NORTHERN TECHNOLOGIES INTERNATIONAL CORP Q2 FY2025 earnings call

• Financial results: Consolidated net sales down 8.5% to $19.1 million, joint venture operating income down 31.8%, operating expenses up 2.4% to $8.8 million, net income $434,000 vs $1.7 million prior year. Non-GAAP adjusted income was a loss of $300,000.
• Business update: Facing headwinds from trade policies, seasonality, and order timing; expect rebound in Natur-Tec and Zerust Oil and Gas in H2 2025; NTIC China sales up 8.1%; disciplined cash management, including adjusting dividend.
• Strategic priorities: Focus on oil and gas and compostable plastics growth; long-standing leadership team, asset-light model, and strong balance sheet provide flexibility.

For the second quarter ended February 28, 2025, total consolidated net sales decreased 8.5% to $19.1 million compared to the second quarter of 2024. Zerust Oil and Gas net sales decreased 28.5% to $1.5 million. Natur-Tec net sales decreased 11.8% to $5 million. Zerust Industrial net sales decreased 3.7%. Joint venture net sales for the second quarter of 2025 decreased 15.7% to $19.8 million year-over-year. NTIC China's second quarter 2025 net sales increased 8.1% to $3.7 million. Zerust Oil and Gas had trailing 12-month sales of $8.6 million, a 7.2% increase from the prior trailing 12-month period.

• Expect rebound in Natur-Tec and Zerust Oil and Gas sales in H2 2025.
• Disciplined approach to capital allocation, temporarily adjusting quarterly dividend to $0.01 per share.
• Focus on reducing debt through positive operating cash flow and improving working capital efficiencies in remainder of fiscal 2025.

• Impact of U.S. and other countries' tariffs on Natur-Tec sales.
• Continued economic challenges in Europe, particularly in Germany, affecting EXCOR.
• Uncertainty related to U.S. trade and economic policies impacting global supply chains.

Q: Hey, guys. Obviously, a tough environment to do business. Just wanted to ask, I know we're making some pretty big investments on the oil and gas on the sales team. How are those working out? I mean, how many people have we hired or have we changed out any of those people yet or are they all performing the way we expected?

A: Well, it's good a question. Yes. We hired it, I believe, it was eight people. Some of them did not work out, and we had -- and they have left the company since then. We're expecting the impact to start showing in the second half of this year. And other than that, just going ahead full steam.

Q: In terms of the composable, you mentioned that there's some potential deals in that area that could reignite business there. Are those in new areas or what's the dynamic behind those?

A: One of the opportunities is just a large distributor in the United States that we've added, which is going to add a significant business for us. And also, there's a new line of technology in food packaging that we're currently building. I think, the trial results are looking good. And if it works out, it should be a significant opportunity for us.

Q: Could you give a little more color about the second half ramp you're expecting in oil and gas, in terms of applications and maybe some chunky customers ordering?

A: It's going to be, again, the oil storage tank bottoms in pipeline casings, primarily in various geographies around the world. And in terms of lumpy customers, I mean we are working closely with some very large companies that are obviously looking into a number of -- quite a large number of tanks and bottoms and pipeline casings. I'm not exactly sure how many in total, but it should be a decent pickup.

Q: Could you give us some more color on EXCOR and what's happening there and what levers you have to affect change? I appreciate macro is very difficult, but any color on leverage you have to effect change and the outlook for dividends to improve from those joint ventures?

A: You've been mentioning EXCOR Germany specifically. The problem is that the German economy and more broadly, the European economy has been suffering from the fact that -- with the Ukraine crisis, the cost of energy has gone up dramatically in Europe, so much so that certain plants that are high end users, let's say, foundries, steel mills, etc., are not profitable to operate at all. And so a lot of these manufacturing plants are actually shutting down and laying off their workers. And that's an ongoing situation that's not going to change very soon in Germany. So EXCOR, I hope that the decline is going to level off at some point and not to just the future. But for right now, it's going to be more of the same for the foreseeable future.