NORTHERN TECHNOLOGIES INTERNATIONAL CORP Q1 FY2025 earnings call

• Top-line results: Consolidated sales reached a record $21.3 million driven by Natur Tec's all-time record sales, stable ZERUST and Xerox industrial sales, and NTIC China's highest sales in nearly three years.
• Gross margin: Achieved year-over-year gross margin growth due to actions addressing inflationary pressures.
• Investments: Invested in expanding oil and gas sales infrastructure to support second half fiscal 2025 growth.
• Joint ventures: Operating income increased 2.7% due to higher sales and net income in joint ventures.
• Natur Tec: Strong sales growth fueled by robust market demand for certified compostable plastics.

For the first quarter ended November 30, 2024, NTIC's total consolidated net sales increased 5.7% to $21.3 million. Natur Tec net sales increased 22.8% year-over-year to $5.9 million (all-time record quarterly sales). ZERUST oil and gas trailing twelve-month sales were $9.2 million, a 20.3% increase from $7.7 million. Xerox industrial net sales increased 0.4%. Total net sales for joint ventures increased 1.2% to $23.8 million. NTIC China's first-quarter net sales increased 8.6% to nearly $4 million, the highest in nearly three years. Revenue contribution: Natur Tec's strong growth was due to robust market demand for certified compostable plastics; ZERUST oil and gas showed growth in trailing twelve-month sales; NTIC China's sales were at a three-year high.

• Fiscal 2025 outlook: Anticipates further sales growth and improved profitability; expects acceleration in sales during third and fourth quarters based on backlog and projects. China sales expected to grow from $14.2 million to over $15 million.
• Oil and gas: Expect growth in third and fourth quarters with projects from previous quarters repeating and growing.
• Natur Tec: Continued strong sales growth is expected.

• Market penetration: ZERUST market penetration is currently less than 1%, and faces competition from traditional solutions.
• Geopolitical/economic uncertainties: Impact on joint ventures in Europe (especially Germany's automotive industry) and potential effects on China sales.
• Seasonality: Second quarter historically weaker, with expected slowdown in China's second quarter.

Q: What percentage of the tank market does ZERUST have?

A: I would say it is not even 1%. I mean, at this point in time, if you look at the amount of tanks that are out there, and what is traditionally used as the solution to protect the infrastructure, we are not even a rounding error yet.

Q: Cost of ZERUST vs traditional solution?

A: Our option is roughly a third of the cost of the traditional solution, which is the cathodic protection.

Q: China sales outlook?

A: Our expectations are that China is going to grow from last year doing $14.2 million to $15 plus million and beyond this year.

Q: R&D excitement?

A: From an R&D standpoint, the blocking and tackling and the work we are doing in Natur Tec is what is exciting from my standpoint. The additional, let's say, the rollout of and seeing kind of the adoption of the technologies in oil and gas and seeing the projects that we are working on there starting to, you know, get put into company's budgets and start as we look at our planning for our third and fourth quarter and beyond, is what kind of gets me excited from an oil and gas standpoint.

Q: ZERUST market stability and growth?

A: Right now, we are looking at more of a stability in the market. But right now, we are still trying to see what is going to happen with the German economy instead. There is going to be some pain with their automotive industry right now.

Q: Europe JV revenue?

A: It really depends on which country you are talking about. I mean, in Finland, we are having a fantastic quarter versus in Germany where they are feeling more pain with the Volkswagen, Audi situation.

Q: Oil and gas sales pipeline and salesperson timeline?

A: With any salesperson we have ever hired in the history of the company, it really takes them about six months to a year to really learn the business and start to be effective. In North America, we are primarily announcing retail sales from existing customers. But, obviously, we are also adding new customers as they are coming along.

Q: China sales breakdown by segment?

A: There is not much in oil and gas, but in terms of the main metric and then the business industry is going to help you out with that. So if I am looking at the historical, you know, China sales, I would say that we are at roughly, you know, you are at about ten percent sales, ten percent of the China sales number is Natur Tec.

Q: Expansion of sales infrastructure?

A: Southeast Asia and the Middle East.