Northern Technologies International Corporation

quarter 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 that 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 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-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 call over to your speaker today, Patrick Lynch. Please go ahead.

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolfelt, NTIC's CFO. Please note that a press release regarding our third 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 third quarter fiscal 2025 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 third quarter of our fiscal 2025 in comparison to the third quarter of last fiscal year. For the third quarter of fiscal 2025, 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. 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 2026. So with this overview, let's examine the drivers for the third quarter in more detail. For the third quarter ended May 31st, 2025, our total consolidated net sales increased 4.0% to $21.5 million, as compared to the third quarter ended May 31st, 2024. Broken down by business unit, this included a 7.1% increase in Xeris Industrials net sales, partially offset by a 5.3% decrease in Xeris Oil and Gas net sales, and a 1.2% decrease in NatureTech net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2025 third quarter by our joint ventures decreased year-over-year by 12.9% to $2.3 million. 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 U.S. 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 NTIC China subsidiary continue. Fiscal 2025 third quarter net sales at NTIC China increased by 27.4% to $4.5 million, the second highest quarterly revenue NTIC has achieved since we transitioned to a wholly owned subsidiary in fiscal 2015. Recent NTIC China sales demonstrate growing demand in this geography. The majority of current NTIC China sales are for domestic Chinese consumption, and therefore we believe NTIC China's exposure to U.S. tariffs is limited. We expect demand in China will continue to improve in fiscal 2025, helping to support higher incremental sales and profitability in this market.

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