventures are encouraging since we have been navigating challenging market conditions for the past several years at our European joint ventures due to higher energy prices as well as regional, political, and economic uncertainties. I am also encouraged by improving sales trends at our wholly owned NTIC China subsidiary. Fiscal 2025 first quarter net sales at NTIC China increased by 8.6% year-over-year to nearly $4 million. Sales in this geography continue to stabilize and are approaching quarterly sales levels that we last experienced in fiscal 2021 and 2022. We remain cautiously optimistic that demand in China will continue to improve in fiscal 2025, helping to support higher incremental sales and profitability in this market. We are committed to the long-term opportunities the Chinese market provides our industrial and bioplastic segments, and we continue to take steps to enhance our operations in this geography. As a result, we continue to believe China will likely become a significant geographic market for us in the future. Now, moving on to Xerost Oil and Gas. Xerost 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 the previous quarter had benefited from the timing on several large orders and seasonality. Looking at Xerost Oil and Gas on a trailing 12-month basis, sales were $9.2 million a 20.3% increase over $7.7 million for the trailing 12-month period ended November 30, 2023. Demand continues to grow among both new and existing customers of our Xerost oil and gas solutions, which today still focus primarily on protecting above-ground oil storage tanks and pipeline casings from corrosion. While we continue to expect seasonal ordering patterns to drive fluctuations in Xeris 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 Xeris oil and gas sales that we expect to occur in the second half of fiscal 2025. Turning to our NatureTech Bioplastics business, NatureTech sales remained strong during the first quarter and increased 22.8% year-over-year to a quarterly record of $5.9 million. NatureTech's growth during the quarter was a result of continued new customer wins in North America and India, as well as expanding relationships with existing customers. We expect NatureTech sales growth to remain strong in fiscal 2025. Globally, we continue to see robust market demand for new applications of certified compostable plastics products and resin compounds, as well as increased interest in commercial and municipal programs that use certified compostable plastics as alternatives to conventional plastics. As you can see, fiscal 2025 is off to a solid start. We are excited by the positive momentum underway and the direction NTIC is headed. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our recent success and the opportunities we are pursuing are a direct result of their efforts. With this overview, let me now turn the call over to Matt Wolfsfeld to summarize our financial results for the fiscal 2025 first quarter.

Thanks, Patrick. Compared to the prior fiscal year period, NTAC's consolidated net sales increased 5.7% in the first quarter of fiscal 2025 to a quarterly record of $21.3 million because of the positive trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures increased 1.2% in the first quarter compared to the prior fiscal year period. Joint venture operating income increased 2.7% primarily due to higher sales and an increase in net income at NTIC's joint ventures. Total operating expenses for the fiscal 2025 first quarter increased 14% compared to the prior fiscal year period to $9.5 million, primarily due to increased personnel costs and strategic investments we're making to support expected growth in the second half of the year within our oil and gas business. On a sequential basis, 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 30, 2024, compared to 36.3% during the prior fiscal year period. The 200 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures. Net income attributable to NTIC was $561,000 or $0.06 per diluted share for the first quarter compared to $896,000 or $0.09 per diluted share for the first quarter of fiscal 2024. The first quarter NTSC's non-GAAP adjusted net income was $667,000 or $0.07 per diluted share compared to the non-GAAP adjusted net income of $1 million or $0.10 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 30, 2024, working capital was $22.2 million, including $5.6 million in cash and cash equivalents compared to $23.7 million, which included $5 million in cash and cash equivalents as of August 31st, 2024. As of November 30th, 2024, we had outstanding debt of $7.3 million. This included $4.5 million in borrowings under our existing revolving line of credit compared to $4.3 million as of August 31st, 2024. Reducing debt through positive operating cash flows and improving working capital efficiencies will be a strategic focus in fiscal 25. We generated $1.4 million in operating cash flow for the three months ended November 30, 2024. On November 30, 2024, the company had $25.5 million in investments in joint ventures, of which 54.6% or $13.9 million was in cash, with the remaining balance primarily invested in other working capital. During fiscal 2025 first quarter, NTC's Board of Directors declared a quarterly cash dividend of $0.07 per common share that was payable on November 13, 2024, to stockholders of record on October 30, 2024. To conclude our prepared remarks, our first quarter fiscal 2025 financial results are off to a solid start, reflecting records consolidating sales, consolidated sales, expanding gross margin, and planned investments to support expected growth in the second half of the year. We're seeing stable North American trends and robust growth across our global oil and gas and bioplastic markets. We expect these trends to continue. As a result, we believe our fiscal 2025 will be another good year of sales and higher profitability for NTIC, and we're excited by our long-term prospects. With this overview, Patrick and I are happy to take your questions.