Northern Technologies International Corp (NTIC) 2026 Q1 法說會逐字稿

Hello and welcome to the first-quarter 2026 earnings conference call and webcast.

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 these actual results could differ materially from those stated or implied by the forward-looking statements due to the certain risks and uncertainties, including those described in the 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 call over to Patrick Lynch, President and CEO. Please go ahead.

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 first 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 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 2026 in comparison to the first quarter of last fiscal year.

I'm very pleased that for the first quarter, we were able to deliver record consolidated net sales driven by the strongest year-over-year growth rate we've had since fiscal 2024. Our performance was further augmented by higher sales across key sectors, including ZERUST oil and gas, NTIC China, and North American Natur-Tec sales.

ZERUST oil and gas achieved record first quarter sales, marking the second consecutive quarter with more than $2 million in revenue, demonstrating improving demand from both new and existing customers.

Improving profitability is a top priority for NTIC in fiscal 2026 and we expect to begin to realize the benefits from the strategic investments we made over the past few years towards upgrading our global operations and supporting future growth.

We are also focused on flattening our operating expenses and driving sales in the higher margin segments of our business, which we expect will improve our profitability and strengthen our balance sheet this fiscal year.

Overall, the start of fiscal 2026 is encouraging, and we expect these trends to support anticipated higher year over year of sales and profitability as the year progresses.

So with this overview, let's examine the drivers for the first quarter in more detail. For the first quarter ended November 30, 2025, our total consolidated net sales increased 9.2% to a quarterly record of $23.3 million as compared to the first quarter ended November 30, 2024.

Broken down by business unit, this included a 58.1% increase in ZERUST oil and gas net sales, a 6.9% increase in ZERUST industrial net sales, and a 2.2% increase in Natur-Tec product net sales.

Turning to our joint venture sales which we do not consolidate in our financial statements. Total net sales for the fiscal 2026 first quarter by our joint ventures increased year over year by 2.9% to $24.5 million, reflecting improved demand across many of our joint ventures partially offset by a mid-single-digit decline at our German joint venture.

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. Fiscal 2026 first quarter net sales at NTIC China increased by 23.5% year over year to $4.9 million, demonstrating a strong demand in this geography.

Furthermore, given that the majority of NTIC China's 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 grow and improve in fiscal 2026, helping to support anticipated higher incremental sales and profitability in this market.

We believe that China is on its way to becoming a significant market for our industrial and bioplastic segments, so we plan to continue to take steps to enhance our operations in this geography.

Now moving on to ZERUST oil and gas. First quarter of fiscal 2026 ZERUST oil and gas sales were $2.4 million a first quarter's record and an increase of 58.1% from the same period last year. This growth rate demonstrates the wider adoption of our VCI solutions by new and existing customers across the global oil and gas industry, as well as at our Brazil subsidiary.

As discussed on our prior call in November 2025, we announced that our 85% owned subsidiary, ZERUST Brazil, secured a three-year contract for a major offshore project with a leading global engineering, procurement, and construction or EPC company.

Under this agreement, ZERUST Brazil will be providing advanced corrosion protection solutions for floating, production, storage, and offloading units, or FPSOs, with an estimated total value of approximately $13 million over the next three to four years based on current foreign exchange rates.

We expect this project to ramp up throughout the current fiscal year and continue through calendar 2028. We believe this is a significant validation of our engineering capabilities, the scalability of our ZERUST 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 deep water markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets.

As indicated in prior calls, we have continually invested in our ZERUST oil and gas business to enhance our sales team and add resources to support anticipated future growth. This has improved our ZERUST oil and gas sales pipeline as the size and number of opportunities have expanded among both new and existing customers.

Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. While the nature of this industry will always cause certain fluctuations in our ZERUST oil and gas sales, we still expect to see ZERUST oil and gas sales and profitability improve significantly in fiscal 2026 as we plan to leverage these investments and rein in operating expenses.

Turning to our Natur-Tec bioplastics business, first quarter Natur-Tec sales were a quarterly record of $6 million, representing a 2.2% year over year increase and a 16.5% increase from the fourth quarter, driven primarily by higher sales in North America.

We continue to pursue several larger opportunities in North America and India for our Natur-Tec solutions that we believe hold significant promise to benefit our Natur-Tec sales in the coming quarters, including advancing the composable food packaging solution we mentioned on prior calls.

Overall, we believe Natur-Tec is a best in class compostable plastic business that is well positioned for significant future growth in the US 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 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 2026 first quarter.

Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 9.2% in fiscal 2026 first quarter, driven by the strongest year-over-year growth rate we have achieved since fiscal 2024 because of the trends Patrick reviewed in his prepared remarks.

Sales across our global joint ventures increased 2.9% in the first quarter. Joint venture operating income in the first quarter decreased 5.1% compared to the prior fiscal year period, primarily due to a slight increase in operating expenses at the joint ventures.

Total operating expenses in fiscal 2026 first quarter increased to $9.7 million, a 2.9% increase compared to the prior fiscal year period, primarily due to higher selling and general administrative expenses, partially offset by a reduction in research and development expenses.

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 36% during the first three months, ended November 30, 2025, compared to 38.3% during the prior fiscal year period. Lower gross margin for the first quarter was primarily due to a temporary supplier lead time issue. We expect gross margin to improve sequentially during fiscal 2026.

NTIC reported net income of $238,000 or $0.03 per diluted share for the fiscal 2026 first quarter compared to net income of $561,000 or $0.06 per diluted share for the fiscal 2025 first quarter.

For the fiscal 2026 first quarter, NTIC's non-GAAP adjusted income was $344,000 or $0.04 per diluted share, compared to non-GAAP adjusted net income of $667,000 or $0.07 per diluted share for the fiscal 2025 first quarter.

A reconciliation of GAAP to non-GAAP financial measures are available in our first quarter fiscal year 2026 earnings press release that was issued this morning.

As of November 30, 2025, working capital was $19.4 million including $6.4 million in cash and cash equivalents compared to $20.4 million including $7.3 million in cash and cash equivalents as of August 30, 2025.

As of November 30, 2025, we had outstanding debt of $12 million, including $9.1 million in borrowings under our revolving line of credit. This is down slightly from outstanding debt of $12.2 million as of August 30, 2025. Reducing debt through anticipated positive operating cash flow and improving working capital efficiencies is a strategic focus in fiscal 2026.

On November 30, 2025, the company had $29.3 million of investments in joint ventures, of which, 53.4% or $15.6 million was in cash, with the remaining balance primarily invested in other working capital.

In October 2025, NTIC's Board of Directors declared a quarterly cash dividend of $0.01 per common share that was payable on November 12, 2025, to stockholders of record on October 29, 2025.

To conclude our prepared remarks, we believe our first quarter results demonstrate positive momentum building across many parts of our business. We expect higher year-over-year sales combined with improving gross margins and controlled operating expense growth through the year which we expect to benefit our profitability in fiscal 2026.

We believe we're well positioned for a strong fiscal 2026, and I look forward to sharing the progress we're making in future calls.

With this overview, Patrick and I are happy to take your questions.

[Operator Instructions]

Tim Clarkson, Van Clemens.

Hey, Patrick. Hey, Matt. Great quarter revenues-wise. Earnings, not quite there. But obviously sharply improved from the fourth quarter. So just getting into some of the color, what are some of the levers you guys can do to improve profitability?

I think from an overall profitability standpoint it still kind of comes back to the key fundamentals of driving sales growth which is going to obviously increase gross margin which is going to push money down to the operating profit line.

We certainly have an expectation during the current fiscal year and what you saw from an operating expense standpoint of keeping relatively flat operating expenses and still achieving significant growth.

I think the majority of the growth -- typically, our second quarter is one of our lower quarters. We expect it to be pretty consistent with what we saw in first quarter with a significant amount of growth coming in third and fourth quarter which is pretty historically consistent. So as we see that happen, I would expect the profitability is going to stem from the gross margin dollars that are flowing through the bottom line.

The other key contributor here isn't associated with revenue is the joint venture operating profits and kind of the expectations that we are going to see certain growth from a joint venture level through the remainder of the year as well.

So those should be the key drivers to get us back up to profitability levels that we saw six to eight quarters ago which is kind of what we expect to be towards the end of the year.

Right. Anything you could do on the expense end where you can eliminate some expenses? I know you want to basically keep expenses flat, but are there any opportunities in terms of cost cutting?

There's some opportunities. But there's also -- the main situation that we're up against is that we have made specific strategic investments in the oil and gas business around the world and the Natur-Tec business around the world. And additionally, we've made investments in North America both from a manufacturing investment standpoint and from new CRM system, things like that.

I don't know if it's necessarily a matter of cutting expenses. It's more a matter of letting the revennues catch up to the increases in expenses that we saw over the past two years.

So I think that's ultimately how we're going to get long-term profits. We don't want to cut expenses to potentially increase quarterly profits by a few cents and then ultimately hinder what would be long term growth or the stability that we need and the people that we need for the long term success of the business as we see Natur-Tec and oil and gas ramp up over the coming two, three years.

Sure. Now, are you guys pleased with the work the sales team on the oil and gas hires from last year are doing?

Well, they're starting to put business on the books. I mean, the biggest increase we saw this year obviously was from US-Brazil and that was the one-year contract. The rest is now starting to pick up out of coming out of Dubai where they're getting business out of India and the Middle East. And we hope to see Europe starting to contribute in the coming months.

Okay. Great. I'm done. Thanks.

[Don Hall].

Did I hear my name, Don Hall?

Yes. We're happy to take your question.

Okay. I believe in previous calls you mentioned the oil and gas opportunity in Brazil, plus another couple other major opportunities. Are there still other major ones that you can discuss?

In what business?

I'm sorry, what?

What are you talking about? Oil and gas?

I can't pick you up. It's kind of foggy.

Yes. Oh, you're talking about -- Yeah. Right. Well, I mean, the biggest contract we have in place right now is the one in Brazil. But obviously, we're talking to other oil companies around the world and starting to make inroads. So we expect to see the business growing all over.

All over. Okay. That'll be nice. Good. Thanks.

I'm showing no further questions. I'd now like to hand the call back to Patrick for closing remarks.

Thank you, all, for joining us this morning and have a nice week.

This concludes today's program. Thank you for participating. You may now disconnect.