Northern Technologies International Corporation

Good morning. 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 and 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 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 turn the call over to Patrick Lynch, CEO. You may begin.

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that a press release regarding our second quarter fiscal 2026 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 fiscal 2026 second 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 second quarter of our fiscal 2026 in comparison to the second quarter of last fiscal year. Our results were in line with expectations as we continued to execute against our long-term growth strategy. Second quarter performance was driven by solid top-line growth across our businesses, including record second quarter zeroest oil and gas net sales with year-over-year growth across all geographies, reflecting the investments we've made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. We have also seen continued strength at NTSC China, despite the seasonal impact of the Lunar New Year, and achieved another solid quarter of NatureTech growth. Overall, second quarter and year-to-date results reflect the resilience of our business model and the increasing value customers place on our corrosion prevention and compostable plastic solutions. While the macro environment, including geopolitical tensions in the Middle East, ongoing supply chain pressures and continued challenges in the European economy has become more uncertain, we remain confident in the direction of our business and the strategies we are executing to drive long-term value. The diversity of our end markets, geographic footprint and product portfolio positions us well to navigate near-term volatility. As we move through the second half of fiscal 2026, we expect continued sales growth and improved profitability, supported by stable trends in North America and ongoing strength in NTC China, Cirrus Oil & Gas, and NatureTech. So, with this overview, let's examine the drivers for the second quarter in more detail. For the second quarter ended February 28, 2026, our total consolidated net sales increased 15.3%, to $22 million, as compared to the second quarter ended February 28, 2025. Broken down by business unit, this included a 72.1% increase in Xeris oil and gas net sales, an 11.2% increase in Xeris industrial net sales, and an 8.1% increase 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 2026 second quarter by our joint ventures increased year over year by 18.6% to $23.5 million, reflecting improved year over year demand across many of our joint ventures. We continue to closely monitor 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 that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany. Improving sales trends continued at our wholly-owned NTIC China subsidiary. The school of 2026 second quarter net sales at NTIC China increased by 18.5% to $4.4 million, demonstrating strong demand in this geography. Furthermore, given that the majority of NTIC China sales are for domestic Chinese consumption, we believe NTIC China's exposure to US tariffs is limited. We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography. Now, moving on to Xerost Oil and Gas. Xerost Oil and Gas sales were $2.7 million. a second quarter record and increased 72.1% from the same period last year. This growth reflects the investments we've made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. A highlight of increasing Xeris oil and gas adoption includes the three-year contract with an estimated total value of approximately $13 million we announced in November 2025 for a major offshore project with a leading global EPC company. We expect this project to ramp throughout the current fiscal year and continue through calendar 2028. This is a significant validation of our engineering capabilities, the scalability of our Xeros oil and gas business, and the reputation we've built as a trusted partner to leading offshore operators. Brazil represents one of the fastest-growing deepwater markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets. During the second quarter, we also experienced higher year-over-year oil and gas sales in the Middle East, North America, India, and China from both new and existing customers. reflecting the contribution of recent investments we've made to enhance our sales team and add resources to support future growth. This has improved our sales pipeline and the size and number of opportunities have expanded. Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. The nature of this industry will always cause certain fluctuations in serious oil and gas sales. Nevertheless, we still expect to see serious oil and gas sales and profitability improve significantly in fiscal 2026 as we continue to leverage these investments and rein in operating expense growth. Turning to our NatureTech bioplastics business. Second quarter nature tech sales were $5.4 million, representing an 8.1% year-over-year increase in nature tech sales. We continue to pursue several larger opportunities in North America and India for our nature tech solutions that we believe hold significant promise to benefit our sales in the coming quarters, including advancing the compostable food packaging solution we mentioned on prior calls. Overall, we believe nature tech is a best in class composable plastic business that is well positioned for significant future growth in the United States and abroad. And we expect sales to continue to expand throughout the year. 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 indirect results of their efforts. With this overview, let me now turn the call over to Matt Wohlfeld to summarize our financial results for the fiscal 2026 second quarter.

Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 15.3% in the fiscal 2026 second quarter, the strongest year-over-year growth rate we've achieved since fiscal 2022 because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures increased 18.6% in the second quarter. Joint venture operating income in the second quarter increased 19.8% compared to the prior fiscal year period, primarily due to higher sales in our joint ventures. Total operating expenses for the fiscal 2026 second quarter increased 7.7% to $9.5 million, primarily due to higher selling and general and administrative expenses, partially offset by a reduction in research and development expenses. Operating expenses as a percentage of second quarter sales were 43.2% compared to 46.2% in the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations. Gross profit as a percentage of net sales was 35.7% during the three months ended February 28, 2026, compared to 35.6% during the prior fiscal year period. Higher gross margin for the second quarter was primarily due to the increase in sales, We expect gross margin to improve sequentially during fiscal 2026. As a reminder, during the second quarter last fiscal year, NTIC recognized $1.1 million in other income due to the receipt of a one-time cash employee retention credit payment. No other income was recognized in this fiscal year's second quarter. NTIC reported a net loss of $35,000, or zero cents per share, for the fiscal 2026 second quarter, compared to a net income of $434,000, or four cents per diluted share, for the fiscal 2025 second quarter. For the fiscal 2026 second quarter, NTIC's non-GAAP adjusted net income was $70,000 or one cent per diluted share compared to a non-GAAP adjusted net loss of $300,000 or loss of three cents per diluted share for the fiscal 2025 second quarter. A reconciliation of GAAP to non-GAAP financial measures is available in our second quarter fiscal 2026 earnings press release that was issued this morning. As of February 28, 2026, working capital was $20.2 million, including $5.6 million in cash and cash equivalents, compared to $20.4 million, including $7.3 million in cash and cash equivalents as of August 31, 2025. As of February 28, 2026, we had outstanding debt of $14.3 million. This included $11.3 million in borrowings under our existing revolving line of credit. compared to $12.2 million as of August 31, 2025. Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2026 and beyond. On February 28, 2026, the company had $29.7 million of investments in joint ventures, of which 51.8% or $15.4 million was in cash, with the remaining balance primarily invested in other working capital. In January 2026, NTIC's Board of Directors declared a quarterly cash dividend of one cent per common share that was payable on February 11, 2026 to stockholders of record on January 28, 2026. To conclude our prepared remarks, we believe our second quarter results demonstrate the continued strength and resilience of our business, led by strong year-over-year sales growth and improving year-to-date profitability. While the macro environment remains uncertain, we are encouraged by the underlying trends across our business and the momentum we are seeing across our operations. As we move through the balance of fiscal 2026, we expect revenue growth to increase, increasingly translate to improved profitability supported by operating leverage, disciplined expense management, and continued focus on working capital efficiencies and debt reduction. We believe these factors position us well to navigate near-term macro uncertainty while driving stronger financial performance and cash flow generation over time. With this overview, Patrick and I are happy to take your questions.